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[Markets] S&P, Nasdaq close at record highs after reports of U.S-China deal to roll back tariffs All three major U.S. stock benchmarks touched record highs Thursday after reports that the U.S. and China had agreed to terms for a phase-one trade deal that would involve canceling planned tariffs, set to go into effect Dec. 15, and rolling back of existing tariffs on $360 billion in annual imports from China. The Dow Jones Industrial Average rose 221 points, or 0.8%, to close at roughly 28,132, the S&P 500 index ended the day 27 points, or 0.8% higher, at about 3,169 and the Nasdaq Composite index gained 63 points, or 0.7% to close at around 8,717. Those closing levels representing new records for the S&P and Nasdaq, while all three indexes set new intraday highs. President Trump tweeted Thursday, shortly after the start of trade, that the U.S. was getting "very close to a big deal with China," and the statement was followed by a report in the Wall Street Journal that the impending agreement would involve canceling planned Dec. 15th tariffs and rolling back existing tariffs by as much as half, and could involve firm commitments by the Chinese to purchase large quantities of agricultural and other products. The deal will also reportedly address issues related to intellectual property rights and allowing U.S. financial firms to do business in China. Bloomberg News later reported that the deal has been finalized and is awaiting the president's approval. The trade news comes one day after Federal Reserve Chair Jerome Powell signaled that the central bank will likely refrain from raising interest rates absent signs of sustained higher inflation, a move that was also seen as fueling the bullish sentiment on Wall Street. Published:12/12/2019 3:19:07 PM
[Great Britain] The Stakes In Britain (Steven Hayward) As I write we’re not far away from getting the first results of the British election today. I’ve seen stories of long lines to vote and indicators of a heavy turnout. And the British Pound seems to be under pressure today, which might be an ill omen, except that recall the Dow Jones futures plummeted on election night here in 2016, before soaring the next day when people realized that Published:12/12/2019 1:21:01 PM
[Markets] Small Caps Lead Dow Jones, InMode Torched; Time To Sell Lululemon Stock Now? The Dow Jones Industrial Average and the Nasdaq composite have come significantly off intraday highs, but the advance is intact. Lululemon sold off. Published:12/12/2019 11:47:24 AM
[Markets] Dow climbs 150 points on gains in Cisco, JPMorgan Chase shares DOW UPDATE Shares of Cisco and JPMorgan Chase are seeing strong returns Thursday morning, propelling the Dow Jones Industrial Average into positive territory. Shares of Cisco (CSCO) and JPMorgan Chase (JPM) have contributed to the blue-chip gauge's intraday rally, as the Dow (DJIA) is trading 152 points, or 0. Published:12/12/2019 11:16:24 AM
[Markets] Dow Vaults 300 Points To Record High As Stock Market Rallies On New Trump Tweet The Dow Jones Industrial average was sharply higher in early Thursday after President Trump tweeted the U.S. was "very close" to a trade deal with China. Published:12/12/2019 9:45:23 AM
[Markets] Trump Folds: Offers To Cancel New China Tariffs, Will Cut Existing Tariffs By 50% In Exchange For Pledges Trump Folds: Offers To Cancel New China Tariffs, Will Cut Existing Tariffs By 50% In Exchange For Pledges

And just like that, confirming weeks of media speculation, Trump has folded with the Dow Jones/WSJ reporting that not only will Trump not impose the new tariffs set to come into effect on Dec 15, but will cut existing tariffs by up to 50%.

  • U.S. Negotiators Offer to Cut Existing Tariff Rates by up to 50% on $360 Billion of Chinese Imports - Sources
  • U.S. Negotiators Also Offer to Cancel New China Tariffs Set to Take Effect on Dec. 15 - sources
  • U.S. Tariff Offer Made in Recent Days as Both Sides Seek Trade Deal - Sources
  • President Trump will Hold Meeting Thursday to Discuss China Trade - Sources\

But why the flurry of recent rumors and Navarro media appearances? China-watcher Bill Bishop has a credible explanation:

So what does Trump get in return for folding like a cheap chair? Why pledges to buy more agri products, pledges which apparently are not even enforceable as they are merely "firm commitments", in other words taking China for its word:

  • U.S. Asking China For Firm Commitments on Increased U.S. Products - Sources
  • U.S. Would Reimpose Original Tariff Level if China Fails to Carry Out Pledges

In continuation of the move launched by Trump's earlier tweet, stocks have extended their record breaking surge, with the Dow and S&P both now up nearly 1%.

30Y yields are surging, making lives for GSIB facing high year end scores even worse...

.... and the Yuan is soaring by 9 big handles, with the USDCNH down to 6.97.

Just one last thing before everyone gets carried away...

Tyler Durden Thu, 12/12/2019 - 10:09
Published:12/12/2019 9:25:35 AM
[Markets] Stocks have quickly reversed course and are now solidly higher, with Dow up 125 Stocks have quickly reversed course and are now solidly higher, with Dow up 125 Published:12/12/2019 8:45:24 AM
[Markets] Stocks open slightly lower as gloomy trade clouds offset monetary policy boost U.S. stocks edged lower at the opening bell on Thursday a day after the Federal Reserve underlined it would not embark on further interest rate changes for a long time, with investors attributing the slightly bearish sentiment to continued uncertainty around trade policy between Washington and Beijing. The S&P 500 was nearly flat around 3,140. The Dow Jones Industrial Average retreated 34 points, or 0.1%, to 27,877. The Nasdaq Composite fell 0.2% to 8,641. Market participants still remain unsure whether a swathe of tariffs on Chinese goods will take effect on Dec. 15, with President Donald Trump remaining tight-lipped. Along with the Fed, the European Central Bank also stood pat on Christine Lagarde's first meeting. Published:12/12/2019 8:45:24 AM
[Markets] Global Stocks On Verge Of All Time High After Powell Give The All Green Global Stocks On Verge Of All Time High After Powell Give The All Green

It was all systems go this morning, after Fed Chair Powell made it clear that Fed won't be hiking rates for a long, long time, maybe ever, and could potentially expand QE to coupon Treasuries, sending bond yields and the dollar lower, and sparking a rally for global shares which took a fresh run at record highs on Thursday, as the Fed set traders up another news packed day of bank meetings and a Brexit-defining election in Britain, although the rally started to sputter around the time US traders walked in to their desks with US equity futures barely changed.

As expected, on Wednesday the Fed kept U.S. interest rates unchanged, but it was a message that it would take an unexpected and “persistent” rise in inflation to lift them again that inspired bulls and shoved the dollar to its lowest since August. It helped Asian shares rally almost 1%, despite reports Washington will press on with new China tariffs, and solid 0.2%-0.5% gains in Europe early on left MSCI’s broadest index of world shares just 0.1% shy of its January 2018 all-time high.

"The Fed’s accommodative stance does support equities, but the chance of a disruptive election outcome in Britain is very real,” said CMC strategist Michael McCarthy.

S&P 500 futures faded an early gain that pushed the index up briefly as high as 3,150 after the cash index rose for the first time this week in the wake of the Federal Reserve’s final policy gathering of the year. The yield on 10-year Treasuries fluctuated around 1.79% amid bets the bar will be high for any future U.S. rate hikes.

In Europe, the Stoxx Europe 600 Index pared an earlier gain, government bond yields in the region dipped and the euro was little changed before the European Central Bank delivers its decision at 745am in new ECB head Christine Lagarde's inaugural meeting. The Swiss franc fluctuated after Switzerland’s central bank left rates unchanged and reiterated a threat to intervene in currency markets if needed.

Earlier in the session, Asian stocks gained after the Fed signaled it would stay on hold throughout 2020 amid a "solid economy." Markets in the regions were mixed, with Taiwan and South Korea rallying. The Taiex ended 1.2% higher as it extended gains from its highest level since 1990, while South Korea’s Kopsi Index capped its best day since the end of August. India’s S&P BSE Sensex Index rose for a second day. Asia tech shares followed a global chip-stocks rally buoyed by positive comments from analysts at Bank of America and Citigroup

In FX, the Bloomberg Dollar Spot Index was little changed as currencies stayed in tight ranges, including the Swiss franc after the SNB kept interest rates at rock bottom.

Meanwhile, in the UK, sterling was hovering at its highest in more than two years versus the euro and close to an eight-month high versus the dollar as voting began in an election that will determine whether Britain exits the European Union next month. Expectations are that the ruling Conservatives, led by Boris Johnson, will score a majority that allows his Brexit deal to be passed by a new parliament, but the latest polls have shown the lead shrinking. Exit polls for Britain’s election will begin around 2200 GMT, after voting closes, with clarity over whether their will be a clear winner or another hung parliament likely between 0400 GMT and 0600 GMT.

As Reuters notes, following a 10% surge by the pound in the last few months, Traders and investors are now hedging their bets. Union Bancaire Privée’s Global Head of Forex Strategy Peter Kinsella said a Conservative majority remained his expectation, however: “We think a move to levels of around $1.35 or even $1.37 is entirely feasible,” if there is a decent Conservative majority, whereas with another hung parliament “you are definitely back down to $1.26-1.27.” It was last at $1.3107, just shy of its highest since March and close to a May 2017 peak against the euro at 84.32 pence.

The euro was also climbing against the weakened dollar. It rose as far as $1.1144, close to a five-week high before Christine Lagarde's first meeting as President of the European Central Bank. She is almost certain to keep rate rates on hold, but her style and signals will be closely watched by economists, especially with the bank due to update its forecasts and make some changes to its policy framework next year.

Switzerland’s central bank had got up early and already held its rate meeting meanwhile. Negative interest rates remain central to its plans, the SNB’s Chairman Thomas Jordan said as it maintained its ultra-expansive monetary policy. The Swiss franc barely budged.

In summary:

  • The SNB maintained rates at -0.75%, as expected. SNB reiterated their language around the CHF and their willingness to intervene in FX markets. In terms of forecasts 2019 growth has been increased, while the 2020 and 2021 inflaton forecasts have been cut slightly. This was not enough to prompt a significant move in EUR/CHF, as focus for the CHF will be on external factors today namely the ECB and UK General Election; most notably, the SNB maintained their rate projection for the forecast period at -0.75%.
  • The CBRT cut by 200bp to 12.0% vs. Exp. 12.5% (Prev. 14.0%) Maintained their cautious stance and noted the disinflation process in on track, forecast show that inflation is likely to materialise closer to the lower bound of October’s projections. Following the decision the TRY saw some modest strength.
  • Brazil's Central Bank cut the Selic rate by 50bps to 4.50% as expected via unanimous decision and stated the economic recovery is gaining steam but current stage of the cycle warrants caution in its next steps. BCB added it sees two-way risks to inflation and that stimulative policy is still required but noted that data shows the economy has gained traction from Q2 onwards and it assumes recovery will continue at a gradual pace.

It's not just central banks, there were fresh U.S.-China developments to digest too: U.S. President Donald Trump is expected to meet top advisers on Thursday to discuss tariffs on nearly $160 billion of Chinese consumer goods that are scheduled to take effect on Dec. 15, three sources told Reuters. Trump is expected to go ahead with the tariffs, a separate source told Reuters, which could scuttle efforts to end a 17-month long trade dispute between the world’s two-largest economies.

"The fact is the big event risk remains in place, with the world watching to see if the 15% tariffs kick in,” Pepperstone's Chris Weston wrote on Thursday. “What the Fed has delivered is about as much as we could have hoped for in this period.”

In rates, Treasury yields had fallen in reaction to the Fed’s comments, but they rebounded slightly in Asia and Europe. The yield on benchmark 10-year Treasury notes rose to 1.7966%.

In commodities, WTI edged up 0.15% to $58.85 a barrel, while Brent crude rose 0.39% to $63.97 per barrel. A report by OPEC released on Wednesday suggested that oil markets are tighter than previously thought. Traders are also focused on state oil company Saudi Aramco. Its value briefly rose above $2 trillion on Thursday as its shares surged again following its Riyadh stock market debut on Wednesday, however they closed at half their intraday gain, up around 4% and below $2 trillion.

To the day ahead now where datawise this morning we get final November CPI readings in Germany and France and October industrial production for the Euro Area. The ECB and SNB meetings follow, before we get November PPI in the US and the latest initial jobless claims data. Expect plenty of focus on the election in the UK too, especially with the exit polls this evening. Finally, EU leaders are due to gather in Brussels to discuss the EU budget and climate neutrality. Initial jobless claims are among Thursday’s economic data. Scheduled earnings include Oracle, Adobe, Costco and Broadcom.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,148.75
  • STOXX Europe 600 up 0.2% to 407.17
  • MXAP up 0.6% to 166.68
  • MXAPJ up 1% to 534.06
  • Nikkei up 0.1% to 23,424.81
  • Topix down 0.1% to 1,712.83
  • Hang Seng Index up 1.3% to 26,994.14
  • Shanghai Composite down 0.3% to 2,915.70
  • Sensex up 0.6% to 40,649.98
  • Australia S&P/ASX 200 down 0.7% to 6,708.83
  • Kospi up 1.5% to 2,137.35
  • German 10Y yield fell 0.2 bps to -0.323%
  • Euro down 0.03% to $1.1127
  • Italian 10Y yield fell 3.9 bps to 0.858%
  • Spanish 10Y yield unchanged at 0.413%
  • Brent Futures up 0.7% to $64.16/bbl
  • Gold spot down 0.09% to $1,473.52
  • U.S. Dollar Index up 0.04% to 97.16

Top Overnight News from Bloomberg

  • The Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020, keeping it on the sidelines in an election year. Jerome Powell told reporters that the committee might consider widening reserves management-related Treasuries purchases to include short-term coupon-bearing securities, if necessary, to ease liquidity strains in money markets
  • Senate Republicans say there is an early consensus building within their ranks for a short impeachment trial that could see the GOP-led chamber vote on a likely acquittal of President Donald Trump without hearing from any witnesses
  • The pound earlier touched an eight-month high -- the move understates uncertainty about whether U.K. Prime Minister Boris Johnson’s Conservative Party will win a majority in Thursday’s election. Sterling’s overnight implied volatility has soared to the highest since February 2017 as demand for downside protection jumped in Asian trade
  • The Swiss National Bank held interest rates at rock bottom and reiterated its intervention threat, steering a steady course even as its policy comes under increasing public criticism
  • Christine Lagarde finally has the chance to shake off the shadow of her predecessor on Thursday, at her debut press conference as ECB president. She faces a press conference in which she’ll be judged on how convincingly she communicates the institution’s plan to restore price stability
  • Saudi Aramco jumped for a second day, pushing the oil giant’s value beyond the $2 trillion mark that alienated global investors and potentially making further share sales abroad more difficult
  • A major Chinese commodities trader became the biggest dollar bond defaulter among the nation’s state-owned companies in two decades, in a moment of reckoning for Beijing as it struggles to contain credit risk in a weakening economy
  • Israel is headed to its third election in less than a year, an astonishing if foretold development that’s closely intertwined with Benjamin Netanyahu’s legal troubles and may not resolve the political crisis
  • The U.S. sees “deeply troubling indications” that North Korea may be poised to engage in a major provocation, United Nations Ambassador Kelly Craft warned
  • Uncertainty surrounding the U.K.’s general election and Brexit are paralyzing the housing market, according to the Royal Institution of Chartered Surveyors

Asian equity markets were varied for most of the day as ongoing trade uncertainty heading into this week’s tariff deadline and today’s looming risk events slightly dampened the momentum from Wall St where sentiment was mildly underpinned following the FOMC meeting. Nonetheless, ASX 200 (-0.7%) and Nikkei 225 (+0.2%) traded mixed as the former suffered from broad losses across its sectors including underperformance in tech and financials, while the Japanese benchmark was kept afloat by a predominantly weaker currency but with gains also limited by a surprise 4th consecutive contraction in Machinery Orders which represented the longest streak of declines in over a decade. Elsewhere, Hang Seng (+1.3%) outperformed and topped the 27k level with the index led by a surge in Chinese tech names, although sentiment in the mainland was less optimistic with Shanghai Comp. (-0.3%) subdued by the tariff-threat overhang and as participants await statements from China’s Central Economic Work Conference which is expected to finish today. Finally, 10yr JGBs tracked the post-FOMC gains in T-notes and with prices also underpinned following the abysmal Machine Orders data from Japan, despite slightly weaker demand at the enhanced liquidity auction for longer-dated JGBs.

Top Asian News

  • Hong Kong’s Dollar Jumps Into Strong Half of Its Trading Band
  • China to Unveil Plan to Make Macau Finance Hub, Reuters Says
  • Hong Kong Property Stocks Battered by Protests Look Cheap
  • Philippine Central Bank Holds Interest Rate as Growth Rebounds

European bourses trade choppy but tread water in modest positive territory [Eurostoxx 50 +0.3%) ahead of looming risk events (ECB, UK General Election) with FOMC now out of the way. UK’s FTSE 100 modestly outperforms (+0.5%) with banks, and homebuilders supported as election voting gets underway – with exit polls expected around 22:00GMT (Full preview available on the Newsquawk Research Suite). Sectors have shown somewhat of a recovery since the open and now trade mostly in the green vs. a mixed start – defensives retreat whilst cyclicals gain traction. In terms of individual movers, Tullow Oil (+11.8%) continues to pare back from its recent 70% slump with the aid of rising oil prices acting as tailwind. Elsewhere, Balfour Beatty (+4.2%) benefits from its latest trading update which sees FY profit from operations ahead of expectations. Similarly, a positive trading update sees Ocado (+2.5%) supported. Nestle (+0.5%) shares are underpinned by source reports that it is mulling the sale of its ice cream business, which could be valued at USD 4bln. On the flip side, Germany’s Metro (-1.7%) is subdued post-earnings, whilst AB InBev (-1.5%) hovers near the bottom of the Stoxx 600 after Australia competition watchdog ACCC expressed concern about Asahi Group’s proposed purchase of AB InBev’s Carlton & United Breweries unit.

Top European News

  • Nordea Hiring Freeze Includes Wealth Management Unit
  • Latvian Parliament Elects New Head for Scandal-Hit Central Bank
  • Chip Stocks Lead Tech Gains After Strength in Asian, U.S. Peers

In FX, the DXY is clinging to the 97.000 handle amidst broad-based Greenback depreciation in wake of the FOMC that contained enough dovish elements to keep the index depressed, including a muted view of inflation, flat 2020 dot plots and Fed Chair Powell raising the bar for any reversal of the mid-cycle insurance easing. On that note, US PPI data comes hot on the heels of the last 2019 policy meeting and yesterday’s mixed CPI metrics, while initial claims provide the first post-NFP snapshot of the labour market that may not be as tight as the Central Bank previously perceived.

  • CHF/EUR/TRY- All paring gains vs the Buck, with the Franc taking some heed of more NIRP and currency intervention backing from the SNB that is flagging no rate normalisation for the duration of the forecast horizon. Usd/Chf has nudged up to circa 0.9830 from 0.9810 and Eur/Chf is near the top of a 1.0924-48 range even though the Euro has drifted down against the Dollar within 1.1145-25 parameters ahead of the ECB. The single currency may be wary about key technical resistance just above 1.1150 in the form of the 200 DMA (1.1155) rather than any fundamental change in language or policy insight from new head Lagarde, while flow-wise decent option expiry interest between 1.1120-25 and 1.1090-1.1100 (1 bn and 2.2 bn respectively) could be exerting some downside pressure. Meanwhile, the TRY firmed in light of the latest CBTR decision which kept its cautious stance despite a deeper than forecast 200bps cut. Further, the Central Bank noted of signs that inflation is close to materialise close to lower bound of its October projects. USD/TRY breached 5.7800 to the downside to low of 5.7740 (vs. 5.7980 pre-announcement) before stabilising around 5.7800.
  • AUD/GBP/SEK/NOK - The Aussie continues to outperform across the board, as Aud/Usd squeezes higher and through a longer term downtrend to target 0.6900 and Aud/Nzd consolidates around 1.0450 given a more subdued Kiwi vs its US counterpart after losing altitude on the approach to 0.6500, while Sterling is meandering on GE day, with Cable pivoting 1.3200 and Eur/Gbp straddling 0.8430. Note, a hefty 1.1 bn option expiry at the 1.3200 strike may keep the Pound tethered awaiting the vote outcome. Elsewhere, another swing in sentiment for the Scandi Crowns after dismal Swedish jobs data vs a boost in Norwegian oil investment. Eur/Sek nudging 10.4500, Eur/Nok off near 10.1500 highs.

In commodities, a relatively slow session initially for commodities in the aftermath of the FOMC which saw crude future nurse some EIA-induced wounds. WTI and Brent futures saw a very modest pop higher shortly after the release of the IEA Monthly Oil Market report - which aligned itself more with the OPEC report as they both kept global demand growth forecasts unchanged for 2019 and 2020 whilst EIA saw a modest revision higher of 50k BPD to its 2020 forecast. The report also noted that global oil demand rose by 900k BPD in Q3 2019 – highest annual growth in year. WTI and Brent futures meander around session highs above 59/bbl and 64/bbl respectively as the complex eyes awaits its next catalyst(s) and have seen some upside on the recent geopolitical rhetoric out of China. Elsewhere, spot gold is flatlining around USD 1475/oz ahead of its FOMC high of USD 1478.90/oz and on stand-by for upcoming events. Copper meanwhile touched resistance just under USD 2.8/lb amid a strengthening USD and some consolidation following six sessions of consecutive gains. Finally, nickel prices hit their highest in almost two weeks – with touted FOMO the main driver.

US Event Calendar

  • 8:30am: 8:30am: PPI Final Demand YoY, est. 1.3%, prior 1.1%; Final Demand MoM, est. 0.2%, prior 0.4%;
  • 8:30am: PPI Ex Food and Energy YoY, est. 1.7%, prior 1.6%; Ex Food and Energy MoM, est. 0.2%, prior 0.3%;
  • 8:30am: Initial Jobless Claims, est. 214,000, prior 203,000; Continuing Claims, est. 1.68m, prior 1.69m
  • 9:45am: Bloomberg Consumer Comfort, prior 61.7
  • 12pm: Household Change in Net Worth, prior $1.83t

DB's Jim Reid concludes the overnight wrap

Plenty of stuff to get through today. The General Election here in the UK, a wrap-up of the Fed last night and a preview of the ECB meeting.

As for the UK election today, I’ll be voting on the dot at 7am as soon as the polls open to ensure my side goes 1-nil up with only around 35 million more to come in as I try to defend my team’s lead. The first point of call will be the exit polls expected out at 10pm GMT. The results will then filter in over the next few hours after that so we should have a good idea of how things stand in the early hours of tomorrow morning. A reminder that Tuesday night saw the YouGov MRP forecast a much smaller 28 seat majority for the Conservatives versus 68 seats in the previous iteration. While much was made of this, to be fair that better reflects the BritainElects moving average of polls reducing to just below 10pts for a Tory lead versus closer to 12pts the first time the survey was run. The handful of polls over the last 24 hours have generally agreed with this although a SavantaComRes poll last night did show a 5% lead only - the narrowest of this election campaign. This morning Sterling is hovering around $1.322.

Turning to the Fed last night, the main headline was that the FOMC unanimously voted to leave rates unchanged, in line with the market’s expectations following a run of 3 successive 25bp cuts. Indeed, this was actually the first unanimous decision since May. Looking at the statement, the language on the economy was unchanged, with the Fed continuing to say that “the labor market remains strong and that economic activity has been rising at a moderate rate.” In a slightly hawkish lean however, they also removed their comment from the previous meeting’s statement that “uncertainties about this outlook remain.”

Examining the dot plot, the median dot for next year saw policy remaining unchanged, with just 4 members wanting a 25bp increase, while the median dot for 2021 saw a 25bp hike. That said, there was some variation around this, with 5 members seeing no change in policy, 4 with a 25bp increase, 5 with a 50bp increase, and 3 with a 75bp increase from present levels. But notably, not a single FOMC member opted for a cut, signalling that the Fed has finished its period of insurance cuts. In his press conference however, Chair Powell pushed back against any inferences that this meant the Fed now had a tightening bias, saying that “a significant move-up in inflation” was needed in order to support rate hikes.

Our US economists published their full summary of the meeting here. In their view, the most-important conclusion from it was Chair Powell's strong signal of a low-for-longer outlook for the policy rate with rate hikes very unlikely for the foreseeable future. In contrast to the signal from a year ago when normalization was the driving force for the policy outlook, Powell stressed below-target inflation creates challenges, slack remained in the labor market despite a fifty-year low in unemployment, and a "persistent" and "significant" rise in inflation was needed to justify higher policy rates. These signals reinforce our team’s view the Committee is cognizant of the benefits of a hot labor market and is therefore likely to adopt an inflation makeup strategy as a result of the policy review. As Powell made clear, this change will require a credible commitment to be successful.

Markets were buoyed following the decision and press conference, with the S&P 500 advancing +0.29%, while the DOW and NASDAQ finished +0.11% and +0.44%. The trade-sensitive Philadelphia semiconductor index had its best session in over two weeks, closing up +2.23%. Sovereign debt also rallied a couple of bps following the decision, with 10y treasuries ending the session -5bps at 1.791%, with the 2s10s curve flattening -1.6bps. The dollar didn’t perform so well however, down -0.33% against the euro with the move lower largely post-FOMC. Elsewhere Gold performed strongly to end +0.72%,

This morning in Asia, with the exception of the Shanghai Comp which is down -0.12%, that post FOMC momentum has continued for the most part with the Kospi (+1.35%) and Hang Seng (+1.18%) leading the way followed by the Nikkei (+0.24%). Futures on the S&P 500 are also up slightly.

Moving on. With the Fed out of the way it’s the turn of the ECB today and while we’re not expecting any big announcements, given that its Lagarde’s first as the new ECB President, expect there to be plenty of focus. In their preview note our economists highlighted that staff forecasts for GDP growth, headline inflation and core inflation are likely to be stable for the first time since the exit from the APP was announced in mid-2018. The Council will likely remain cautious and view the balance of risks as still tilted to the downside. The accommodative policy stance will remain appropriate. However, Lagarde is likely to oversee one immediate change. That is, they expect the willingness to use “all instruments” to be conditioned on an assessment of the possible side effects of policy. All eyes on that this afternoon then. On a related topic our European economists put a piece out yesterday suggesting why the ECB pain trade cannot persist with regards to monetary policy and bank performance (link). Eventually they expect financial profitability will influence policy. Lagarde’s sensitivity to “side effects” is the signal and the coming ECB strategic review is the opportunity. Absent other changes (e.g. strong fee generation), the reversal of negative policy rates to counteract the side effects cannot be ruled out over time.

Back to yesterday, where the data highlight was the November CPI report in the US. The headline reading of +0.3% mom was a tenth ahead of expectations however the core reading of +0.2% mom (+0.23% unrounded) was in-line which left the year-over-year rate at +2.3% yoy. Later on the November monthly budget statement saw the deficit widen to $208.8bn (vs. $206.2bn expected).

There was no substantive data out in Europe yesterday, with newsflow also fairly light. The EU outlined its plan to become climate-neutral by 2050 while French President Macron finished his awaited clarification on pension reform proposals in which he signalled the dropping of aiming to pursue spending cuts in the short run. For completeness European stocks were a touch firmer yesterday with the STOXX 600 closing +0.22%. European bond markets were also slightly stronger with bunds -2.6bps

To the day ahead now where datawise this morning we get final November CPI readings in Germany and France and October industrial production for the Euro Area. The ECB and SNB meetings follow, before we get November PPI in the US and the latest initial jobless claims data. Expect plenty of focus on the election in the UK too, especially with the exit polls this evening. Finally, EU leaders are due to gather in Brussels to discuss the EU budget and climate neutrality.

Tyler Durden Thu, 12/12/2019 - 07:43
Published:12/12/2019 6:45:14 AM
[Markets] US STOCKS-Dow falls as Boeing, Home Depot weigh; S&P 500, Nasdaq cling to gains The Dow Jones index was pressured by losses in Boeing and Home Depot on Wednesday, while the S&P 500 and the Nasdaq held on to gains as traders awaited the Federal Reserve's December policy statement for clues on the strength of the domestic economy. The U.S. central bank is widely expected to keep borrowing costs steady in its policy announcement, due at 2:00 p.m. ET (1900 GMT). Published:12/11/2019 11:09:37 AM
[Markets] Apple stock price target raised by BofA Merrill on high hopes for 5G Apple Inc. is expected to enjoy a smoother iPhone cycle than usual from 2020 to 2022 as 5G is expected to drive three years of 200 million-plus units, BofA Merrill Lynch said Wednesday. Analysts led by Wamsi Mohan raised their stock price target to $290 from $270, and said they expect lower-cost wearables to further support sales, citing as examples $169 AirPods and a $200 Apple Watch. "Multi-year iPhone visibility and stability, combined with continued double-digit Services revenue growth, should drive the multiple higher, in our opinion," the analysts wrote in a note, reiterating their buy rating on the stock. Earlier, Evercore analysts raised their Apple stock price target to $305 from $275. Shares were up 0.6% and have gained 71% in 2019, while the S&P 500 has gained 25% and the Dow Jones Industrial Average has gained 20%. Published:12/11/2019 10:39:40 AM
[Markets] Boeing, Home Depot share losses lead Dow's 75-point fall DOW UPDATE Shares of Boeing and Home Depot are retreating Wednesday morning, dragging the Dow Jones Industrial Average into negative territory. Shares of Boeing (BA) and Home Depot (HD) have contributed to the index's intraday decline, as the Dow (DJIA) was most recently trading 77 points lower (-0. Published:12/11/2019 10:09:19 AM
[World] Lagarde’s first ECB meeting is coming — here’s what to expect Even without interest-rate changes, the first meeting of the Christine Lagarde era will be closely watched for clues as to how it will differ from that of her predecessor, Mario Draghi, who never once lifted interest rates.
Published:12/11/2019 9:41:50 AM
[Markets] Apple stock price target raised by Evercore on expected return to growth in fiscal 2020 Apple Inc. will return to growth in fiscal 2020 and beat earnings estimates for the December quarter following a robust holiday season for AirPods Pro and iPhone 11, Evercore said Wednesday, as it raised its stock price target to $305 from $275. That puts the target in the top tier of analysts on FactSet, where just six of 36 analysts have a target of $300 or higher. Adobe estimates that AirPods were top seller on Black Friday, while Bloomberg has separated reported that AirPods Pro demand exceeded expectations, analysts led by Amit Daryanani wrote in a note to clients. Evercore rates Apple as outperform. "In addition, the iPhone 11 will outperform relatively low expectations as the lower price has been particularly well received in China," said the note. "Also, we think the uptick in carrier promotions could bolster performance in Americas." Looking ahead to next year, Evercore is expecting revenue to grow about 6% as strength in wearables and services offsets declining revenue in other product lines. Apple shares were up 0.8% Wednesday and have gained 72% in 2019, while the S&P 500 has gained 25% and the Dow Jones Industrial Average , which counts Apple as a member, has gained 20%. Published:12/11/2019 9:09:09 AM
[Markets] The Dow has reversed course and stocks are now higher across the board The Dow has reversed course and stocks are now higher across the board Published:12/11/2019 9:09:09 AM
[Markets] Dow falls at opening bell as stocks struggle ahead of Fed meeting Dow falls at opening bell as stocks struggle ahead of Fed meeting Published:12/11/2019 8:39:57 AM
[Markets] Dow Jones Today Dips On Home Depot Outlook, Tesla Up; Caterpillar's Buy Range Tesla and Photronics were early leaders Wednesday, while Home Depot held back the Dow Jones as markets awaited rate policy news from the Fed. Published:12/11/2019 7:39:03 AM
[Markets] Boeing Slides After FAA Chief Says 737 MAX Won't Return This Year Boeing Slides After FAA Chief Says 737 MAX Won't Return This Year

Exactly one month ago, Boeing stock soared despite the company's dismal earnings because it claimed that 737 MAX deliveries "could" resume in December. We mocked the headfake at the time for the simple reason that not only was the MAX not coming back this year, but it may well never come back now that Boeing has seen its consumer faith crushed after it emerged it had put the bottom line above passenger safety.

Well, moments ago the Dow Jones Index dipped, when Boeing stock - by far its most influential member - slumped 1% after FAA Administrator Stephen Dickson told CNBC that Boeing‘s timeline isn’t FAA’s timeline, and that the MAX' certification would extend in 2020, meaning the plane would not return to operation this year.

Predictably, BA stock slumped even if the move was far less than its surge on Nov 11 on the now refuted rumor the MAX would come back.

There's a reason for the FAA's caution: earlier today the WSJ reported that U.S. regulators decided to allow the 737 MAX jet to keep flying after its first fatal crash last fall, despite their own analysis "indicating it could become one of the most accident-prone airliners in decades without design changes."

The November 2018 internal Federal Aviation Administration analysis, expected to be released during a House committee hearing Wednesday, reveals that without agency intervention, the MAX could have averaged one fatal crash about every two or three years, according to industry officials and regulators. That amounts to a substantially greater safety risk than either Boeing Co. or the agency indicated publicly at the time.

The assessment and related materials raise new questions about the FAA's decision-making in the wake of the Lion Air crash in Indonesia, along with what turned out to be faulty agency assumptions on ways to alleviate hazards.

The FAA's intervention proved inadequate after a second fatal MAX crash, this time in Ethiopia, put the global fleet on the ground and sparked an international controversy over the agency's safety oversight.

And as public outrage is sure to return at both the FAA and Boeing, one can forget about the 737 MAX return to operation any time soon, and perhaps, any time ever.

Tyler Durden Wed, 12/11/2019 - 08:26
Published:12/11/2019 7:39:03 AM
[Markets] "Markets Have Not Priced In Any Bad News": Futures Frozen As Barage Of Risk Events Looms "Markets Have Not Priced In Any Bad News": Futures Frozen As Barage Of Risk Events Looms

US futures are trading flat and European shares fell as the looming China tariff deadline was one day closer and still without resolution, while traders awaited the Fed's policy announcement today at 2pm. The MSCI world equity index eked out a small gain after Asian shares advanced earlier.

Market sentiment was dented on Tuesday evening and the Yuan slumped after Trump Trade Adviser Peter Navarro said he "got no indication" that the U.S. would postpone new tariffs on Chinese goods that are due to take effect on Dec. 15. Navarro’s comments conflicted with reports from the WSJ and Bloomberg that cited people familiar with the trade talks as saying Chinese officials expect President Donald Trump to delay the hike to allow more time for the reaching of an interim deal.

Amid the last minute verbal brinkmanship, China's nationalist tabloid Global Times, tweeted that "The US' brinksmanship in using tariffs as leverage to force #China into giving more ground in #tradetalks will not succeed; Instead, it could prompt a new round of tit-for-tat tariff fights, darkening an already pressured global economy and sparking global stock selloff." However, it failed to impact risk assets.

The White House’s top economic and trade advisers are expected to meet in coming days with Trump over the decision, as the U.S. President now has only days to decide whether to impose tariffs on nearly $160 billion in Chinese goods.

Investors said an initial trade deal was still likely, since it would benefit both Washington and Beijing. “We still believe that the phase-one deal is something that is convenient for both the presidents on the political and economic side,” Alessia Berardi, senior economist at Amundi. “If the tariffs will be implemented it will be a disaster in the short term.”

Amid the uncertainty over trade - the overriding focus for investors through the year - the European Stoxx 600 index fell, then recovered modestly, dragged down by real estate shares, while Asia stocks were mostly higher after White House adviser Peter Navarro said he had no indication that President Donald Trump will do “anything other than have a great deal or put the tariffs on.”

Earlier in the session, Asian stocks advanced, led by utility companies, as investors looked for signals of a possible initial trade deal between China and the U.S. Markets in the region were mixed, with Hong Kong leading gains and Japan retreating. MSCI’s index of Asia-Pacific ex-Japan had earlier risen 0.5%. Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 led gains with 0.7% rises.  The Topix slid for a second day, dragged down by Keyence and Hitachi. The Shanghai Composite Index closed higher for a fifth day of gains, with large banks and insurers among the biggest boosts. China’s top leadership may set the target for economic growth at about 6% for 2020 as they meet this week for their annual policy conclave. India’s Sensex edged up, supported by Housing Development Finance and Kotak Mahindra Bank, as a credit crisis appears to be easing for some borrowers. Indian bonds declined as S&P Global Ratings warned it may lower the nation’s sovereign ratings if economic growth doesn’t recover.

In the Middle East, Saudi Aramco shares surged by a 10% limit above their IPO price in their first day of trading. That gave the extremely illiquid state-controlled oil company a market value of about $1.88 trillion, making it the world’s most valuable listed company.

In addition to trade, investors will be focused on meetings by major central banks starting with the Fed which at its policy meeting later today is widely expected to hold rates steady, with investors watching for changes to its view on the economy and its 2% growth forecast for next year. The Fed’s statement is due at 2pm ET. A surprise when U.S. inflation data are released at 830am would further reduce chances for rate cuts next year.

Then on Thursday, the ECB will hold its first meeting and news conference with Christine Lagarde. “Everything is positioned for the two major central banks to stay accommodative,” Berardi said.

"The markets have become numb to the noise” on trade, Allianz portfolio manager Burns McKinney told Bloomberg TV. "The FOMC meeting, the election in the U.K. and then later this week the December 15 deadline are all factors that I think the markets have generally not priced in any bad news."

The British pound, a high-flier of late, dropped from a seven-month peak after an opinion poll projected a narrower-than-expected victory for the Conservative party in the British election on Thursday. The election is set to decide how the UK will leave the European Union, if at all. The pound fell as low as $1.3107 after a YouGov poll showed the ruling Conservatives heading towards a slimmer majority than was forecast a fortnight ago. YouGov’s research director said the results showed a hung parliament was possible.

Sterling later recovered some of its losses after dropping 1% from its high on Tuesday, when investors were more confident of a Conservative victory that they expect will end uncertainty over Britain’s exit from the EU. It was last trading flat at $1.3151.

Elsewhere, the Bloomberg Dollar Spot Index edged higher, rising for the first time in three days, ahead of the Federal Reserve’s policy decision. The krona rose versus all major peers and reached a seven-month high against the euro after Sweden’s November inflation print beat estimates and all but guaranteed that the Riksbank will make history next week, as policy makers look set to end half a decade of negative interest rates. The euro was last down 0.8% against the crown at 10.454, leaving the Swedish currency at its strongest since late April.

The yuan weakened after Navarro said he “got no indication” that the U.S. would postpone new tariffs on Chinese goods that are due to take effect on Dec. 15. The Chinese currency declined as much as 0.17% in the offshore market on Wednesday and weakened up to 0.10% onshore. Stephen Chiu, Asia FX and rates strategist at Bloomberg Intelligence, expects the impact of trade war developments on the yuan to diminish as investors get used to twists and turns around the negotiations. "Even if there is no delay in tariff increase, I don’t think the yuan will rise too much. It should be capped at 7.1 per dollar."

In commodities, Brent futures fell by 52 cents, or 0.8%, to $63.82 per barrel by late morning, after industry data showed an unexpected build-up in crude inventories in the United States.

Looking at the day ahead, the focus will clearly be on the aforementioned Fed meeting this evening. There is also important data with the November CPI report due out in the US just after lunch, while the November monthly budget statement is also scheduled for tonight. There is no data of note in Europe today. Elsewhere, OPEC is due to issue its monthly oil market report.

Market Snapshot

  • S&P 500 futures down 0.1% to 3,132.75
  • STOXX Europe 600 down 0.2% to 404.38
  • MXAP up 0.3% to 165.50
  • MXAPJ up 0.6% to 527.88
  • Nikkei down 0.08% to 23,391.86
  • Topix down 0.3% to 1,714.95
  • Hang Seng Index up 0.8% to 26,645.43
  • Shanghai Composite up 0.2% to 2,924.42
  • Sensex up 0.2% to 40,321.80
  • Australia S&P/ASX 200 up 0.7% to 6,752.64
  • Kospi up 0.4% to 2,105.62
  • German 10Y yield fell 1.4 bps to -0.309%
  • Euro down 0.05% to $1.1086
  • Brent Futures down 0.4% to $64.06/bbl
  • Gold spot up 0.2% to $1,466.61
  • U.S. Dollar Index up 0.09% to 97.50
  • Italian 10Y yield fell 3.2 bps to 0.897%
  • Spanish 10Y yield fell 2.4 bps to 0.437%

Top Overnight News

  • While Jerome Powell is expected to reinforce the signal that policy is on hold at the central bank’s meeting on Wednesday, some of his colleagues may be looking ahead to when they should hike again
  • Boris Johnson and Jeremy Corbyn embark on a whistle- stop tour of key districts, after a hotly anticipated opinion poll showed the Conservative Party’s lead has narrowed ahead of Thursday’s U.K. election. The YouGov survey of more than 100,000 voters suggested Johnson would win a majority of 28 seats, down from 68 estimated two weeks earlier
  • The unprecedented level of calm pervading global currencies is pushing investors to rethink their approach to the FX market. Morgan Stanley Investment Management has pared its foreign-exchange exposure, and Russell Investments Ltd. is focusing on value, and is forsaking major currencies in favor of those from developing economies
  • Those close to EU chiefs privately acknowledge that a strong Johnson victory on Dec. 12 will mean the U.K.’s long-drawn-out departure from the European Union will finally happen, according to more than half a dozen EU officials speaking on condition of anonymity because the issue is delicate
  • The Tories will win 339 of the 650 seats in the House of Commons, Labour 231, the Scottish National Party 41, and the Liberal Democrats 15, according to a YouGov forecast on Tuesday
  • Chinese officials expect President Donald Trump to delay a threatened tariff increase set for Sunday, giving more time to negotiate an interim trade deal. However, late Tuesday, White House Trade Adviser Peter Navarro said he had no evidence that tariffs set to take effect on Dec. 15 won’t take effect
  • Bank of Japan officials see a sizable impact from stimulus measures launched by Prime Minister Shinzo Abe last week, raising the likelihood that the central bank will upgrade its economic forecasts for the first time in a year next month, according to people familiar with the matter
  • House Democrats embraced the U.S.-Mexico-Canada trade agreement after securing key revisions and announced plans to vote on the deal next week, putting Trump closer to a political win as he heads into the 2020 election
  • New Zealand’s government will increase spending on infrastructure in an effort to boost economic growth, resulting in a budget deficit this year and smaller surpluses thereafter
  • Oil retreated from its highest close in almost three months after an industry report showed American crude inventories expanded last week, adding to concerns over weakening demand
  • House Democrats delivered two tightly crafted articles of impeachment against Trump on Tuesday that urged his removal as president for abusing the power of his office and keeping Congress from exercising its duty as a check on the executive branch

A non-committal tone persisted across Asia-Pac equity markets following conflicting US-China tariff reports and as this week’s risk events drew closer beginning with the FOMC meeting due later today. The latest trade headlines have been varied as initial reports suggested that US and Chinese officials are planning for a delay of December 15th tariffs as they negotiate on agricultural purchases, although President Trump was said to remain undecided and both NEC Director Kudlow and White House Trade Advisor Navarro have leaned back from the notion of a tariff postponement. This has resulted to mixed trade for ASX 200 (+0.7%) and Nikkei 225 (U/C) with Australia lifted by outperformance in the defensive sectors and price action in Tokyo kept to within a tight range as sentiment among large firms deteriorated to a 3-year low, while Hang Seng (+0.7%) and Shanghai Comp. (+0.2%) were predominantly indecisive on the differing trade signals, with stronger than expected Chinese financing and lending data doing little to spur upside as participants also contemplated over continued PBoC liquidity inaction and regional growth downgrades from ADB which forecasts growth for the world’s 2nd largest economy to slip below 6% next year. Finally, 10yr JGBs saw a resumption of the recent declines following similar pressure in T-notes, while demand was also subdued by a lack of BoJ buying with the central bank only in the market today for treasury discount bills.

Top Asian News

  • BOJ Is Said to Expect Sizable Impact From Abe’s Economic Package
  • China’s Experimental Cancer Cure Offers Hope and Hidden Dangers
  • Jitters Over China’s Local Defaults Start to Spread Offshore
  • Investors Seen Flocking to TSMC Over Samsung for Reliable Payout

A choppy session for European equities thus far [Eurostoxx 50 -0.2%] following on from a lacklustre APAC session heading into key macro risk events. Broad-based losses are seen across the board, albeit the FTSE 100 (-0.2%) is largely moving in tandem with the Pound ahead of tomorrow’s UK general election and after the latest MRP polling from YouGov. Sectors are mixed with Utilities propped up in part by Germany’s E.ON (+1.6%) and RWE (+0.7%) amid source reports that Germany will allow the companies to keep their existing carbon emissions certificates due to coal unit shutdowns. That said, the sector’s defensive nature could also be providing some support. Meanwhile, the IT sector is underperforms, potentially on trade jitters amid conflicting reports and rhetoric from both the US and China sides. In terms of individual movers – JD Sports Fashion (-8.7%) shares tumbled at the open after its top shareholder cut its stake in the company but retained his position as major shareholder. Credit Suisse (-0.5%) remains modestly pressured after it revised down its 2020 ROTE guidance to around 10% vs. Prev. 10-11%. On the flipside, Tullow Oil (+5.6%) continues to nurse its wounds following its recent 70% slump, whilst Inditex (+2.7%) is buoyed post-earnings, which showed an YY gains in net profit, net sales, EBITDA and gross profits.

Top European News

  • BVB Shares Jump, Ajax Tanks Following Champions League Drama
  • As Just Eat Battle Rages On, Prosus Wins Amsterdam Sideshow
  • Swedish Inflation Data ‘Cements’ Bets That Rate Hike Is Coming
  • Europe Readies World’s Cleanest Revamp of Economy in Green Deal

In FX,  Not quite polar opposites, but contrasting fortunes for the Swedish Krona and Sterling in wake of inflation data and the final pre-UK election poll from YouGov, as the former eclipsed market expectations and matched Riksbank forecasts to effectively seal a repo rate hike next week. However, the MRP survey implies a much tighter result this Thursday than the previous findings, with a projected Tory majority of 28 seats vs 68 seats around the end of November and even that prediction subject to the usual margins of error. In response, Eur/Sek has recoiled sharply to test 10.4500 support vs highs close to 10.5400 and 10.5800+ on Tuesday, while Cable has pulled back from just over 1.3200 to circa 1.3140 after probing bids ahead of 1.3100 and Eur/Gbp bounced through 0.8450 at one stage before fading.

  • AUD/NZD - A similar story down under where the tables have turned somewhat on the back of a reversal in cross flows following the latest NZ Half Year Fiscal update revealing a bigger cash balance shortfall and fresh Nzd12 bn budget allocation for infrastructure. Nzd/Usd has lost momentum after a knee-jerk rally to around 0.6555 and Aud/Nzd rebounded from sub-1.0400 towards 1.0450 to help Aud/Usd maintain 0.6800+ status even though RBC joined the chorus for more RBA easing and QE.
  • JPY/CAD/CHF/EUR - All narrowly mixed against the Greenback as the DXY continues to straddle the 97.500 level in relatively muted/nervy trade awaiting the FOMC, with the Yen meandering between 108.67-84 parameters, Loonie trapped in a 1.3227-39 range and Franc pivoting 0.9850. Elsewhere, the Euro is still looking heavy or toppy into 1.1100 and perhaps conscious that a hefty 1.6 bn option expiries reside from the big figure to 1.1110, not to mention the fact that tomorrow is ECB (and SNB) day.
  • EM - Divergence also a theme in terms of Rand outperformance compared to Lira underperformance, as Usd/Zar pares back from almost 14.8200 in wake of in line/softer than previous SA CPI on less Eskom load-shedding before attention turns to retail sales data, but Usd/Try hovers around 5.8000 due to renewed US-Turkey sanctions and diplomatic tension rather than a slightely narrower than anticipated current account surplus.

In commodities, mixed trade in the commodities complex with WTI and Brent futures retreating from 12-week highs following last night’s weekly API figures – with crude headline printing a surprise build of 1.41mln barrels vs. expected draw of 2.8mln. Further, the internals came in mostly bearish with distillates and gasoline showing higher-than-forecast builds whilst Cushing printed a deeper-than-expected draw. Traders will be waiting for confirmation from the EIA later today. Meanwhile OPEC’s monthly report (to be released at 13:00GMT) may garner some attention given the EIA STEO left its global oil demand forecast unchanged and included a downward revision to their 2020 US oil supply growth forecast. ING is not surprised by the downward revision given the slowdown seen in US rig activity. In terms of a more macro picture, crude markets will be vulnerable to any US-China headlines amid the contradicting reports regarding tariffs due to be implemented this Sunday. Aside from that, the FOMC’s latest monetary policy decision later could provide the complex with some sentiment-driven action. Today also marked the first trading session for Saudi Aramco, whose shares opened at SAR 35.2 vs. and IPO price of SAR 32.0, hitting limit up after rising 10% and surpassing its earlier valuation of USD 1.7tln. Looking at metals, spot gold prices remain supported ahead of the aforementioned events, with the yellow metal surpassing its 21DMA (USD 1465.50/oz) with eyes on yesterday’s high at USD 1469.15/oz. Copper prices continue to rise and have topped 2.75/lb with its 100 DMA residing around 2.8060/lb. Finally, nickel prices came under pressure in early APAC trade after inventories spiked 21% YY, the largest increase since 2008, but despite this the metal reversed course with the only pertinent news being Indonesia doubling royalties for the ore to 10% - making it more expensive for buyers, thus some front-loading effects may have been priced in.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -9.2%
  • 8:30am: US CPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%; CPI Ex Food and Energy YoY, est. 2.3%, prior 2.3%
  • 8:30am: US CPI MoM, est. 0.2%, prior 0.4%; CPI YoY, est. 2.0%, prior 1.8%;
  • 8:30am: Real Avg Weekly Earnings YoY, prior 0.95%; Real Avg Hourly Earning YoY, prior 1.2%
  • 2pm: FOMC Rate Decision (Upper Bound), est. 1.75%, prior 1.75%
  • 2pm: Monthly Budget Statement, est. $206.2b deficit, prior $100.5b deficit

DB's Jim Reid concludes the overnight wrap

Markets are focused on navigating the last couple of weeks of 2019 for now with the next hurdle being the FOMC meeting tonight although in fairness it’s probably hard to get too excited given that the Fed is firmly on hold for now with the recent data helping to underscore that position. Markets have priced that in and the view from our economists is that the meeting statement should largely mirror the communique from the last meeting.

We will also get the latest summary of economic projections although our colleagues also expect only very modest changes, most notably downgrades to the median views on inflation and long-run unemployment. The dot plots should also adjust 25bps lower to account for the rate cut in October and still show an upward drift over time to a neutral level that is somewhat lower. That leaves Powell’s press conference which our team believe will echo recent remarks, which indicate that the Committee sees policy in a good place barring a "material reassessment" to the outlook. In this context, the team expect the Chair's comments to reflect his implicit message from October that, while the bar to cutting rates is high, the bar for hiking is even higher.

A reminder that the meeting outcome will be at 7pm GMT/2pm EST, while prior to that we’re also expecting the November CPI report in the US where the consensus expects a +0.2% mom core reading. Back to markets where the main story yesterday was the WSJ reporting that US and China negotiators are planning for a delay of tariffs due to kick in from this Sunday. In fairness this did appear to be what markets had expected even if there were one or two doubts in recent weeks with the story also suggesting that Chinese and US officials “don’t have a hard deadline”. However to add some confusion to the picture, the White House’s Kudlow said later on that the December 15th tariffs are “still on the table” and overnight Commerce Secretary Ross has said that he has “no indication” that the President will do anything other than “have a great deal or put the tariffs on”.

The mixed messages resulted in a bit of a directionless session for US equities with the S&P 500 ebbing between gains and losses before ultimately finishing -0.11% on lower than average volumes. The NASDAQ and DOW closed -0.07% and -0.10% respectively while the VIX ended just below 16. Prior to this in Europe the STOXX 600 had closed -0.26% albeit off the lows for the session. Bond markets weren’t much more exciting with 10y Treasury yields up +2.3bps and yields in Europe up a similar amount. The exception were BTPs which ended -3.4bps lower.

The picture isn’t a whole lot clearer in Asia this morning. We’ve seen small gains for the Hang Seng (+0.33%) and Kospi (+0.34%) offset by a mixed performance for bourses in China (Shanghai Comp +0.12%), CSI 300 -0.04%) and a small loss for the Nikkei (-0.18%) We should note that after we went to print yesterday November credit data in China was broadly better than expected which combined with the recent bounce in PMIs should be supportive for the growth narrative.

Also out last night was the last YouGov MRP survey with the results showing the Conservatives to win 339 seats and therefore giving a majority of 28 seats, versus 231 for Labour. The previous iteration of the poll showed the Conservatives with a lead of 68 seats so the forecasted lead has been cut in half which makes things a little more interesting ahead of the vote tomorrow. Sterling dropped as much as -0.81% after the poll was released although has recovered slightly as we go to print to trade at $1.314.

The other news yesterday was mostly political. As expected the US, Canada and Mexico all agreed to sign the USMCA with House Ways and Means Panel Chairman Neal saying that it is likely that the pact will be voted on next week. Meanwhile in the US the Democrats announced two articles of impeachment against President Trump on abuse of power and obstruction. Both of those developments caused barely a ripple in markets.

As far as the data was concerned yesterday, the highlight in Europe was an improving ZEW survey in Germany. Indeed the December current situation component improved 4.8pts to -19.9 which bettered expectations for -22.0. That matches the September level while the expectations component improved a more notable 12.8pts to +10.7 (vs. +0.3 expected) which puts it back at the highest level since February 2018.

The hard data was a bit more mixed though with October industrial production surprising to the upside in France (+0.4% mom vs. +0.2% expected) but to the downside in Italy (-0.3% mom vs. -0.2% expected). In the UK the data also disappointed (+0.1% mom vs. +0.2% expected) while the October monthly GDP print of 0.0% was also weaker than expected (+0.1% mom expected). Adding to the pain for the UK was the much wider than expected trade deficit, albeit likely impacted by stockpiling.

Finally in the US the final Q3 readings for nonfarm productivity and unit labour costs were both revised down, to -0.2% qoq (from -0.1%) and +2.5% qoq (from +3.4%) respectively. The latter had been sending a firmer inflation message ahead so the downward revision falls closer in line with more muted inflation indicators from other leading indicators.

Finally to the day ahead, where the focus will clearly be on the aforementioned Fed meeting this evening. There is also important data with the November CPI report due out in the US just after lunch, while the November monthly budget statement is also scheduled for tonight. There is no data of note in Europe today. Elsewhere, OPEC is due to issue its monthly oil market report.

Tyler Durden Wed, 12/11/2019 - 08:00
Published:12/11/2019 7:09:09 AM
[Markets] Yuan Tumbles After Navarro Warns "No Indication That Tariffs Will Be Delayed" Yuan Tumbles After Navarro Warns "No Indication That Tariffs Will Be Delayed"

While US equity futures have barely dipped, offshore yuan has tumbled - erasing the earlier optimistic spike - after White House Trade Advisor Peter Navarro told Fox News that he has "no indication that December tariffs will not be put on."

Additionally Navarro said that China "was trying to shape the narrative on trade talks to affect the futures market," and that is up to the Chinese if a trade deal can get done.

Yuan erased all of the gains from China's comments this morning...

Source: Bloomberg

And while Yuan plunged, Dow futs dropped only 30 points (for now)...

 

Tyler Durden Tue, 12/10/2019 - 19:52
Published:12/10/2019 7:06:15 PM
[Markets] Dow Jones Futures: Stock Market Rally Seeks Direction, But These 5 Giants Are True Leaders Dow futures: The stock market still seeks China trade clarity, but Apple, AMD, Google, Microsoft and Target are acting like true leaders. Published:12/10/2019 5:35:45 PM
[Markets] US STOCKS-Wall Street slips as tariff deadline closes in Wall Street's main stock indexes ended slightly lower on Tuesday, though not far from record highs, as investors awaited concrete news on whether a new round of U.S. tariffs on Chinese goods would take effect on Dec. 15, a potential turning point in a trade dispute between the world's two largest economies that has convulsed markets. Stock futures got a boost in premarket trade when the Wall Street Journal said U.S. and Chinese trade negotiators were laying the groundwork for a delay in the tariffs, but White House economic adviser Larry Kudlow said later that no decision had been made. The Dow Jones Industrial Average fell 27.88 points, or 0.1%, to 27,881.72, the S&P 500 lost 3.44 points, or 0.11%, to 3,132.52 and the Nasdaq Composite dropped 5.64 points, or 0.07%, to 8,616.18. Published:12/10/2019 3:34:59 PM
[Markets] AutoZone Soars, CVS Drops, and the Dow Does Almost Nothing At All The Dow Jones Industrial Average was near their break-even points after initially gaining on a report that the U.S. and China are planning to delay implementing tariffs that are scheduled to go into effect on Sunday. Published:12/10/2019 12:06:15 PM
[Markets] 2019 Was Dreadful For IPOs – Will 2020 Be Better? 2019 Was Dreadful For IPOs – Will 2020 Be Better?

Authored by Andrew Moran via LibertyNation.com,

It is finally about to happen! After weeks of speculation, guesses, and conspiracy theories, Saudi Aramco’s initial public offering (IPO) is scheduled to begin trading soon. By selling just 1.5% of the company, the Saudi Arabia-owned crude oil juggernaut will receive a valuation of $1.7 trillion, which will make it the world’s largest IPO. The stock is already over-subscribed at home, but foreign investors do not have an appetite for a little bit of the crude bubbly. One reason could be IPO fatigue, especially with the kind of year the market endured.

Class Of 2019 Graduates

After a couple of down years for the IPO industry, it was thought that some of the hottest companies in the United States today would toss a lifejacket for investors underwater in their investments. Uber, Lyft, Pinterest, Slack, and WeWork (the office-sharing company withdrew its IPO) were supposed to save us. Instead, Uber is down 12%, Lyft is up just 1%, Pinterest is down 32%, and Slack is 17% in the red from their IPOs. Even the plant-based Beyond Meat, which had surged 50% from its IPO price, has been carved in half.

Hey, it is not all doom and gloom, though. Peloton, after bearing the brunt of an oversensitive social media mob taking umbrage at a television commercial for its exercise bike, has been one of the surprising bright spots. Even with the 7% loss in the first week of December, shares of the money-losing venture are still up 38% since going public.

That said, the entire situation could worsen over the coming months as the lock-up period – stocks that are eligible to be sold on the open market – of these IPOs are coming to an end. This could add pressure to companies that have already been struggling in their post-IPO sessions. It might also give some future IPOs some consternation about going public.

But why is this happening? Well, it turns out that stocks can no longer rely just on good faith. They need to begin generating a profit.

Goldman Sachs recently published a report that found businesses that went public this year are projected to produce the lowest profits of any year since the dot com bubble. In fact, according to the Wall Street titan, just 24% of IPOs in 2019 will post positive net incomes, which is the smallest percentage in 20 years. With interest rates at historic lows and the Federal Reserve pumping the market with cheap money, these companies can survive the bleeding a little longer.

According to a Bloomberg analysis of listings worth $100 million or more, unprofitable IPOs have raised the most cash of any year since the dot com era. Despite the poor returns of late, investors are scooping up IPOs in the hopes of getting served a plant-based-style burger. Can they be perpetual bulls? If the Fed keeps the spigot running, Wall Street will be there to chug it down.

Bill Gurley, a partner at venture firm Benchmark, recently told CNBC that the IPO process was a “bad joke” for Silicon Valley. He may be right, considering the lackluster performances of these stocks.

Will The Class Of 2020 Get Left Behind?

Either 2020 will be the start of something new or it will replicate 2018 and 2019. The experts are prognosticating that next year will see “global IPO activity pick up.” Forbes magazine is anticipating as many as 40 to 50 IPOs. Right now, the talk on the Street is that Airbnb, Hemptown, Postmates, Robinhood, and Casper will be the biggest businesses to go public.

Like their predecessors, many of these companies have already recorded disappointing quarterly results; Airbnb reported first-quarter losses and Postmates published steep third-quarter declines. HempTown, a company that specializes in hemp production, might be one of the few breakout stars of next year’s class due to a legislative push to ease regulations on hemp in the U.S., thanks to Sen. Mitch McConnell (R-KY).

With Plenty Of Money And You

It has been quite the year for American financial markets. Across the board, nearly every asset class performed well, from the U.S. dollar to precious metals to energy (except natural gas). If you put money in the stock market – whether it was an exchange-traded fund (ETF) or Treasuries – you likely enjoyed a return on your investment. Considering how the Dow Jones, Nasdaq, and S&P 500 each recorded all-time highs in 2019, it would seem counterintuitive that IPOs would drown in an ocean of red ink. But here we are. Unfortunately for the IPO class of 2019, it was the worst of times – can 2020 be an improvement?

Tyler Durden Tue, 12/10/2019 - 10:10
Published:12/10/2019 9:33:54 AM
[Markets] Stock Futures, Dow Jones Today Dip On China Trade War Worries; Netflix Stock Downgraded, Autozone Spikes Autozone was an early leader Tuesday, Netflix dived on a downgrade and Apple hindered the Dow Jones today, as China trade war worries pressured the market. Published:12/10/2019 7:33:24 AM
[Markets] Here’s the one Dow stock to buy now if you believe that what goes down must come up If you’re a gutsy contrarian investor, consider betting that Walgreens Boots Alliance will have a far better 2020 than it has this year. Instead, the reason you might want to consider Walgreen’s (WBA) stock in 2020 is because it’s the worst year-to-date performer in the Dow Jones Industrial Average (DJIA) , with a loss (per FactSet) of 11.5% (through Dec. 6). Betting on a reversal from year-to-year performance is not as crazy as you might think. Published:12/10/2019 5:33:19 AM
[Markets] Mark Hulbert: Here’s the one Dow stock to buy now if you believe that what goes down must come up Dow’s worst performer in a given year tends to rebound over the next year, writes Mark Hulbert.
Published:12/10/2019 5:33:19 AM
[Markets] Dow Jones Futures: Stock Market On China Trade War Watch; Apple, Boeing, MongoDB, Stitch Fix Active Late Dow Jones futures: The stock market rally and Apple stock await China trade war clarity from President Trump on Dec. 15 tariffs. MongoDB, Stitch Fix, Boeing were movers overnight. Published:12/9/2019 6:00:29 PM
[Markets] Dow ends down over 100 points as Apple falls, trade deadline looms Dow ends down over 100 points as Apple falls, trade deadline looms Published:12/9/2019 3:59:39 PM
[Markets] U.S. stock market snaps 3-day win streak as China tariff deadline comes in focus Dow book a triple-digit loss Monday, and all three major U.S. stock indexes end lower, as investors wait on global central bank policy updates this week and a key tariff deadline on Sunday. Published:12/9/2019 3:59:39 PM
[Markets] These Are the 20 Best-Performing Stocks of the Past Decade This article originally appeared on MarketWatch, a sister publication of Barron’s. We publish articles from other Dow Jones sites when we think our readers will enjoy them. MarketWatch, a Dow Jones site, will feature a number of forward-looking articles building on the past decade’s action. The Dow Jones Industrial Average (DJIA) returned 165% (with dividends reinvested) and the S&P 500 Index (SPX) returned 244% from the end of 2009 through Dec. 5, 2019. Published:12/9/2019 2:02:02 PM
[Markets] Dow Jones Eases, Apple Stock Slumps Ahead Of China Tariff Deadline; 2 Top Retailers Set To Report The Dow Jones was under mild selling pressure along with the other major stock indexes Monday as Wall Street eyed the Dec. 15 China tariff deadline. Published:12/9/2019 12:59:18 PM
[Markets] Apple Inc., Boeing share losses contribute to Dow's nearly 75-point fall DOW UPDATE Shares of Apple Inc. and Boeing are trading lower Monday morning, sending the Dow Jones Industrial Average into negative territory. The Dow (DJIA) was most recently trading 74 points (0.3%) lower, as shares of Apple Inc. Published:12/9/2019 11:30:14 AM
[World] NewsWatch: Here’s the hard-money call for why the boom in the economy and stock market will continue You might think the hard-money, recession-at-every-corner crowd would be predicting an imminent reversal in the stock market given the 20% gain for the Dow Jones Industrial Average this year. Not necessarily.
Published:12/9/2019 11:02:01 AM
[Markets] Dow down 15 points as Nasdaq and S&P edge into positive territory Dow down 15 points as Nasdaq and S&P edge into positive territory Published:12/9/2019 9:29:05 AM
[Markets] Dow Jones Today Flat, Stock Market Turns Up Under China Trade Shadow; Biotech Stocks On Fire Skyworks and Qorvo led chips higher, and biotechs soared on mergers news, as the Dow Jones fights to hold 28,000 while new China tariffs loom. Published:12/9/2019 8:58:14 AM
[Markets] Controversy Erupts After Elizabeth Warren Reveals Millions In Corporate Consulting Income Controversy Erupts After Elizabeth Warren Reveals Millions In Corporate Consulting Income

After months of dodging questions over her income, Senator Elizabeth Warren (D-MA) revealed on Sunday night that she made nearly $2 million from legal consulting for corporate clients while she was a law professor at Harvard, the University of Pennsylvania and other law schools, starting in 1995.

The income included $212,000 for representing Travelers Indemnity Co. in 2009, $190,000 for representing a department store chain, and $80,000 doing bankruptcy work for Enron creditors.

The Washington Post immediately framed the disclosure as an example of hypocrisy, saying Warren's past income "doesn't fit neatly with her current presidential campaign brand as a crusader against corporate interests."

For instance, the documents released Sunday show that Warren made about $80,000 from work she did for creditors in the energy company Enron’s bankruptcy and $20,000 as a consultant for Dow Chemical, a company that was trying to limit the liability it faced from silicone breast implants that were made by a connected firm. -Washington Post

Warren's critics, such as Turning Point USA founder Charlie Kirk, seized on the opportunity to suggest that "While she advocates for socialism she hypocritically lives a millionaire lifestyle."

What the Post did not make clear, however, is that Warren made all this money over the span of 17 years ("the figures disclosed Sunday show that nearly all of the money was made from cases filed after she got her job at Harvard in 1995") - drawing immediate criticism from many who suggested that WaPo's failure to highlight the time frame until the sixth paragraph was unfair.

Tyler Durden Mon, 12/09/2019 - 09:50
Published:12/9/2019 8:58:14 AM
[Markets] Stocks & Bonds Decouple - Yields Erase Payrolls Spike, Dow Unfazed Stocks & Bonds Decouple - Yields Erase Payrolls Spike, Dow Unfazed

After spiking dramatically after the "great" jobs data on Friday, stocks are holding their gains but bond yields have erased the move entirely...

Source: Bloomberg

What happens next?

Tyler Durden Mon, 12/09/2019 - 08:55
Published:12/9/2019 8:02:02 AM
[World] NewsWatch: Here’s the hard-money call for why the boom in the economy and stock market will continue You might think the hard-money, recession-at-every-corner crowd would be predicting an imminent reversal in the stock market given the 20% gain for the Dow Jones Industrial Average this year. Not necessarily.
Published:12/9/2019 8:02:02 AM
[Markets] "We're Living On Borrowed Time..." "We're Living On Borrowed Time..."

Authored by Adam Taggart via PeakProsperity.com,

The laws of physics are governed by cause and effect. But there can exist a time lag between the two.

For instance:

Note how the speed of both the bullet and the retracting latex far exceed that of the shockwave or gravity on the water contained inside each balloon.

There’s an observable time lag during which the globe of previously-contained water momentarily hangs there in space.

Then, a beat later, it’s obliterated.

Living On Borrowed Time

I’m unusually focused on time these days as we’re updating Peak Prosperity’s crown jewel, The Crash Course video series.

Originally created in 2008 and updated in 2014, it lays out the macro forces driving the economy and our way of living, explaining why most of them are unsustainable and headed for trouble. That then opens the door to an avalanche of critical questioning about what the future will bring.

Updating the parade of charts and data has been eye-opening for me. When I last did this (early 2014), the S&P had just returned to the same price level that served as the apex for both the 2001 and 2008 market bubbles.

I remember how concerned I was then. How could we have returned to such reckless exuberance so quickly after the pain caused by the Dot-com bust and the Great Financial Crisis? Did we learn nothing from our previous (and recent!) excess?

Clearly not only did we not learn; we didn’t give a crap. With a “hold my beer, you ain’t seen nothin’ yet” bravado, we proceeded to DOUBLE the S&P above the previous bubble highs.

Here at PeakProsperity.com, my co-founder Chris Martenson and I have spilled a lot of ink in the ensuing years, warning how QE (aka central bank money printing), stock buybacks, and record low interest rates have pushed the degree of systemic unsustainability to Bizzaro-world levels. For our most recent analysis, click herehere and here.

But the TL;DR version is succinctly captured by the chart below:

Source: Hussman Funds

A few important things to note beyond the colorful editorial commentary I added to John Hussman’s quality work here.

First, the chart is logarithmic. The y-axis value doubles with each hashmark. Meaning: the current excess is a lot more extreme than it looks at first glance.

Second, the vertical lines indicate ‘dispersions’ which are market conditions Hussman finds are highly-correlated with “steep and rather abrupt market plunges, often representing the first leg of a more extended collapse”.

Notice how rarely they have occured over the past 25 years, and yet they’ve suddenly increased in frequency of late (the most recent took place on Nov 20th).

This is what you would expect to see from a dangerously over-extended system, where prices have been propelled way beyond where they can be sustainably supported. Keep in mind, today’s all-time high prices are occuring at a time when:

As we covered in a recent report The Phantom Mania, there’s simply no substance underlying this latest run in stocks. It’s all been driven by multiple expansion, which is a fancy term for “paying more for the same dollar of earnings”, aka, speculating that you’ll be able to sell at a higher price to an even greater fool:

What we are experiencing right now is a ‘time lag’ between the collapse of the argument underlying the 10-year bull market and investors’ recognition of that.

A full decade and some $14 Trillion in newly-printed money later, plus the cheapest interest rates in recorded history, and yet the central banks have not been able to restore growth to the global economy. The experiment has failed.

And what do we have to show for it?

The worst wealth gap in history. An impoverishment of future generations, who will be stuck paying off our recent debt orgy:

What good is Dow 30,000 if 75% of us can’t afford a house or scrape together $400 in an emergency?

Time Is Running Out

And of course, that’s just what’s going on in funny-money land.

In the real world, the resources we rely on to power the economy, sustain our modern lifestyle, and put food into our bellies are rapidly becoming more scarce and expensive.

Energy & Minerals

The world remains extremely dependent on fossil fuels and demands more every year. Yet discoveries peaked many decades ago and our reserve replacement rates are now negative:

As explained in this excellent podcast with petroleum geologist Art Berman, this supply/demand imbalance will predictably escalate throughout our lifetime. And a ‘smooth’ transition to other energy sources is mathematically impossible at this point. Sustained supply constraints and higher prices are inevitable.

Similarly, many of the most important ores and minerals necessary for economic development are in even worse decline:

Source: Visual Capitalist, US Geological Survey

The Biosphere

As a consequence of human industry’s ever-increasing need to consume and the pollution that results, life on the planet is dying off at an unprecedented rate (short of a giant meteorite extinction-level event).

World animal populations are dropping at an alarming pace:

Source: World Wildlife Fund Living Planet Report

As are insects:

Source: Statista

As are aquifers and forests:

Source: Drovers

Source: climatepro

Ourselves

The above statistics clearly show that we are dismantling the underpinnings of the ecosystems we depend on to live. Thus, we have become an existential threat to ourselves.

So should it comes as any surprise that we’re already seeing a diminishment of our health? And even of our ability to self-perpetuate?

Source: JAMA

Yes, our lives today still run largely as we’ve always been used to. But given the data above, how long (or brief) will the remaining time lag be before the ramifications begin to hit us at force?

Time To Get Busy

I guess it comes down to a simple choice, really: Get busy living or get busy dying.

So concluded Andy Dufresne in The Shawshank Redemption. And at this stage in the story, the decision is really that binary.

Society for its part is committed to the “busy dying” path. It’s still clutching tightly to Business As Usual. Like an alcoholic who has yet to admit to himself he has a drinking problem, it won’t address what it refuses to recognize.

So we can expect the status quo of consume-and-pollute to continue on for some time. Most likely it will be pursued until it simply proves too painful than the remaining alternatives. By which time our other options are likely to be materially worse than they are today. That’s the bad news.

The good news is that conscientious, critically-thinking individuals like you can choose to get busy living.

There is much you can do during this time lag to invest in resilience and install regenerative models before the next systemic crisis is upon us.

Whatever time we have left, and it may very not be much, is a gift. Use it.

Many of the best defenses — like fitness, community, and valuable skills — require time to acquire. You can’t simply buy them off the shelf the way you can, say, a water filter or a backup generator. Once time has run out, you either already have them in place or you don’t.

In Part 2: How Best To Use The Time Remaining we provide our advice for prioritizing and allocating your precious time capital, as well as share with you what and Chris and I are most focused on in own personal preparations.

Included along with this are several hours of excellent video clips of experts from our recent educational live events and webinars, available to-date only to premium subscribers.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access).

Tyler Durden Mon, 12/09/2019 - 08:20
Published:12/9/2019 7:28:04 AM
[Markets] Need to Know: Here’s the hard-money call for why the boom in the economy and stock market will continue You might think the hard-money, recession-at-every-corner crowd would be predicting an imminent reversal in the stock market given the 20% gain for the Dow Jones Industrial Average this year. Not necessarily.
Published:12/9/2019 6:31:27 AM
[Markets] Asia stock markets track U.S. counterparts higher after jobs-report boost Asian stock markets were mostly higher Monday with investors cheered by a late-week buying mood on Wall Street after a surprisingly strong U.S. jobs report drove the Dow industrials to the best performance in two months. Published:12/8/2019 11:02:35 PM
[Markets] Asia Markets: Asia stock markets track U.S. counterparts higher after jobs-report boost Asian stock markets were mostly higher Monday with investors cheered by a late-week buying mood on Wall Street after a surprisingly strong U.S. jobs report drove the Dow industrials to the best performance in two months.
Published:12/8/2019 10:55:26 PM
[Markets] Dow finishes up over 300 points on strong jobs report Dow finishes up over 300 points on strong jobs report Published:12/6/2019 3:17:24 PM
[Markets] Dow closes nearly 340-points higher after jobs report sparks stock-market rally U.S. stocks closed solidly higher Friday, helping to wipe out or chip away at weekly losses, after an key employment report for November ignited bullish buying on Wall Street, adding to some modest progress toward a partial Sino-American trade agreement. The Dow Jones Industrial Average gained 337 points, or 1.2%, to reach 28,015, the S&P 500 index advanced 0.9% to 3,146, while the Nasdaq Composite Index climbed 1% to 8,656. The moves on Friday were in contrast to trading that started the week after President Donald Trump in London implied that he would wait until 2020 to cement a phase-one trade agreement. For the week, the Dow and the Nasdaq finished down 0.1%, while the S&P 500 notched a 0.2% gain for the 5-day trading stretch. The economy created 266,000 new jobs, the most since January, and the unemployment rote fell to 3.5%, a 50 year low, Labor Department data showed, signaling that the jobs market remains robust even though economic growth has slowed. The government also revised the increase in new jobs in October to 156,000 from 128,000 and September's gain was raised to 193,000 from 180,000. The increase in new jobs easily topped the 180,000 MarketWatch forecast, helped by the end of the General Motors auto-workers strike which added roughly 50,000 jobs to the payrolls number. The unemployment rate slipped to 3.5% from 3.6% and matched a 50-year low. The average wage paid to American workers rose 7 cents, or 0.2%, to $28.29 an hour. The 12-month rate of hourly wage gains slipped to 3.1% from 3.2%. Helping to lift stocks even before the jobs report was news that China's State Council had begun the process on Friday of exempting some soybeans and pork imported from the U.S. from import tariffs, the state-run Xinhua News Agency said, a move taken as a sign of progress on at least a partial trade pact. The action comes about nine days from a Dec. 15 deadline at which import duties on $156 billion in China goods will be raised to 15%. In corporate news, Shares of Apple Inc. surged above its record closing price. The day's gains put the main benchmarks just short of their record closes. Published:12/6/2019 3:17:24 PM
[Markets] Dow Jones Powers Higher On Bullish Jobs Data; Check Out This IPO Breakout The Dow Jones gapped up for the second time in three sessions Friday, helped by stronger than expected job growth in November. Published:12/6/2019 12:41:05 PM
[Markets] 3M's stock surge is leading the Dow to a more than 300 point gain at midday 3M's stock surge is leading the Dow to a more than 300 point gain at midday Published:12/6/2019 11:40:46 AM
[Markets] 3M, Goldman Sachs share gains contribute to Dow's 336-point rally DOW UPDATE The Dow Jones Industrial Average is rallying Friday morning with shares of 3M and Goldman Sachs delivering strong returns for the blue-chip average. Shares of 3M (MMM) and Goldman Sachs (GS) have contributed around one third of the index's intraday rally, as the Dow (DJIA) was most recently trading 336 points higher (1. Published:12/6/2019 10:44:28 AM
[Markets] Dow Jones Today, Stock Market Surges On Jobs Report; Ulta Beauty, DocuSign, Big Lots Spike DocuSign, Big Lots and Ulta Beauty stock spiked on earnings, Goldman Sachs led the Dow Jones today as the stock market surged on November jobs data. Published:12/6/2019 9:11:31 AM
[Markets] Dow shoots up more than 200 points at open, boosted by solid jobs data Dow shoots up more than 200 points at open, boosted by solid jobs data Published:12/6/2019 8:44:07 AM
[Markets] Futures Near Record High On Burst Of "Trade Deal Optimism" Futures Near Record High On Burst Of "Trade Deal Optimism"

With the much anticipated November jobs report looming (see preview here), futures are back to trading just shy of all time highs, enjoying a burst of trade deal optimism when first President Trump said China trade deal talks were "moving right along", and then, at 1am ET, China announced it would waive import tariffs imposed last year on some U.S. soybean and pork shipments... which of course is hardly a concession as Beijing is rushing to source more meat to fill a record hole in its pork inventory and production.

Trump’s upbeat comments on Thursday and China's fake concession was enough to encourage algos to BTFATH, despite once again there being no agreement over whether existing tariffs should be dropped as part of an initial deal to ease the long standoff. European shares, including the broader Stoxx 600 gained 0.5% in early trade before grinding sideways, with indexes in Frankfurt and Paris up by similar amounts. The UK's FTSE 100 outperformed, gaining 0.75% as GBP slips back below 1.3150. Retailers, travel names and miners outperform with only the health care sector in negative territory

Europe's Friday euphoria promptly ignored the latest disastrous German industrial output, which unexpectedly plunged in October, pointing to persistent weakness in the backbone of the economy. Berlin said, however, that new orders and business expectations suggest output may stabilize.

The buoyant mood to end the week - at least until today's NFP print is announced - mirrored the risk appetite in Asia, where MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.5%, with Asian stocks rising for a second day, led by technology companies, as China worked toward waiving retaliatory tariffs on imports of U.S. pork and soy. Most markets in the region were up, with Hong Kong and South Korea leading gains. The MSCI Asia Pacific Index is set for its first weekly advance in a month. The Topix edged higher, supported by machinery and construction firms. Japanese household spending dropped the most in three and a half years.

China stocks posted their biggest weekly advance in nearly two months, with the blue-chips up 0.6%. The Shanghai Composite Index climbed, with Kweichow Moutai and Jiangsu Hengrui Medicine among the biggest boosts. U.S. merchandise imports from China dropped to a fresh three-year low amid prolonged trade negotiations. India’s Sensex slid, heading for its first weekly drop since October, as banks weighed on the gauge. Consumer confidence in the country fell to the lowest in more than five years.

The MSCI world equity index added 0.2%, and was not far off a record high of 550.63 hit last January but still on track for a weekly fall.

While investors continue to hope and expect the two sides to reach a compromise to at least avoid a new batch of tariffs on about $156 billion of Chinese exports, due to take effect on Dec. 15, markets had originally expected the sides to seal the initial deal in November. Instead, investors are nervously watching the approaching deadline for the new U.S. levies.

“The difficulty with this is it’s very difficult to time and to trade,” said Unigestion strategist Jeremy Gatto. "We are relatively favourable towards riskier assets in general - but with hedges." Gatto said those hedges include currencies such as the U.S. dollar, Japanese yen and Australian dollar, as well as options.

There is economic data too: today investors are looking at the November U.S. jobs data, and a nonfarm payrolls report which is expected to show 183,000 new jobs created in November, up from 128,000 a month earlier.

“Markets are in consolidation phase,” said Salman Ahmed, chief investment strategist at Lombard Odier. “It’s wait and watch for first, how does the non-farm payrolls look and, more importantly, the Dec. 15 tariff deadline.”

While markets have largely priced in the view that the world economy has dodged the bullet of recession, there are still signs of fragility in many major economies, and one could clearly see their signs in the price of the world's most important commodity: oil lost ground overnight as investors awaited a meeting of OPEC and its allies later on Friday, which is expected to formally agree to more output curbs in early 2020.

Details of the agreement and how the cuts will be distributed among producers still need to be ratified at a meeting of OPEC and non-OPEC nations, otherwise known as OPEC+, in Vienna. Brent crude futures were flat at $63.46 a barrel after earlier gaining ground. The agreement coincided with the IPO of state oil firm Saudi Aramco, which was priced at the top of its range and raised $25.6 billion in the world’s biggest IPO, valuing the Saudi state company at $1.7 trillion.

In rates, Treasury yields are near the middle of ranges in place since mid October, the 10-year at ~1.79%. A survey by BMO found erosion of dip-buying mentality, with 38% inclined to buy if the data spark a sell-off vs a six-month average of 57%. The October jobs report and two others of the past six had fleeting impact on Treasuries; August and May reports spurred rallies, June data sparked a sell-off. Median survey estimates for the November data include nonfarm payrolls gain of 183k, 3.6% jobless rate and a 0.3% month-on-month increase in average hourly earnings. Euro-area bonds were mostly steady, underperforming Treasuries; a large upside buyer of five-year U.S. Treasury options targeted the yield to fall below 1.4%, following earlier block trades in two-, five- and seven-year Treasury futures that appeared to fade Tuesday’s dovish Fed repricing.

In FX, the British pound stepped back some 0.2%, its first drop in six days. Sterling spiked to a seven-month high of $1.3166 on Thursday on bets that next week’s election will give the Conservative party the majority it needs to deliver Brexit, ending near-term uncertainty. The pound last stood at $1.313. It hit 2-1/2-year highs versus the euro.

Bloomberg Dollar Spot Index erased most of its losses after slipping for a sixth day, its worst streak since September 2017.New Zealand’s currency is poised for its biggest weekly gain in a year after the central bank said the economy is near a turning point; the comments by Reserve Bank Deputy Governor Geoff Bascand further damped rate-cut expectations.

To the day ahead now, the headline release comes this afternoon though with the November employment report in the US, while later on we’ll also get the preliminary December University of Michigan consumer sentiment survey, October wholesale inventories and October consumer credit. In terms of politics Germany’s Social Democrats gather for a three-day convention while tonight will see UK PM Johnson and Labour’s Corbyn take their places in a televised head to head debate.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,124.75
  • STOXX Europe 600 up 0.4% to 404.23
  • MXAP up 0.4% to 164.97
  • MXAPJ up 0.5% to 525.05
  • Nikkei up 0.2% to 23,354.40
  • Topix up 0.1% to 1,713.36
  • Hang Seng Index up 1.1% to 26,498.37
  • Shanghai Composite up 0.4% to 2,912.01
  • Sensex down 0.7% to 40,497.53
  • Australia S&P/ASX 200 up 0.4% to 6,707.02
  • Kospi up 1% to 2,081.85
  • German 10Y yield fell 0.4 bps to -0.298%
  • Euro down 0.01% to $1.1103
  • Brent Futures down 0.02% to $63.38/bbl
  • Italian 10Y yield rose 7.9 bps to 1.022%
  • Spanish 10Y yield fell 0.5 bps to 0.484%
  • Brent Futures down 0.02% to $63.38/bbl
  • Gold spot down 0.1% to $1,473.97
  • U.S. Dollar Index unchanged at 97.41

Top Overnight News from Bloomberg

  • China is in the process of waiving retaliatory tariffs on imports of U.S. pork and soy by domestic companies, a procedural step that may also signal a broader trade agreement with the U.S. is drawing closer
  • German industrial production unexpectedly extended its decline, raising concerns that some of the early signs of a manufacturing revival may have already been smothered
  • North Korea may be preparing to conduct engine tests at a long-range rocket launch site, stepping up pressure on President Donald Trump ahead of a year-end deadline it imposed to get a better deal from the U.S. in nuclear disarmament talks
  • The survival of Chancellor Angela Merkel’s government hangs in the balance as her disgruntled coalition partner wrestles with its future. A three-day convention for the Social Democrats, starting Friday in Berlin, marks the party’s latest effort to get itself on track after reluctantly entering a coalition to support Merkel for her fourth term two years ago
  • Political uncertainty is playing havoc with the U.K. labor market, with demand for workers rising at the slowest pace for a decade, according to a report by KMPG and the Recruitment and Employment Confederation
  • Speaker Nancy Pelosi set the House in motion toward a historic vote to impeach President Donald Trump on a rapid timetable that could bring the process to conclusion before the Christmas holiday
  • U.S. trade with China extended its decline in October as goods imports from the nation fell to a fresh three-year low amid prolonged talks between the two largest economies on a trade deal.
  • Oil held near $58 a barrel as the OPEC+ coalition failed to pin down the details of an agreement to adjust its official output target even after six hours of talks in Vienna
  • Japanese household spending slumped in October, suggesting the economy may have taken a bigger than expected hit from a sales tax increase and extreme weather. Finance Minister Taro Aso says need to see more data to gauge sales tax impact
  • Treasury Secretary Steven Mnuchin said the Trump administration opposes the World Bank’s latest plan for low- interest loans to China, which has received more than $1 billion a year from the lender

Asian equity markets were higher across the board as the recent US-China trade optimism reverberated in the region, but with gains capped as the OPEC/OPEC+ meetings stole much of the limelight and as looming US NFP jobs data kept participants tentative. ASX 200 (+0.4%) and Nikkei 225 (+0.2%) traded positively in which gold miners outperformed the broad but mostly tepid gains for Australia’s sectors, while upside in Tokyo was also limited by recent currency strength and after Household Spending contracted by the most in over 5 years. Hang Seng (+1.0%) and Shanghai Comp. (+0.4%) were kept afloat after the PBoC conducted a CNY 300bln MLF operation which was larger than the prior operation of CNY 200bln and the CNY 187.5bln of maturing loans, while the trade rhetoric continued to suggest talks are going well and are on track with a phase 1 deal said to be close, although other reports were less optimistic and noted the sides were still at odds on agriculture purchases. Finally, 10yr JGBs were lower which was initially the aftermath of the prior day’s pullback amid gains in riskier assets, while prices remained subdued ahead of the December 2019 futures contract rolling over this weekend and with the BoJ’s presence in the market for JPY over 1.1tln of JGBs in 1yr-10yr maturities doing little to spur a rebound.

Top Asian News

  • Bank Indonesia Signals Cautious Approach to Further Easing
  • BlackRock, Vanguard Among Fund Giants Flocking to Chinese Market
  • Tencent-Backed iDreamSky Said in Talks to Buy Gaming Firm Leyou
  • Gold Imports by India Slide for a Fifth Month as Economy Slows

Major European bourses (Euro Stoxx 50 +0.4%) are in the green, as the region benefits from overnight US/China trade tailwinds, although the onset of pre-NFP caution is keeping trade subdued. As a reminder, US President Trump yesterday said that “something” could happen with regards to tariffs on December 15th, although it is not being discussed yet, but the US is holding discussions with China which are going well. The FTSE 100 (+0.7%) outperforms its peers as Sterling pulls back from recent highs. The DAX (+0.3%) is comparatively muted, after German industrial data this morning disappointed which suggests “that the German economy is continuing to flirt with stagnation and contraction in the final quarter of the year”, according to ING. The CAC 40 (+0.5%) continues to brush off ongoing strikes that have brought much of the country to a standstill. Sectors are all in the green, with the more risk sensitive sectors the outperformers; Tech (+0.8%) and Consumer Discretionary (+0.7%) are the current leaders, while Health Care (+0.1%), Utilities (+0.2%) and Telecoms (+0.1%). In terms of individual movers; Ipsen (-20.6%) shares tanked after the Co. partially delayed two studies into Palovarotene. Swiss Re (+2.6%) was buoyed on the news that the Co. is to sell its Reassure unit to Phoenix Group (+0.3%) in a cash and stock deal valued at GBP 3.2bln. In terms of earnings, Carl Zeiss (-6.5%) is under pressure despite solid gains in FY19 revenue and EBIT; traders were reportedly disappointed by margin targets and, following a run of recent strong earnings reports. Finally, in broker moves, upgrades for Lufthansa (+1.3%), Ryan Air (+1.3%) and Pernod Ricard (+0.7%) saw their respective shares supported, while downgrades for Sanofi (-0.6%), Siemens Healthineers (-1.9%) and Petrofac (-1.6%) saw their shares under pressure.

Top European News

  • U.K. House Prices Rise Most in Seven Months, Halifax Says
  • Why the Russia-Ukraine Gas Dispute Worries Europe: QuickTake
  • Merkel’s Coalition at Stake as SPD Wrestles With Its Future
  • Medacta Falls Most Since IPO to Record Low After Profit Warning

In FX, the broad Dollar and index trades on a firmer footing heading into the much-anticipated US Labour market data (albeit more on the back of a softer GBP – see below), with forecasts for 180k jobs to be added in November, slightly ahead of 3-,6- and 12-month trends rates (Full preview available on the NEWsquawk research suite). DXY remains in the green at time of writing, and just above the middle of the current 97.36-44 intraday band ahead of the main event. Alongside this, Canada will also be releasing its respective jobs report, with the region expected to have added 10k jobs in November. USD/CAD trades at the whim of energy prices thus far as the OPEC+ cartel convenes. The pair resides just under the 1.3200 mark with USD 750mln of options expiring between strikes at 1.3165-75. In terms of pertinent levels, the pair sees its 21 WMA at 1.3212, 100 WMA at 1.3118 and its 200 WMA at 1.3080.

  • GBP, JPY, EUR - Sterling trades softer on the day with little fresh fundamental news-flow, although participants could be cashing in on the impressive gains seen throughout the week ahead of the last batch of weekend polling prior to the election. In terms of the latest, Britain Elects/New Stateman tracker of polls points to a strong lead for the Tories over Labour, but the spread has modestly narrowed. Meanwhile, Ipsos Mori’s poll also showed a slight narrowing in Tory’s lead over Labour. Participants remain on the lookout for the Panelbase poll which may be released today. GBP/USD retains a 1.31+ status at time of writing, but off its current daily and weekly high of 1.3166 (vs. intraday low of 1.3111), with touted support at 1.3080 should it break the 1.3100 psychological mark. That said, today’s options expiries include ~GBP 750mln at strike 1.3100 which could influence price action, contingent on the NFP numbers Stateside and any UK election polling released in the interim. Meanwhile, the JPY remains supported by the GBP/JPY cross which dipped below 142.50 in early trade, although the Sterling softness did provide the Dollar with some impetus and thus keeps USD/JPY at bay just above the 108.50 as the pair bides its time ahead of the US labour market report. Finally, EUR/USD saw downside amid the aforementioned Dollar strength in early EU trade, with the pair dipping below the 1.1100 mark to a low of around 1.1095 ahead of touted support at 1.1090. EUR/USD options today see EUR 1.1bln expiring between 1.1095-1.1100 and EUR 1.3bln around 1.1120-25 - again, options’ influence today is contingent on the US jobs numbers.
  • NZD, AUD - Both modestly firmer in early EU trade in a continuation of support seen during the back end of yesterday’s session, and with potential buoyancy from reports that China could be implementing tariff waivers for some purchases of soybeans and pork; a possible olive branch to the US. The Kiwi outperforms its Aussie counterpart on the back of optimistic reiterations from RBNZ’s Deputy Governor, who touched upon persisting downside risk appearing to be more balance now. Bascand also took note of strong commodity prices supporting the New Zealand economy, while adding that fiscal stimulus could increase the country’s growth next year. NZD/USD took out yesterday high (0.6562) and resides just off session highs of 0.6573 (vs. low 0.6541) at the time of writing. Meanwhile, its Aussie counterpart inches towards the 0.6850 mark having found an intraday base at 0.6830 and with around AUD 1.0bln in options expiring at strike 0.6835.

In commodities, crude markets are jittery, with participants keeping their powder dry ahead of key risk events in the form of the US jobs report at 13:30 GMT and the outcome of today’s OPEC+ meeting, where a final decision on output cuts will be finalised. The complex has been relatively unresponsive to the latest headlines; consensus is for OPEC+ to agree to 500k bpd worth of additional cuts, which could be split 2/3 for OPEC and 1/3 for Non-OPEC, according to the latest sources. This is relatively in-line with the thinking yesterday that the split would 350k bpd to 150k bpd in cuts for OPEC and Non-OPEC countries respectively. However, ING flag the risk of potential market disappointment; “the key question is whether these reported cuts will actually reflect fresh cuts, and so help to reduce the surplus in 1Q20, or whether they will just formalise the over-compliance that we have seen from the group as a whole (thanks to Saudi Arabia)”. The latter would constitute disappointment, the analysts believe. Elsewhere, Russia, who had expressed reluctance to agree to deeper cuts, appear to have been brought on side by having their request to remove the condensate portion of its output removed from its production cut quotas, meaning roughly 800k bpd in Russian output will not be subject to any output cuts. Elsewhere, Angola reportedly stormed out of the talks in protest to the consensus for deeper cuts and now wants to quit the cartel. Furthermore, yesterday’s post meeting press conference was cancelled, with talks reportedly dragging on due to issues with Iraq, although the Iraqi Oil Minister has since said the country will comply with the agreed cuts. Today’s OPEC+ meeting has already begun, with a press conference pencilled in for 13:00 GMT, although, as is usually the case with OPEC+, timings are more a guideline. WTI and Brent front month contracts sees losses as US participants enter the market with the former dipping below USD 58/bbl and the latter eyeing USD 63/bbl. In terms of metals, copper and gold are subdued ahead of NFP, the latter consolidating around the USD 1475/oz mark, although with a slight downwards bias on account of the market’s more constructive risk tone.

US Event Calendar

  • 8:30am: Underemployment Rate, prior 7.0%
  • 8:30am: Change in Nonfarm Payrolls, est. 183,000, prior 128,000
  • 8:30am: Change in Private Payrolls, est. 179,000, prior 131,000
  • 8:30am: Change in Manufact. Payrolls, est. 40,000, prior -36,000
  • 8:30am: Unemployment Rate, est. 3.6%, prior 3.6%
  • 8:30am: Average Hourly Earnings MoM, est. 0.3%, prior 0.2%
  • 8:30am: Average Hourly Earnings YoY, est. 3.0%, prior 3.0%
  • 8:30am: Average Weekly Hours All Employees, est. 34.4, prior 34.4
  • 10am: Wholesale Inventories MoM, est. 0.2%, prior 0.2%; Wholesale Trade Sales MoM, prior 0.0%
  • 10am: U. of Mich. Sentiment, est. 97, prior 96.8; Current Conditions, est. 112.8, prior 111.6; Expectations, est. 87.5, prior 87.3

DB's Jim Reid concludes the overnight wrap

If this is the last EMR ever then it’s been nice knowing you. I’ve bought a one-way ticket to LA and am now looking at digs in Hollywood. Yes today I’m taking a couple of hours off work to attend my 4-year old daughter Maisie’s nativity play. Last year in her old nursery she played a “jingle bell” and I didn’t go. However this year at her full time school she’s secured the plumb role of Mary and I’m going to make sure I speak to all the agents likely to be there. I’ve done some reading and statistically children who play Mary or Joseph are likely to be higher earners later in life. So that made me happy. However I should say that a) only 30% of her class are girls and b) she’s the oldest in the whole year. So I’ll curb my pride for now and enjoy the show. Her first line (which we’ve been practising at home) gives me the shivers a little though as it’s “Joseph, come quick. I have great news. We are going to have a baby.” I’ll be having a word with Joseph immediately after the show!

Anyway, from Hollywood to payrolls Friday. Today’s is unlikely to be a blockbuster though as the Fed have made it quite clear that they are on hold until further notice and although we have an FOMC next week its very very unlikely that today’s jobs report will change anything. In terms of a preview, the consensus for November nonfarm payrolls is pegged at 185k (vs. 128k in October) but after Wednesday’s disappointing ADP (67k vs. 135k expected) print it’s likely that the whisper number is lower. Our economists forecast 145k, with around 46,000 of that attributable to the resolution of the GM strike. They also expect average hourly earnings to have risen +0.3% mom, the unemployment rate to hold steady at 3.6%, and hours work hold steady at 34.4 hours – all of which is in line with the wider consensus. All eyes on the data at 1.30pm GMT then.

Ahead of this, the last 24 hours has actually been fairly quiet relative to the trade-inspired volatility of this week. Still, after a quiet day, trade had the final say as late session comments from President Trump (more below) helped the S&P 500, NASDAQ, DOW and Semi-Conductor indices gain +0.16%, +0.05%, +0.10%, and +0.37% last night. President Trump said that talks are “moving along well” but that “we’ll have to see” about the December 15 date. That seemed to re-open the door to a potential deferral of the planned tariffs, though Trump said that “we are not discussing that yet.” Elsewhere in Washington, focus was centered on the House of Representatives where Speaker Pelosi said that the House will draft articles of impeachment against Trump. They are likely to vote on the articles next week, which will then send the issue to the Senate (possibly in January), where the 100 Senators will act as jurors at a trial and rule on whether or not to remove Trump from office. A reminder that the Republicans control the Senate by a 53-47 split so it’s highly unlikely that this will have enough momentum to pass.

Back to markets and the more bullish trend from the latter part of the US session has continued into Asia this morning where the Nikkei (+0.28%), Hang Seng (+0.64%), Shanghai Comp (+0.08%) and Kospi (+0.75%) are all up. Elsewhere, futures on the S&P 500 are up +0.12%. As for overnight data releases, Japan’s October real cash earnings came in at +0.1% yoy (vs. -0.3% yoy expected) but balanced by the previous months revision to +0.2% yoy from +0.6% yoy. We also saw Japan’s October household spending data at -5.1% yoy (vs. -3.2% yoy expected) impacted by the October sales tax hike and the typhoon.

We’ve also seen news reports from the SCMP overnight suggesting that China’s 2020 GDP growth target is likely to be set at ‘around 6%’ at the Central Economic Work Conference expected to take place later this month. The report added that the policy meeting is set to allow modest expansion of fiscal and monetary policies to support the economy without resorting to massive stimulus.

Meanwhile, the US Treasury Secretary Steven Mnuchin said overnight that the Trump administration opposes the World Bank’s latest plan for low-interest loans to China, which has received more than $1 bn a year from the lender. Mr. Mnuchin was speaking to lawmakers and said that China should be removed from the World Bank’s loan program. He said “China is now the world’s second largest economy and its per capita income is well above the level at which countries are supposed to ‘graduate’ from needing World Bank assistance,” and added, “The United States is the World Bank’s largest contributor and the spending bill that funds the World Bank includes a provision for a big capital increase for the bank. That’s an opportunity for Congress to weigh in and we should take it.”

In other news, the French unions extended their strike until Monday to protest against the pension reform. Bloomberg also reported that French PM, Edouard Philippe, is expected to unveil the details of the pension reform as soon as next week.

Back to yesterday and bonds were weaker with 10y Treasuries closing up +2.8bps last night and back above 1.80%. In fairness that is the smallest absolute move this week after a zig-zag few days. This morning they are -1.5bps in Asia. Core yields in Europe were also up a similar amount to the US yesterday (Bunds +2.1bps) but Italy (+8.2bps) led the periphery wider due to concerns of a rift between the coalition partners. From memory Italy has seen 91 governments in just under 120 years so news of a rift within a young government would not go down as the most surprising news in global politics at the moment.

Elsewhere, in commodity markets gold edged up another +0.10% and Brent crude oil +0.68% following headlines that OPEC+ is considering a quota cut of 500k barrels a day. In other news, yesterday’s data included a 10k decline in jobless claims to 203k and the lowest reading since early April. That also lowered the four-week moving average to 218k, however it didn’t go unnoticed that continuing claims jumped unexpectedly to 1693k (vs. 1660k expected). Overall though the job news was seen as positive and helped yields rise yesterday. Elsewhere, the October trade balance revealed a narrowing in the deficit to $47.2bn (vs. $48.5bn expected) while factory orders for October were in line with expectations at +0.3% mom.

Here in Europe, the final Q3 GDP reading for the Euro Area was unrevised at +0.2% qoq, putting the year-over-year rate at +1.2%. October retail sales were weaker than expected for the Euro Area (-0.6% mom vs. -0.5% expected) while Q3 employment came in weak at just +0.1% qoq. So more soft data in Europe. Finally, October factory orders in Germany were also weak (-0.4% mom vs. +0.4% expected).

Staying with Germany, it’s worth noting that the Social Democrats are due to gather for a three-day convention starting today. Ahead of it, Walter-Borjans, who was elected co-chief of the party last weekend, said that the SPD is seeking a “massive spending increase”. However it seems that a desire to push for fresh investment has been downplayed ahead of the conference as the party seems to be reigning in their new leadership already. Nevertheless its worth keeping an eye on the headlines over the next few days.

Looking further afield and to the big event here in the UK next week, yesterday DB’s Oliver Harvey provided a policy primer for the UK general election. Oli notes that the fragmented UK political landscape mean that a number of scenarios are plausible when the next government is formed. The most likely is a Conservative government and the medium-term outlook will be determined by policy on Brexit. Should there be no extension to the transition period beyond 2020 and a limited FTA with the EU, Oli sees the medium-term outlook for growth and UK asset prices as negative, but this could change if Brexit policy becomes more pragmatic. In the event that a Labour government is elected, the initial reaction is likely to be one of concern. But if Labour are constrained in implementing a business unfriendly policy mix by other parties, deliver a second Brexit referendum and highly expansionary fiscal policies, the medium-term trajectory for growth and sterling could be more positive.

To the day ahead now, which datawise this morning includes October industrial production in Germany and October trade data in France. The headline release comes this afternoon though with the November employment report in the US, while later on we’ll also get the preliminary December University of Michigan consumer sentiment survey, October wholesale inventories and October consumer credit. In terms of politics Germany’s Social Democrats gather for a three-day convention while tonight will see UK PM Johnson and Labour’s Corbyn take their places in a televised head to head debate.

Tyler Durden Fri, 12/06/2019 - 07:54
Published:12/6/2019 7:11:33 AM
[Markets] Dow Jones Futures Rise Before Jobs Report: Tesla Gets $500 'Bull' Target; DocuSign Surges On Earnings Dow futures: The stock market rally is acting well going into Friday's jobs report. Tesla, DocuSign, Okta, Zoom and Ulta Beauty led movers late. Published:12/6/2019 6:10:47 AM
[Markets] Dow Jones Futures: Stock Market Rally Strong Before Jobs Report; Tesla Gets $500 'Bull' Target While DocuSign Leads Earnings Movers Dow futures: The stock market rally is acting well going into Friday's jobs report. Tesla, DocuSign, Okta, Zoom and Ulta Beauty led movers late. Published:12/5/2019 5:44:23 PM
[Markets] The Masses Are Being Conditioned To Ignore The Economic Bubble The Masses Are Being Conditioned To Ignore The Economic Bubble

Authored by Brandon Smith, via Birch Gold Group,

In the second week of October, after the “partial” U.S.-China trade deal was announced to much fanfare, I made this prediction:

"US and Chinese officials rarely waste an opportunity to use trade talk headlines to head-fake markets with false hope. Rumors of a “partial” or tentative trade deal are circulating today, with MORE trade talks in a month or two. In other words, “more trade talks” means there is no deal of any substance and there’s plenty of time for the whole thing to fall apart once again. I give it less than a month. In the meantime, there will be plenty of other distractions for the general public, including the impeachment circus, tariffs against Europe, tensions in Syria, the Brexit mess, etc, etc."

My estimate was incorrect; it took a little OVER one month for the whole thing to fall apart. That said, I think the primary point remains the same. The trade war is not going to end anytime soon and there is a very good reason why this is the case: It serves the globalist agenda as a perfect distraction for the collapse of the “Everything Bubble” and the launch of the global economic reset into a what the elites call a “new world order”.

But let’s go back for a moment to understand what just happened. A month ago, the trade deal was treated as essentially done. China had partially folded on most of Trump’s demands and Trump was going to pull off a major economic victory just in time for the 2020 election season. The Dow was going to rocket past 30,000 and Trump’s second term was now assured. This was the narrative in the majority of the alternative media, and I have to say, it is sad to see so many otherwise intelligent analysts make such a huge blunder.

I have lost track of how many times the trade war was put on hold in light of an optimistic “new deal”, and how many times people bought into the farce. For many, though, this event seemed different. The rhetoric on both sides was more conciliatory and they even had a tentative date set for a “phase one” deal signing. The problem is that after every deal announcement, the establishment has always left at least a few separate “linchpins” in place that would allow them to explode trade deal exuberance down the road.

A year ago, the linchpin was the arrest of Huawei CFO Meng Wanzhou in the middle of a 90-day truce. This time, it was the U.S. passage of a bill supporting Hong Kong protesters only weeks before the trade deal was to be signed and before new U.S. tariffs were to be implemented against China.

The Hong Kong issue is an interesting one. I won’t get too involved in the domestic politics of Hong Kong vs. China because I think this is peripheral to the bigger discussion. I will say that if I was living in Hong Kong, I would not want to concede further control to the totalitarian aspirations of mainland China. But U.S. involvement doesn’t help the protesters. In fact, it hurts them.

Mass protests against government dominance require grassroots momentum to be successful. They require the public and the rest of the world to view their efforts as a legitimate fight for freedom against the oversteps of the political elites. Such activist efforts are derailed when they are sullied by associations with foreign powers. Meaning, when a protest or rebellion is accused of being a puppet movement of a foreign government seeking war by proxy, the rebellion loses support in the eyes of the rest of the public and thus loses momentum.

Americans should be intimately familiar with this problem. Conservative activist groups have been accused for years of being puppets of the Russian government, and this is clearly designed to undermine their image as true Americans fighting for a freer society. In Hong Kong, the U.S. is being presented as the foreign power whose tentacles are spreading through every facet of the protests. And even if the Hong Kong rebellion started on honest terms as a real domestic response to Chinese Big Brother collectivism, it doesn’t matter now. The U.S. government has sabotaged those efforts by injecting itself into the situation.

U.S. legislation in support of Hong Kong also wrecks any future possibility of a trade deal, because it directly attaches the Trump Administration and the trade talks to the violent tides in Hong Kong. Trump cannot sign a trade deal with China while China brutalizes protesters, and China cannot sign a deal while Trump encourages what they consider domestic terrorism. Even if one side or the other wanted to capitulate, now it is impossible.

Of course, it is my belief that neither side ever had any intention of signing a trade deal in the first place. It is also my belief that the next escalation of the trade war will be used by the establishment as a scapegoat for the ongoing collapse in economic fundamentals and eventually a crash in stock markets.

Currently, it appears that the December phase one deal signing is off. Donald Trump has stated that he “likes the idea” of delaying a trade deal until after the 2020 election. The Chinese state-controlled media has accused the U.S. of “backpedaling” on recent agreements. And, rumors are that the Trump Administration is poised to assert new and higher tariffs on China by December 15th. I think the people betting on a Santa rally in markets this holiday season are about to get the same shock they got during the 2018 holiday season.

In the meantime, precious metals, which saw a pull-back in recent weeks due to economic optimism fueled by a potential trade deal, will soon return to their previous rally as the trade deal falls apart yet again. There is a reason why countries like Russia and China have been stocking gold like mad the past few years. They know what is about to happen.

But why reignite the trade war now? As I noted at the end of October:

"Trump has no intention of “winning” the trade war, and China has no intention of giving any real concessions to the US. In the meantime, the banking elites are conditioning the public to associate the trade war with the success or failure of stock markets, and separating themselves from any blame for the ongoing crash in fundamentals. When the trade deal finally and fully falls apart and markets crash, the public will assume the two things are directly related, and the banking elites hope that everyone will forget that it was they that created the Everything Bubble in the first place…"

The Federal Reserve’s overnight and month-long repo purchases conveniently coincided with October and November’s trade deal optimism. Stock markets rocketed upwards despite almost all economic data showing a severe decline in every sector from housing to manufacturing to retail sales and store closures to auto sales, all on top of historic levels of corporate and consumer debt not seen since the crash of 2008. Now the Fed’s repo-loans are coming due and companies are going to have to buy back the collateral they initially gave the Fed in exchange for quick cash, conveniently at the same time as the trade war is being accelerated.

You will notice that in almost every instance that there is a policy shift by the Fed, something extreme seems to happen in the trade war. The central bankers are acclimating the public to the idea that every time good things happen in markets, it’s because of trade deal optimism. And, every time something bad happens in markets, it’s because the trade war is getting worse.

The masses are being conditioned to forget all about the epic financial bubble the elites engineered over the past decade through stimulus measures and QE, not to mention the fact that the Fed popped that bubble over a year ago through interest rate hikes and balance sheet cuts into economic weakness.

Another rather advantageous aspect of the trade war is that it provides cover for the destruction of the current monetary order and makes way for what the establishment elites call the “global economic reset”. As “de-dollarization” continues in Russia, China, the EU and other nations, eventually the American public is going to discover that their currency is being replaced as the world reserve with a basket system that includes a cashless digital alternative. This system is already being created by the IMF, and many nations including China and Russia have proclaimed their support for it.

The U.S. will see considerable inflation or stagflation as the reset evolves. The elites hope that Americans will blame China and perhaps Russia for the pain of the dollar crash. The trade war creates a false paradigm of East vs. West, while the global banks and their political allies escape all blame. At least, that is the plan.

*  *  *

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Tyler Durden Thu, 12/05/2019 - 16:45
Published:12/5/2019 4:06:48 PM
[Markets] Dow Down, But Jumped 419 Points From Dec. 3 Low; Top Stocks Defy Trump Impeachment News The Dow Jones Industrial Average and other indexes in the stock market are trying to limit the damage by President Trump's recent thoughts on trade talks. Published:12/5/2019 12:38:16 PM
[Markets] The Dow Goes Negative Despite a Glimmer of Hope on Trade STOCKSTOWATCHTODAY BLOG Reversal. The three major U.S. stock mark indexes slipped into negative territory after beginning the day in the green amid continued optimism about trade. Near midday, the Dow Jones Industrial Average was down 33 points, or 0. Published:12/5/2019 12:07:37 PM
[Markets] The Dow Is Falling Because We Still Don’t Know If There Will Be a Trade Deal The market looked like it was ready to follow up Wednesday’s advance with another day of gains, but instead it now looks like it could add to the week’s losses—the Dow is off 1.7% though Thursday following President Donald Trump’s Tuesday remarks that he’d be happy to wait until after the election to make a trade deal with China. Published:12/5/2019 9:38:27 AM
[Markets] Dow off 16 points as premarket gains fail to carry over Dow off 16 points as premarket gains fail to carry over Published:12/5/2019 9:06:00 AM
[Markets] Nike shares jump premarket after Goldman upgrades to buy, says China is key growth driver Nike Inc. shares rose 2.3% in premarket trade Thursday, after Goldman Sachs upgraded the stock to buy from neutral and added it to its Conviction List. "We believe Nike is a unique asset, where a strong brand combined with a disruptive and innovative strategy are positioning the business for multi year growth, expansion in margins, and higher returns on invested capital," analysts led by Alexandra Walvis wrote in a note to clients. A bottom up analysis of the company suggests China is a key growth driver for the sporting goods company and Goldman is expecting that Nike can grow revenue in China at a high teens pace. Direct-to-consumer is the biggest driver, reaching 50% of the region's revenue by 2023, according to Goldman estimates. The company can also expect support from growing purchasing power among younger consumers where the brand is clearly resonating. "Evidence of building pricing power, signs of operating leverage, accelerating shift to differentiated retail, sharply scaling app ecosystem, and a constructive global athletic growth backdrop," are the key motivations for the upgrade, said the note. Nike shares have gained 26% in 2019, while the Dow Jones Industrial Average , which counts Nike as a member, has gained 18.5% and the S&P 500 has gained 24%. Published:12/5/2019 7:34:35 AM
[Markets] Equity Futures Jump On, You Guessed It, "Increased Hope Of Trade Deal" Equity Futures Jump On, You Guessed It, "Increased Hope Of Trade Deal"

After two gloomy days for stocks at the start of the month which led to the worst December for the S&P since 2008, markets rebounded around the globe following an unsourced Bloomberg report that said the trade negotiations with China are still very much on track "according to people who wish to remain anonymous" (such as Larry Kudlow), yet who apparently are too worried to reveal that they have a different agenda than the president. In any case, the lack of new trade deal pessimism coupled with a report that Chinese Ministry of Commerce spokesman said officials are in “close contact” with U.S. counterparts, even though China officially reiterated that the US must rollback existing tariffs to agree to a Phase 1 deal, was sufficient for global stocks to extend their levitation for a second day and for Reuters to proclaim that...

Indeed, the latest batch of headlines around trade suggested the world’s two largest economies were closer to agreeing how many tariffs would be rolled back in a “phase one” trade deal, while President Donald Trump said talks with China were going “very well”. This more optimistic tone around trade helped Wall Street's main indexes snap a three-day losing streak in the previous session, putting the benchmark S&P 500 index just 1% away from an all-time high hit last week. Of course, things could turn sour fast: if no agreement is reached soon, around $160bn in tariffs on Chinese goods would come into effect from Dec. 15.

Or as DB's Jim Reid put it:

We are living in a pre-December 15th world where one headline or tweet on trade has the ability to turn a good day into a bad one and visa-versa. The same story has the ability to wipe or add hundreds of billions (even trillions) from/to the value of global financial assets. That’s what we’re dealing with at the moment.

At 7am, Dow e-minis were up 104 points, or 0.38%; S&P 500 e-minis were up 11 points, or 0.35% and Nasdaq 100 e-minis were up 37 points, or 0.45%.

In the US, shares of tariff-sensitive semiconductor companies looked set to rise for the second straight day, with Micron Technology, Advanced Micro Devices and Nvidia gaining between 1% and 1.3% in premarket trading. Among stocks, Dollar General Corp jumped about 5% after the discount store chain raised its full-year profit forecast.  Nike shares climbed 2% after a report said Goldman Sachs upgraded the sportswear maker’s stock to “buy” from “neutral”, while Tiffany which is being bought by Louis Vuitton owner LVMH, nudged 0.5% lower after the luxury jeweler fell short of analyst’s estimates for quarterly sales.

European stocks were also a sea of green, as the Stoxx Stoxx Europe 600 rose as much as 0.5%, extending earlier gains, along with U.S. index futures. Most sectors were in the green, led by healthcare +0.9% and retail +0.8%; travel & leisure little changed.

Earlier in the session Asian stocks climbed, led by technology companies; most markets in the region were up, with Australia leading gains and South Korea slipping. Japan’s Topix rose, driven by electronic firms and drug makers, as Prime Minister Shinzo Abe announced a $239 billion stimulus package to support growth. The Shanghai Composite Index closed higher, with China Life Insurance and Foshan Haitian Flavouring among the biggest boosts. The Sensex gained for a second day as India’s central bank defied expectations for a rate cut and kept borrowing costs unchanged

There is other stuff besides trade too: after lackluster readings on domestic services sector activity and private payrolls growth on Wednesday, traders are also awaiting the Labor Department’s non-farm payrolls data due Friday.
Treasuries added to their losses from Wednesday, and were modestly cheaper across the curve, dragged lower by wider losses across bunds and gilts over early European session. Yields were higher by at least 1bp vs Wednesday’s close, 10-year by 1.7bp to ~1.79%; 10-year gilts and bunds underperformed by ~1bp. Indian government bonds tumbled after its central bank unexpectedly left interest rates unchanged.

In FX, the Bloomberg Dollar Spot Index headed for a fifth day of losses. The pound rose for a fifth day against the greenback as expectations grow for a Conservative victory in next week’s election, while the euro stayed near $1.11 as real money interest lent support.

 

Market Snapshot

  • S&P 500 futures up 0.1% to 3,115.50
  • STOXX Europe 600 up 0.1% to 403.67
  • MXAP up 0.5% to 163.97
  • MXAPJ up 0.6% to 521.04
  • Nikkei up 0.7% to 23,300.09
  • Topix up 0.5% to 1,711.41
  • Hang Seng Index up 0.6% to 26,217.04
  • Shanghai Composite up 0.7% to 2,899.47
  • Sensex up 0.02% to 40,857.88
  • Australia S&P/ASX 200 up 1.2% to 6,682.95
  • Kospi down 0.4% to 2,060.74
  • German 10Y yield rose 1.3 bps to -0.302%
  • Euro up 0.1% to $1.1092
  • Brent Futures down 0.08% to $62.95/bbl
  • Italian 10Y yield rose 0.4 bps to 0.942%
  • Spanish 10Y yield rose 1.6 bps to 0.458%
  • Brent Futures down 0.08% to $62.95/bbl
  • Gold spot up 0.02% to $1,474.91
  • U.S. Dollar Index down 0.1% to 97.52

Top Overnight News from Bloomberg

  • Japan announced a stimulus package amounting to around 26 trillion yen ($239 billion) spread over the coming years, with fiscal measures around half that figure
  • ECB Governing Council members, who collectively lowered the key rate to minus 0.5% shortly before Draghi’s term ended, are increasingly portraying it as a necessary evil that shouldn’t be compounded
  • Federal Reserve officials won’t allow the 2020 presidential election to sway their monetary policy decisions and will keep interest rates on hold for the next two years, according to economists surveyed by Bloomberg
  • German factory orders unexpectedly declined, suggesting Europe’s largest economy is still struggling to overcome a manufacturing slump and fend off recession
  • India’s central bank defied expectations for an interest rate cut, keeping borrowing costs unchanged to assess the effect of its policy after five reductions this year
  • Chinese officials are in “close contact” with U.S. counterparts on trade negotiations, Ministry of Commerce spokesman Gao Feng said, while reiterating that tariffs should be reduced proportionately as part of a phase-one accord
  • Adrian Lee & Partners, among the largest active currency management firms with over $14 billion in assets, announced Wednesday the launch of a Global Macro Alpha Fund, which will invest in equities and fixed-income alongside currencies at a time when historically-low levels of volatility are making it difficult for some in the industry to make profits from foreign exchange

Asian equity markets were mostly positive as they took their cue from global peers after the trade mood flip-flopped once again to a more positive tone yesterday. ASX 200 (+1.2%) was led by outperformance in the tech and energy sectors amid the trade optimism and recent 4% surge in crude prices, with banks also welcoming the RBNZ’s increased capital requirements as some now expect a lower impact than they had previously anticipated. Nikkei 225 (+0.7%) was underpinned by recent currency moves and with Japan set for a multi-trillion stimulus package, as well as talks with South Korea this month to address the trade spat. Elsewhere, Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) were also lifted on the trade hopes and following the announcement of measures to support the Hong Kong economy, but with gains capped given the lack of actual meaningful breakthrough on the trade front and amid continued PBoC liquidity inaction. Finally, 10yr JGB were initially lower on spill-over selling from USTs and as demand was sapped by the gains across equities, although prices were later rebounded which was helped after the results of the 30yr JGB auction showed slight improvements across all metrics.

Top Asian News

  • Japan’s Abe Says Stimulus Opens Path to Future Growth
  • India Central Bank Surprises With Pause as Inflation Spikes
  • Hedge Fund Sends Letter to Korea Lawmakers on Stock Value Boost

Major European bourses (Euro Stoxx 50 +0.6%) are higher as the market maintains a positive risk tone as it awaits further news on the US/China trade front and the outcome of today’s OPEC & JMMC meetings. The FTSE 100 (-0.1%) is again the laggard, amid a firmer Pound. Elsewhere, the CAC 40 (+0.4%) is holding up well despite France being hit by nationwide strikes, as workers across a range of professions protest French President Macron’s proposed pension reforms. Subsequently, a walk out by air traffic controllers has however resulted in some airlines being hit; Air France (-1.0%) said it was axing 30% of internal flights and 15% of short-haul international routes and easyJet (-0.8%) reportedly cancelled 223 domestic and short-haul international flights and warned that others risk being delayed, although yesterday’s approximate 4% rally in crude oil prices is also likely weighing on airlines in general – other names including IAG (-1.1%) and Deutsche Lufthansa (-1.2%) are also lower. Elsewhere, luxury names including Hermes (+1.6%) and Swatch Group (+1.6%) are on the front foot after Kering (+1.6%) reportedly held explanatory talks with Moncler (+9.2%) regarding a potential combination, which would mark continued consolidation within the sector following LVMH’s (+0.9%) buyout of Tiffany & Co. last month. Sectors are mostly in the green, barring Tech (unch.), Materials (unch.) and Telecoms (-0.1%), the latter weighed by continued underperformance in Orange (-0.7%), with the Co. still suffering following yesterday’s disappointing dividend outlook. In terms of other individual movers; Novartis (+0.7%) shares are underpinned by the news that around 90 innovative new molecular entities are emerging from the Co.’s institutes for BioMed research. Elsewhere, Fiat Chrysler (-0.9%) shares are under pressure after reports that the Co. is in talks with Italian tax authorities regarding an audit, which added that the Co. may be liable for up to USD 1.5bln in “exit tax”. Metro Bank (+0.6%) shares are supported following the resignation of its CEO Donaldson, who will be replaced by Frumkin on an interim basis. Finally, negative broker moves for Siemens (-0.7%), Berkley Group (-0.6%), Vinci (-0.5%) and Tullow Oil (-0.2%) weighs on their shares.

Top European News

  • Credit Suisse Wins Order Keeping Critical Report From Prosecutor
  • New CEO of U.K.’s Worst Stock of 2019 Will Have Work Cut Out
  • Surging Green-Bond Demand Starts Tempting East Europe Borrowers
  • Telecom Stocks Drop as Italian Finance Probe, Orange Weigh

In FX, sterling remains on a firmer footing in early EU trade, with the latest poll (Savana/ComRes) showing the market-friendly Conservatives maintaining its lead over Labour vs. the prior survey as election day looms. Aside from that, little pertinent news flow thus far to influence price action. GBP/USD extends gains above 1.3100 before hitting a wall just under the 1.3150 mark, ahead of resistance in the form of a Fib level at 1.3168 followed by 1.3185. Meanwhile, the EUR derives support from a marginally softer USD and largely side-lined a slump (and significant miss) in German industrial orders, albeit the country’s construction PMI indicated a decent rebound. EUR/USD continues to eke modest gains to session highs just under the 1.1100 mark (1.1078-93 intraday range thus far), with hefty options eyeing today’s NY cut – EUR 1.0bln between 1.1090-1.1100 and EUR 2.4bln around 1.1110-25.

  • NZD, AUD, CAD - Mixed trade down under with the Kiwi buoyed by the RBNZ’s attempt to bulletproof its financial system via a capital requirement hike in order to withstand economic volatility. The Central Bank also gave lenders an extra two years to raise the required capital and flexibility on how they raise it. NZD/USD remains underpinned but has subsided a bulk of its overnight gains with the pair still in the green but back below its 200 DMA (~0.6540), having hit resistance around 0.6562-65. Meanwhile, the Aussie remains lacklustre on the back of further sub-par data, this time in the form of retail sales and trade balance, with the former printing flat and the latter a smaller surplus than had hoped. AUD/USD remains in the red and closer to the bottom of the current intraday band (0.6855-31) with the pair’s 100 and 50 DMAs (0.6814 and 0.6811 respectively) in the way of the psychological 0.6800. Elsewhere, the CAD remains modestly firmer in the aftermath of yesterday’s BoC hawkish hold and upbeat view on the economy, although traders will be eyeing BoC’s Lane on the docket later today (1245GMT) who is likely to speak on the economy. USD/CAD remains sub-1.3200 having touched a base around 1.3180.
  • DXY, JPY - The broad Dollar and Index remain under pressure given the recent string of downbeat data and ahead of the monthly US jobs report tomorrow. DXY manages to stay afloat above 97.50 (just about) having clocked in a current range of 97.49-60 with little in terms of scheduled data/speakers to influence price action. Finally, USD/JPY is relatively flat and just a whisker away from the 109.00 mark, albeit above its 200 DMA at 108.87, with USD 1.4bln in options set to expire around 109.00-15.

In commodities, crude markets eke mild gains as the complex consolidates following yesterday’s strong price action and with participants cautious as they await the outcome of today’s JMMC and OPEC meetings; the former has already begun, while the latter is scheduled to begin at 14:00 GMT. Tomorrow OPEC+ will meet and the final decision on the cartels production cuts will be made. Sources this morning suggested that OPEC+ are to discuss deeper oil output cuts of more than 400k BPD as the main scenario, news which triggered some fleeting upside in crude markets and something which has been alluded to by the Iraqi oil minister on multiple occasions in recent days. This contrasts somewhat with the reported consensus amongst OPEC minister yesterday that a deeper cut will "be harder to pull off this time". Russian Oil Minister Novak has so far declined to reveal the country’s stance for the upcoming OPEC+ meeting, but the country is expected to resist any push for further cuts; "Russia's reluctance to deepen the cuts at the risk of compromising its market share and undermining the predictability of its oil rent is now well-known," said Aperio Intelligence, adding "Russia's strategy will be to seek to preserve the status quo without either overplaying its hand or overreaching". Moreover, the country is also pushing to have its condensate output to become exempt from its quota, a request which may prove contentious, especially with Iranian Energy Minister stating that condensates of gas in the OPEC quota system is not a OPEC discussion. In terms of other crude specific news flow; the latest Platts Oil Survey revealed that OPEC pumped 29.65mln BPD of crude in November, with 11 quota members achieving cut compliance of 145%. The survey found that Iraq and Nigeria are still supplying in excess of the cap but are moving closer to compliance. Poor compliance by these members is a point of frustrations for the Saudis; just yesterday, it was reported that the Saudis are threatening to increase production back to its quota level, rather than reducing production by more than is required, due to growing frustration with those not complying with the existing OPEC cut agreement. Thus far, the Saudi’s have shouldered the bulk of the cuts, with recent analysis suggesting that without the Saudi’s overcompliance, OPEC+ compliance would be just 70%. On a different note, Goldman and Barclays provided some updates oil market forecasts; Goldman expects a Brent-WTI differential of USD 4.50/bbl in 2020, from the YTD levels of close to USD 7.0/bbl, while Barclays forecasts Brent to average USD 62/bbl and WTI to average USD 57/bbl for Q4 2019 and 2020. Moving over to metals; gold is slightly lower, amid a lack of demand for havens, but is relatively rangebound about the USD 1480/oz level. Meanwhile, positive risk tone has underpinned copper, which has this morning managed to eclipse yesterday’s USD 2.6655/lbs high, albeit only slightly.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior -33.5%
  • 8:30am: Initial Jobless Claims, est. 215,000, prior 213,000; Continuing Claims, est. 1.66m, prior 1.64m
  • 8:30am: Trade Balance, est. $48.5b deficit, prior $52.5b deficit
  • 10am: Factory Orders, est. 0.3%, prior -0.6%
  • 10am: Factory Orders Ex Trans, prior -0.1%
  • 10am: Cap Goods Ship Nondef Ex Air, prior 0.8%; Cap Goods Orders Nondef Ex Air, prior 1.2%
  • 10am: Durable Goods Orders, est. 0.6%, prior 0.6%; Durables Ex Transportation, est. 0.6%, prior 0.6%

DB's Jim Reid concludes the overnight wrap

We are living in a pre-December 15th world where one headline or tweet on trade has the ability to turn a good day into a bad one and visa-versa. The same story has the ability to wipe or add hundreds of billions (even trillions) from/to the value of global financial assets. That’s what we’re dealing with at the moment.

Indeed it was another see-saw day for markets yesterday as investors took heart from a Bloomberg report that said the US and China were moving closer towards a trade deal, even amidst the tougher rhetoric between the two sides over non-trade issues in recent days. So carrying on the theme, a couple of journalists writing this story basically helped add around $561 billion to global equity markets yesterday given the market cap of global equities.

Citing “people familiar with the talks”, the article said that the US negotiators thought a phase-one deal would be finished before December 15, when US tariffs on China are scheduled to increase, and that President Trump’s comments the previous day that a deal could wait until after the US election next year shouldn’t be taken as an indication the talks were stalling. Meanwhile, China’s Foreign Minister Wang Yi has said on whether the trade talks can be finished this year that “it depends. China’s stance is very clear. There is hope, as long as it is based on mutual respect and equal consultations.” Elsewhere, Mr Trump has now said that talks with China are going very well before adding, “We will make a lot of progress.” Overnight, CNBC also reported, citing people familiar with the talks, that President Trump’s son-in-law Jared Kushner, who helped bring the US-Mexico-Canada trade agreement to fruition, has increased his direct involvement in the negotiations with China over the past two weeks.

The situation remains highly changeable, but markets nevertheless rallied with the S&P 500 up +0.63% to end a run of 3 successive declines. Trade-sensitive stocks led the advance, with the Philadelphia semiconductor index up +1.55%, its strongest performance in over a week, while the NASDAQ (+0.54%) and the Dow Jones (+0.53%) also closed higher. Energy stocks were the strongest performers among US equities thanks to oil’s advance, with WTI (+3.98%) and Brent Crude (+3.60%) experiencing their best day since the aftermath of the Saudi drone strike in September that saw Brent rally +14.61% in a single session. The move was partially driven by expectations that OPEC will announce an expanded cut to output at today’s meeting, plus US inventories later in the day showed a larger-than-expected drawdown. It was a similar bullish equity story in Europe, with the STOXX 600 up +1.18% to end a run of 4 successive moves lower.

With the risk-on attitude, sovereign bonds sold off on both sides of the Atlantic, with 10yr Treasuries +5.5bps to 1.771%, while the 2s10s curve steepened by +2.1bps.Canadian bonds were the worst performer, +9.5bps after the Bank of Canada’s decision (more on which below), while in Europe 10yr Bunds (+3.3bps), OATs (+3.7 bps) and Gilts (+7.2bps) all lost ground. Higher rates helped bank stocks however, with the S&P 500 banks industry group +1.31% in its best performance for a month, while the STOXX Banks index in Europe was also up +2.08%.

In overnight news, Japan’s PM Shinzo Abe announced a total stimulus package amounting to JPY 26tn (c. $239 bn) spread over the coming years to support the economy. Remember that without a package fiscal would be tightening with tax increases. The total is perhaps bigger than expected but the fresh fiscal measures are not. Of the total, JPY 13.2 tn would be fiscal measures, according to a draft stimulus document seen by Bloomberg. Despite the big headline figure, the initial reaction to the package has been muted given that the headline stimulus figure for such announcements in Japan are typically inflated with promised loans and private-sector assistance and as details indicated that the actual central government spending is just JPY 7.6tn (per Bloomberg). Yields on 10y JGBs are up +1.3bps to -0.045%.

Asian markets are following Wall Street’s lead this morning with the Nikkei (+0.79%), Hang Seng (+0.36%) and Shanghai Comp (+0.41%) all up. The Kospi is down -0.45%. Elsewhere, futures on the S&P 500 are trading flat while the yield on 10y USTs is down -1.6bps.

In other positive news for trade, the House Democrats said overnight that a deal on the stalled U.S.-Mexico-Canada free-trade agreement is within reach and urged Mexico to accept a compromise on labor-rights enforcement. Mexico’s top trade negotiator, Jesus Seade, met yesterday in Washington with his US counterpart, Robert Lighthizer, in an attempt to resolve final details and they are again going to meet today. Elsewhere, in France, unions representing a broad sweep of workers across the country are going on an indefinite “greve,” or strike, starting today in opposition of Prime Minster Macron’s plan for an overhaul of the pension system. So one to watch.

Bloomberg also reported overnight that Elizabeth Warren is drafting a bill that would call on regulators to retroactively review about two decades of “mega mergers” and ban such deals going forward. According to a draft of the bill reviewed by Bloomberg, the proposal would expand antitrust law beyond the so-called consumer welfare standard to also consider the impact on entrepreneurs, innovation, privacy and workers.

Back to yesterday, and the main data releases were the final services and composite PMIs for November from around the world. In terms of the numbers, the Euro Area composite PMI was revised up to 50.6 (vs. flash 50.3), although this strength was somewhat dependent on the country, with Germany revised up to 49.4 (vs. 49.2 flash) while France was revised down to 52.1 (vs. 52.7 flash). In the periphery, where we didn’t have the flash readings as a guide, Italy’s composite PMI fell into contractionary territory at 49.6, its lowest level in 7 months, while Spain saw an increase to 51.9, a 3-month high. On the services PMI for the Euro Area, this was also revised up, now at 51.9 (vs. 51.5 flash).

Turning to the US, and the non-manufacturing ISM index for November fell to 53.9 (vs. 54.5 expected). In a more promising sign, the employment component rose to a 4-month high of 55.5, but this was a contrast to the more negative message from the ADP report of private payrolls, which saw the weakest employment gain in 6 months, at just +67k (vs. +135k expected).

Here in the UK, with just one week now until the general election, sterling was the strongest performing G10 currency for the second day running, up +0.85% against the dollar at its highest level since May. In fact against the euro, sterling was at its highest level since May 2017, way back when the country was in the midst of the last general election campaign. In recent weeks, sterling has been supported by investor hopes that a Conservative majority at the election will support a smooth ratification of the Withdrawal Agreement through Parliament, taking away some of the short-term uncertainty over the Brexit process. The sole poll yesterday came last night and showed a 10pt lead for the Tories - unchanged from the previous poll and in-line with the poll of polls. Sterling was also helped by the PMI revisions, with the composite PMI revised up to 49.3 (vs. flash 48.5).

The Canadian dollar took 2nd place to sterling yesterday, up +0.73% against the US dollar after the Bank of Canada left rates unchanged yesterday at 1.75%. Although in line with expectations, the market took the message to be somewhat hawkish, with the statement from the BoC saying that there was “nascent evidence that the global economy is stabilising”. Looking forward, they said that future decisions would “be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy”.

Elsewhere, US Treasury Secretary Mnuchin sent a letter to the OECD arguing against unilateral digital services taxes like France’s recent measure. This follows Friday’s report from the USTR which said that the French proposal is discriminatory against US firms. Mnuchin’s letter pushed for multilateral measures via the OECD. For more on the OECD plans see our report on the future of corporate taxes from a few weeks back here .

To the day ahead now, and we’ve got a number of data releases, starting this morning with German factory orders for October, along with the country’s construction PMI for November. We’ll also get the Euro Area’s retail sales figures for October, as well as the final GDP and employment readings for Q3. Then from the US, there’s the October trade balance and factory orders data, along with the final reading for October durable goods orders and non-defence capital goods orders. Finally, there’ll be the weekly initial jobless claims, and from Canada October’s international merchandise trade. In terms of central banks, we’ll hear from the ECB’s Makhlouf, while the Fed’s Quarles will be testifying before the Senate Banking Committee on supervision and regulation.

Tyler Durden Thu, 12/05/2019 - 08:00
Published:12/5/2019 7:04:17 AM
[Markets] Less than half of mid-size American businesses expect sales and profits to rise next year: survey It’s not only major U.S. companies with stocks included the Dow Jones Industrial Average that are feeling the effects of the U.S. - China trade war. Less than half mid-size American businesses expect their sales and profits to increase next year. Published:12/4/2019 11:29:25 AM
[Markets] Dow's nearly 175-point jump highlighted by gains in shares of Dow Inc., Johnson & Johnson DOW UPDATE The Dow Jones Industrial Average is trading up Wednesday morning with shares of Dow Inc. and Johnson & Johnson leading the way for the price-weighted average. Shares of Dow Inc. (DOW) and Johnson & Johnson (JNJ) are contributing to the blue-chip gauge's intraday rally, as the Dow (DJIA) is trading 171 points (0. Published:12/4/2019 8:58:03 AM
[Markets] You Better Not Short; You Better Not Try; Larry Kudlow, Please Tell Them All Why You Better Not Short; You Better Not Try; Larry Kudlow, Please Tell Them All Why

Submitted by Michael Every of Rabobank

The NATO summit saw the expected shenanigans with: Turkey’s President Erdogan stating it will oppose defense of the Baltic region if NATO doesn’t support it in its fight against the Kurds; France’s Macron refusing to do so; and US President Trump and Macron having a public spat, and then uniting in a clash over Turkey and the Kurds and its Russian S-400 missile system, with the word “sanctions” being mentioned by the US president again. Trump also suggested that countries who don’t pay up the 2% of GDP for defence might be dealt with via the trade channel, further politicizing trade as an issue, if it wasn’t already. Markets didn’t pay any attention.

That was because they were too busy being rocked when President Trump stated he is in no rush and “in some ways I think it’s better to wait until after the election” to make a trade deal with China. Not September, as we were told by those ‘in the know’ at certain financial media; not October, as were again told; not November, as we were still told; and not December, and perhaps not early 2020 – but after the US presidential election….which might as well be forever for markets. Especially as Trump will not have any electoral concerns at that point so might just dump the whole idea and go ‘all-in’. Indeed, Commerce Secretary Ross also made clear if “substantial progress” isn’t seen soon then the final 15% tariff tranche is indeed going to happen on 15 December.

The market reaction was clear: US 10-year yields plunged from 1.84% intraday to 1.72%, presumably because of all the inflation now coming from the tariffs, and 2-year yields from 1.62% to 1.55%; the S&P dipped; and CNH went from under 7.04 to over 7.08 and is at 7.0726 at time of writing. Perhaps it will go lower again when people read headlines on Bloomberg like “China Stockpiles Foreign Tech as ‘Silicon Curtain’ Descends”.

If not, it certainly should do given the US House of Representatives just passed legislation 407-1 to impose sanctions on Chinese officials responsible for alleged human rights abuses in Xinjiang, and to prevent the sale of technology to China that can be used in such repression. The Senate measure has already passed, but the House has added provisions that require the president within 120 days to list all officials deemed responsible and to impose visa restrictions and Global Magnitsky Act sanctions; the bill also ties US policy to China to Xinjiang via an annual State Department report to Congress on the issue. As with the recent HKHRDA legislation, it is expected there will now be rapid work to consolidate the two similar bills into one and to pass it to Trump before year-end – again with a veto-proof majority behind it. Indeed, a president who already signed the HKHRDA, and who is about to be impeached by the House on strictly bipartisan lines based on the Democrats just-released report, is not really going to be in a position to veto a bill backed by his own party. China has already vowed a response: banning US-based NGOs and US military visits to Xinjiang? And not getting as much coverage, but very significant, Taiwan is inviting US military experts to the island to advise on how it can bolster its defences: that’s on top of the recent agreement of US arms sales to it.

In which case, for those in markets trying to close out their books for the year-end and to get into the Xmas party spirit--and to pretend that the geopolitical issues I have been warning about as potential landmines for so long will never actually matter--it’s time for a Christmas Carol.

The following needs to be sung to the tune of ‘Santa Claus is Coming to Town’, and is best accompanied by a *large* brandy and a larger dose of tongue-in-cheek:

“Larry Kudlow, Larry Kudlow, Please don’t let this bull market go - tell us

A trade deal is comin’ to town! A trade deal is comin’ to town! A trade deal is comin’ to town!

He's making a list; He's checking it twice; Of all the things about China that’re suddenly nice – so

A trade deal is comin' to town! A trade deal is comin' to town! A trade deal is comin' to town!

He sees when stocks are slipping; He knows when bears awake

He knows the Dow Jones must look good; For Trump’s electoral sake

So you better not short; You better not try; Larry Kudlow, please tell them all why – ‘cos

A trade deal is comin' to town! A trade deal is comin' to town! A trade deal is comin' to town!

A great, great trade deal is comin' to toooooooooooooownnnnn!”

And there will be nowhere singing this more loudly than Australia given that Q3 GDP came in at just 0.4% q/q, a tick weaker than expected vs. an upwardly-revised 0.6% in Q2, and meaning only 1.7% y/y, around half of where the RBA sees the low-productivity/high-net immigration Aussie economy as deserving to grow. The Reserve Bank Governor of course left rates unchanged yesterday at 0.75%, and once again displayed his magic touch in saying that some downside risks to the global economy had lessened recently. Maestro!

What else to wrap with? Kamala Harris is out of the presidential race unless she gets offered VP by someone else; and Trump has stated he wouldn’t want the NHS even if it was offered to him on a silver platter; and Corbyn obviously doesn’t believe him, especially on drug pricing. On which note, the US has just proposed stripping 10-year protections for biologic drugs from generic rivals from the USMCA to speed its passage in Congress, which seems the complete opposite of what Labour is saying the US would do to the UK in a US-UK trade deal.

Tyler Durden Wed, 12/04/2019 - 09:30
Tags
Published:12/4/2019 8:37:06 AM
[World] In One Chart: Here’s how much stock could’ve been bought with all the QE central banks have done One of the major stories of the last decade was central bank enthusiasm for what’s called quantitative easing, or in simpler terms, buying bonds. Chris Bennett, director of index investment strategy at S&P Dow Jones Indices, decided to add it all up.
Published:12/4/2019 7:58:09 AM
[Markets] Global Markets Rocket Higher After Blue Horseshoe Loves China Trade Deal Global Markets Rocket Higher After Blue Horseshoe Loves China Trade Deal

The worst start to a December since 2008 for the S&P500 was apparently too much for certain people who asked Bloomberg not to be identified.

With hopes of a trade deal in shambles, optimism that a "Phase 1" getting signed in 2019 cracking after Trump said yesterday it may be better to delay the deal until after the Nov 2020 election, and China threatening retaliation after the latest House bill almost unanimously voted to sanction Chinese officials over Uighur abuse, even the Global Times' notorious twitter troll, Hu Xijing, tweeted this morning that there is "a high probability that President Trump or a senior US official will openly say in a few hours that China-US trade talks have made a big progress in order to pump up the US stock markets. They've been doing this a lot."

He was almost 100% accurate, because at almost the exact same time, just after 4am as US futures were sharply rolling over, and a perfectly normal time for such articles market-moving articles, Bloomberg reported that according to "people familiar who asked not to be identified", the U.S. and China were actually "moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang" and that Trump's comment "downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff."

In other words, Larry Kudlow Blue Horseshoe loves China trade deal.

There were naturally question about the Bloomberg piece: like why does an "unknown" source who "thinks" the deal is imminent take presedence, when very known people, , i.e., the US president and Wilbur Ross, both said a deal may not happen for almost a year and that if there is no substantial progress, another round of duties on Chinese imports would take effect on Dec. 15; or why was this "respected" Larry Kudlow source so terrified to give his name on the record if everything checks out?

None of that mattered however, and the market response, as Hu predicted, was instantaneous, sending not only S&P futures sharply higher and importantly, above the critical for dealer gamma level of 3,100, instantly reversing the gloom of the past few days...

... but sent global stocks into a sea of green.

The short squeeze that was triggered after investors layered on shorts into the worst first two days of a December since the financial crisis, went global and miners and chemical producers led the rise on the Stoxx Europe 600 gauge, which rocketed over 1% higher in early trading, even though IHS Markit’s composite PMI index for the euro zone reading at 50.6 pointed to growth of only 0.1% in the fourth quarter. That would be the weakest since the 19-nation region emerged from recession in 2013.

Earlier in the session, markets closed lower across much of Asia as the Bloomberg deus ex ma-China came out too late to help them, with Australia and Hong Kong bearing the brunt of the declines. Declines were led by energy producers, as investors were still focused on the story du jour - at least until the Bloomberg unnnamed sources became "it" - in which trade tensions mounted between Beijing and Washington with a new tariff hike on Chinese goods looming large. Almost all markets in the region were down, with South Korea and Hong Kong leading declines. The Topix retreated, driven by electronic companies and drug makers, as Japan’s government called for decisive fiscal action combined with powerful central bank easing. The Shanghai Composite Index slid, with large insurers and banks among the biggest drags. China is likely to cut the reserve ratio for lenders in the first quarter of next year, the China Securities Journal said in a front-page commentary Wednesday. India’s Sensex edged lower a day before an expected rate cut aimed at reviving growth, as Reliance Industries and HDFC Bank weighed on the gauge.

Treasuries initially caught a bid to session highs on reports that passage of the latest bill could jeopardize a U.S.-China phase one deal. However, the haven bid for Treasuries during Asia session was unwound in European morning trade on the Bloomberg report, overriding negative comments earlier from China’s Ministry of Foreign Affairs. The TSY curve steepened, unwinding a portion of Tuesday’s aggressive bull-flattening move. Yields were higher by 1.2bp to 2.4bp across the curve led by long-end, steepening 2s10s, 5s30s by 1.2bp and 0.5bp; 10-year yields at 1.738%, cheaper by 2.2bp vs. Tuesday’s close. Treasuries were supported during Asia session after China’s Ministry of Foreign Affairs said U.S. will “pay price” for legislation imposing sanctions on Chinese officials over human-rights abuses.

In FX, the dollar briefly recovered against major peers, then headed sharply lower. The euro edged down after a manufacturing report showed that the single-currency economy is barely expanding. The British pound climbed to an almost seven-month high against the dollar and its strongest level since May 2017 against the euro as polls showed the Conservatives have increased their lead before the election. Tracking the positive newsflow, the Chinese yuan spiked, in a virtual mirror image of the move in US futures.

As expected, crude markets were bolstered on the news that the US and China are moving closer to a deal despite recent “heated” rhetoric. Elsewhere, the latest batch of comments from the Iraqi oil minister continues to support prices; an additional 400k bpd cut for OPEC+ is apparently in circulation but not final, while the Saudi’s also reportedly prefer deeper cuts, although this contradicts sources reports seen last month. “If all members were compliant with the [current] deal this may be the case, however, with a number of members falling well short in cutting output, including Iraq, other members may be reluctant to cut further” says ING, who goes on to conclude that “reassurance of stronger compliance will likely be needed before other members agree to deeper cuts.”

Looking at the day ahead, this morning the focus will be on the final November PMI revisions (services and composite) in Europe while we’ll also get that data for the US, along with the November ISM non-manufacturing and November ADP employment report. Away from that, we’re due to hear from the ECB’s Villeroy, Visco, Makhlouf and Hernandez de Cos while the Fed’s Quarles is due to speak on supervision and regulation. Campbell Soup and Synopsys are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.4% to 3,102.00
  • STOXX Europe 600 up 1% to 402.43
  • MXAP down 0.7% to 163.21
  • MXAPJ down 0.8% to 518.12
  • Nikkei down 1.1% to 23,135.23
  • Topix down 0.2% to 1,703.27
  • Hang Seng Index down 1.3% to 26,062.56
  • Shanghai Composite down 0.2% to 2,878.12
  • Sensex up 0.4% to 40,822.98
  • Australia S&P/ASX 200 down 1.6% to 6,606.51
  • Kospi down 0.7% to 2,068.89
  • German 10Y yield rose 0.7 bps to -0.341%
  • Euro down 0.1% to $1.1070
  • Italian 10Y yield fell 6.4 bps to 0.938%
  • Spanish 10Y yield rose 0.2 bps to 0.413%
  • Brent futures up 1.9% to $61.96/bbl
  • Gold spot down 0.2% to $1,474.90
  • U.S. Dollar Index little changed at 97.76

Top Overnight News from Bloomberg

  • The U.S. House of Representatives overwhelmingly approved legislation that would impose sanctions on Chinese officials over human rights abuses against Muslim minorities, prompting Beijing to threaten possible retaliation just as the world’s two largest economies seek to close a trade deal
  • “I don’t have a deadline,” President Trump tells reporters in London after being asked if he sees phase one of a trade deal with China concluding this year. “I like the idea of waiting until after the election for the China deal. But they want to make a deal now and we’ll see whether not the deal is going to be right”
  • Australia’s economy slowed last quarter as interest-rate cuts and government tax rebates failed to spur household spending, reinforcing expectations the central bank will need to resume easing next year
  • Oil defied trade-deal bearishness to rise for a third day after an industry report pointed to shrinking U.S. crude stockpiles and before OPEC+ decides on its output-cut policy later this week. OPEC+ sends mixed signals about deeper output cuts before talks
  • House Democrats laid out their most comprehensive case yet for impeaching Donald Trump, declaring the president “a clear and present danger” over his rush to get foreign governments to investigate a political rival and making his intimidation of witnesses tantamount to a crime
  • U.S. President Donald Trump revived both his “Rocket Man” nickname for Kim Jong Un and the threat of military force against North Korea, in the latest sign of rising tensions ahead of Pyongyang’s year-end deadline
  • While IHS Markit’s composite Purchasing Managers’ Index for the euro zone stabilized at 50.6 in November, above the flash reading of 50.3, it points to growth of only 0.1% in the fourth quarter. That would be the weakest since the 19-nation region emerged from recession in 2013
  • Foreign direct investment into China jumped last year to $139 billion even as trade tensions escalated, bucking a trend that saw global flows sink 13% from 2017 levels
  • OPEC and its allies sent mixed signals about whether they were considering deeper production cuts, fanning oil-market speculation before crucial talks in Vienna this week
  • Germany’s Social Democrats backed away from a threat to ditch their alliance with Chancellor Angela Merkel and eased demands for the government to abandon its balanced-budget policy

Asian equity markets extended on declines as global risk appetite remained sapped by the turbulent trade climate following yesterday’s comments by US President Trump. ASX 200 (-1.6%) and Nikkei 225 (-1.0%) were lower with pressure in the trade-related sectors resulting in Australia’s continued underperformance which was also not helped by a miss in quarterly GDP growth, while the Japanese benchmark tracked the recent slide in USD/JPY and with reports noting the GPIF’s move to end stock lending could rattle markets. Hang Seng (-1.3%) and Shanghai Comp. (-0.2%) were dampened by the increased trade pessimism after President Trump’s comments and with Global Times suggesting the US appears to be back-pedalling in trade talks. The US House’s overwhelming support for the Uighur human rights bill demanding sanctions on Chinese officials, which it passed through 407-1 vote, also contributed to the bilateral tensions and spurred resolute opposition from China which will respond depending on how the situation develops. Nonetheless, losses in the mainland have been stemmed after strong Chinese Caixin Services and Composite PMI numbers added to the country’s recent flurry of strong activity data and as Chinese press op-ed suggested the PBoC are expected to cut RRR in Q1. Finally, 10yr JGBs were higher after the recent gains in T-notes due to safe-haven bids, but with prices off their best levels after failing to hold above the 153.00 level and with the lack of BoJ presence in the market contributing to the mild overnight retracement.

Top Asian News

  • India Is Said to Mull Easing Lending Rules for Shadow Banks
  • Hong Kong Announces Further Stimulus Worth $500 Million
  • China’s First IPO Flop Since 2012 Shows Confidence Breaking

Major European bourses (Euro Stoxx 50 +1.3%) are firmer following reports that the US and China are moving closer to a deal despite recent “heated” rhetoric gave a boost to risk appetite. The FTSE 100 (+0.3%) is a laggard due to a firmer sterling. In terms of further fundamental catalysts on the horizon; Day 2 of the NATO summit begins and traders will be on the look-out for further clues as to the state of play on the US/EU and US/China front, quite possibly in the form of off-the-cuff comments from the US President, with the former two in the midst of clashes over the WTO’s ruling on EU Airbus subsidies and most recently France’s proposed Digital Services Tax, while tensions between the latter two have most recently been worsened following the US House’s passing of the Uighur Human Rights Bill. Sectors are mostly in the green, with Telecoms (unch.) the laggard as the sector is weighed by underperformance in heavyweight Orange (-3.8%), with traders reportedly disappointed by the Co.’s most recent dividend outlook. Elsewhere, Italian banks, including Intesa Sanpaolo (+1.8%) and UniCredit (+1.6%), are on the front foot after Moody’s upgraded the outlook for Italian banking to stable from negative. Solid earnings from US Microchip last night is acting as supportive for European chipmakers, including Infineon Technologies (+2.2%). In terms of other notable individual movers; Elior (+7.8%) opened higher after the Co. posted strong earnings, in which FY net profit posted solid Y/Y gains. Further gains were seen for easyJet (+2.1%), with the Co. set to join the FTSE 100, and Hiscox (-1.0%) and Fresnillo (-3.8%) to be dropped. In terms of the losers; Aviva (+0.2%) lags the FTSE 100, having been downgraded at Barclays. Elsewhere, Securitas (unch.) underperforms following a downgrade at Deutsche Bank.

Top European News

  • U.K. Economy on Course for Contraction as Services Falter
  • Euro- Area Economy Is Just About Growing as Factory Slump Spreads
  • GAM Faces Regulator Penalty for Misstating Quant Fund Deal
  • ECB Places Goldman Unit Under Direct Supervision Amid Brexit

In FX, the sterling rose to the top of the G10 ranks in early EU hours following a relatively sideways APAC session in which GBP/USD meandered on either side of 1.3000. The pair gained momentum after tripping stops at 1.3013 and advanced to a current intraday high of 1.3063 (ahead of its 200 WMA around 1.3100) before waning off highs and back below its 100 WMA at 1.3048. News-flow has been light for Sterling, with the currency little influenced by a revision higher to its November services and composite PMI metrics. That said, IHS noted that the PMI figures point to a GBP contraction of ~0.1% in the Q4, but the December numbers are yet to be released. Meanwhile, the Eur has been moving at the whim of the Buck and largely shrugged off upward revisions to the pan-European services and composite numbers – with the GDP tracker suggesting growth of 0.1% in Q4 for the EZ. IHS did warn that the services sectors are poised for its weakest QQ expansion for fives years, “hinting strongly that the slowdown continues to spread”. EUR/USD moved into negative territory and back below its 100 DMA (1.1069) after hitting an intraday peak 1.1088, with little EU-specific data/speakers left on the docket.

  • DXY, JPY - The broad Dollar and Index has recouped earlier losses with upside coinciding with constructive trade headlines from sources, prompting the DXY to rebound off its 200 DMA at 97.63 back to yesterday’s closing levels around 97.75. Meanwhile, USD/JPY ekes mild losses amid the aforementioned headlines with the pair back above the 108.50 mark (coincides with its 50 DMA), to a high of 108.80 ahead of the rough figure. Traders will be eyeing any trade/geopolitical headlines with NATO summit day 2 underway and US President Trump’s presser scheduled for 15:30GMT.
  • AUD, NZD - Both lower on the day, but more-so the Aussie on the back of disappointing GDP figures with the QQ metric showing growth of only 0.4%, down from the prior of 0.5%. Analysts mention that the most concerning aspect of the release is the representation of a fifth consecutive quarter which private demand contracted or was flat. Westpac notes that the RBA will be disappointed with the figure and believes that the Central Bank and the Government will have to revisit their growth forecasts. AUD/USD climbed off lows in wake of optimistic US-China trade headlines, but gains remain capped due to the overnight data. The pair remains in the red around the middle of its 0.6813-0.6846 band having briefly dipped below its 100 DMA at 0.6816. The Kiwi piggybacks on the Aussie’s losses and hovers just above the 0.65 mark, off highs of 0.6530.

In commodities, Iraq Oil Minister stated that an additional 400k bpd cut for OPEC+ is in circulation but not final and that all members should share the burden, while he added that slower demand is a bigger impact next year than non-OPEC supply. Furthermore, the Oil Minister added that it is his understanding that Saudi prefers a deeper cut and that deeper cuts are preferred by members. Crude markets are bolstered (in line with other risk assets) on the news that the US and China are moving closer to a deal despite recent “heated” rhetoric. Elsewhere, the latest batch of comments from the Iraqi oil minister continues to support prices; an additional 400k bpd cut for OPEC+ is apparently in circulation but not final, while the Saudi’s also reportedly prefer deeper cuts, although this contradicts sources reports seen last month. “If all members were compliant with the [current] deal this may be the case, however, with a number of members falling well short in cutting output, including Iraq, other members may be reluctant to cut further” says ING, who goes on to conclude that “reassurance of stronger compliance will likely be needed before other members agree to deeper cuts.” Moreover, yesterday saw the OPEC+ Joint Technical Committee meet in Vienna ahead of the full ministerial meetings on Thursday and Friday and they reportedly did not discuss deeper cuts. Reports did suggest that the Joint Technical Committee is considering Russia’s request to exclude condensate from its oil production cuts, which has been rising as of late in line with the country’s rising gas output and has been cited as the reason for the country’s poor OPEC+ compliance. Elsewhere, also underpinning the crude complex is last night’s larger than expected draw in headline API Inventories; traders will now focus on EIA Inventory data this afternoon for further confirmation. WTI futures meanders around USD 57/bbl while its Brent counterpart eyes USD 62/bbl to the upside having earlier eclipsed the level. Moving onto metals, risk on has hit gold prices, which have fallen to just above USD 1470/oz from earlier highs of USD 1490/oz. Meanwhile, copper has been buoyed, popping to USD 2.6450/lbs highs from its earlier USD 2.62-2.63/lbs range. Elsewhere, iron ore prices found further impetus after data showed that shipments from Brazil had dropped since the last week; prices have been underpinned in recent days by the news that Vale, the world’s largest miner of Iron Ore, cut its production outlook and production at its Brutucu mine has been halted due to safety issues regarding a nearby dam.

DB's Jim Reid concludes the overnight wrap

  • 7am: MBA Mortgage Applications, prior 1.5%
  • 8:15am: ADP Employment Change, est. 135,000, prior 125,000
  • 9:45am: Markit US Services PMI, est. 51.6, prior 51.6; 9:45am: Markit US Composite PMI, prior 51.9
  • 10am: ISM Non-Manufacturing Index, est. 54.5, prior 54.7

DB's Jim Reid concludes the overnight wrap

A quiz question to start this morning. Complete the following sequence... 19.6%, 25.7%, 20.5%, 27.3%, 15.5%, 10.8%, 13%, 16%, 13.3%, 18.7%, xxx%.......??? ..... answer at the end of today’s EMR.

If you’ve had enough of 2020 outlooks as we progress through December then don’t fear as later today my team and I will publish our latest Konzept magazine where we will “Imagine 2030” and look at a number of eclectic articles suggesting what the world might look like at the end of the next decade. So if you want to know about the end of credit cards, whether we’ll still be using cash, the future of crypto currencies, how you will consume food, the rise of the drones, the outlook for India and China, what Europe needs to do to compete and catch-up, and what we think will be the main populism battleground in 2030 then watch out for this later. There are 24 articles in total and some are more serious than others. One of my favourites is one from Luke on the future of pro sports stats. Every potential move will be AI analysed by 2030 and players trained accordingly. Hopefully, I’ll also have a robot swinging a golf club for me by then.

If 2030 is too far out for you, a reminder that you can find our 2020 macro credit view here , and our IG and HY specific views here and here .

Back from the future now and what a difference a couple of days can make. Mr Trump has completely taken the momentum out of financial markets this week and the December 15th date will increasingly become a focal point over the next couple of weeks. Last week the mood music suggested that even if a “phase one” deal hadn’t been reached by then, then there was a good chance tariffs planned to be implemented on that date would be postponed. After the stepping up of negative global tariff rhetoric over the last 48 hours, yesterday’s headlines suggesting that the US is going forward with the December 15 tariffs grabbed the limelight, although markets had already been trading weaker prior to that. Fox’s Edward Lawrence said that “trade sources tell me that the Dec 15th tariffs on basically the rest of what China imports into the US are still going forward as of today.” He went on to clarify that the next tranche could still be called off, if a phase one deal gets finalised or “something else positive happens.” For his part, President Trump said that a trade deal is “dependent on whether I want to make it” and “in some ways it is better to wait until after the election…and we’ll see whether the deal is going to be right”.

This might be a late negotiating ploy ahead of a deal but its impossible to tell at the moment and from something that looked like a case of “when not if” a couple of weeks ago now is a case of “if not when.” If that wasn’t enough, Trump also said later on in the day that “those countries that don’t deal with NATO obligations will be dealt with, maybe through trade”. Meanwhile, Wilbur Ross hardly painted a rosier picture, saying that the US has “more ammunition left against China” and also that the US “has a legitimate complaint with Europe over trade.”

The end result for markets were drops of -0.66%, -0.55% and -1.01% for the S&P 500, NASDAQ and DOW but with markets nearly three-quarters of a percent off their early session lows. The trade sensitive semiconductor index was also hit -1.54%, taking it now down -4.04% over the last three sessions, the worst such stretch since August. In Europe, the STOXX 600 closed down -0.93%, taking the two-day loss to -2.20%. Credit also suffered with US HY spreads +11bps while in bond markets we saw yields rally, including a fairly brutal -10.7bps move for 10y Treasuries, which was the most since August 14. The curve also flattened -3.9bps and there are now 20bps of cuts implied between now and next July. In Europe, yields were broadly lower with Bunds -6.8bps and back within a basis point of where they were before the weekend SPD news (more later). In commodities gold (+1.03%) and silver (+1.54%) benefited from the risk off while in currencies it was the Swiss franc (+0.41%) and yen (+0.33%), which also caught a bid at the expense of EM currencies like the South African rand (-0.67%) and the offshore renminbi (-0.35%).

Overnight, the US House of Representatives passed a bill that would impose sanctions on Chinese officials over alleged human rights abuses. However, the House passed an amended version of the Senate bill by adding provisions that require the president to sanction Chinese government officials responsible for the repression of Uighurs and places restrictions on the export of devices that could be used to spy on or restrict the communications or movement of members of the group and other Chinese citizens. Also, among other provisions, the bill requires the president to submit to Congress within 120 days a list of senior Chinese government officials guilty of human rights abuses against Uighurs in Xianjiang or elsewhere in China. Bloomberg further reported that lawmakers are working to resolve differences between the House and Senate bills to agree on one version that can pass swiftly through Congress before the end of the year. In response, China’s foreign ministry urged the US to stop the bill and vowed to further respond if it progresses, without providing any details. The Global Times editor has just tweeted that “US politicians with stakes in China should be careful”.

Overnight, Asian markets are trading lower following Wall Street’s lead with the Nikkei (-1.06%), Hang Seng (-1.08%), Shanghai Comp (-0.31%) and Kospi (-0.69%) all down. The USDCNY fix earlier was the biggest miss to the daily model since August 2nd just after Trump had tweeted about additional tariffs on China. So one to watch as the stakes are raised.

Staying with FX, the Australian dollar is down -0.351% this morning as the Q3 GDP miss raised the probability of a rate cut by the RBA. Elsewhere, futures on the S&P 500 are up +0.07%. As for overnight data releases, China’s November Caixin services PMI came in at 53.5 (vs. 51.2 expected) thereby bringing the composite PMI to 53.2 (vs. 52.0 last month). So an impressive read but one that will be difficult to get too positive about given the trade news this week. Meanwhile, Japan’s final November services and composite PMI both came in one tenth lower than the initial read at 50.3 and 49.8, respectively.

In other better news on trade, Bloomberg reported that Mexico is considering a US proposal to remove protections for biologic drugs from a renegotiated Nafta trade deal. The proposed change would drop language in the U.S.-Mexico-Canada Agreement offering 10 years of market protection for drug makers from cheaper generic spinoffs. It has proved one of the sticking points in getting the deal passed in the US as House Democrats have raised concern that locking in a time frame for pharmaceutical rules could hinder their ability to reduce protections for biologics sooner, as part of an effort to bring down soaring drug prices. Meanwhile, Ways and Means Chairman Richard Neal, the Democrat who’s in charge of the negotiations in the House, said it’s “possible” that Democrats would agree to a deal this week and added that he would like the House to vote on the implementing legislation by the end of the year.

Later today, we’ll get the final services and composite PMIs in Europe and the US as well. Expectations are for the euro area services PMI to remain at 51.5 from the flash reading, though there is likely some upside to the composite number (50.3 flash) after the upward revision to the manufacturing index on Monday. On a country level, the readings in France and Germany are expected to stay steady from the flash estimates, while the prints for Spain and Italy are both expected to fall, by -0.8pts and -1.0pts, respectively, from the October results. Later in the day, the US services PMI is expected to stay at 51.6 from the flash reading, while the non-manufacturing ISM is expected to decline -0.2pts from October to 54.5. Our economists will be watching the employment subindex, which is a strong leading indicator for private payrolls growth.

As an update to the SPD developments, ahead of their 3-day conference on Friday a draft text suggested that the party will call for additional public investment and that it should not be prevented by ‘dogmatic positions’ such as ‘black zero’. So the stage is set for them to demand more as a cost of staying in the GroKo. We will see after that who is going to call the other’s bluff within the coalition, though it does bode well that the draft does not explicitly call for an end to the coalition. New SPD chief Walter-Borjans even said “one thing is clear, we do not want to get out of the grand coalition head over heels.” Whatever that means.

Staying with politics, in terms of the latest UK polls 8 days before the election, the two yesterday showed a 12pt and a 9pt lead for the Conservatives - up 1pt and flat relative to the last time these pollsters last published a few days before. The Labour Party has definitely had a little more momentum over the last couple of weeks but poll of polls are only back to where they were at the start of the campaign (around 10pt lead) and have perhaps only narrowed a couple of points from the peak lead. So there will have to be a very late swing or a bad widespread polling sampling error across the industry for the Tory’s not to win a majority. Labour’s last hope is probably a last minute collapse of the LibDem vote. Throughout the campaign the support for the Tories has been impressively stable at between 40-45% so it doesn’t feel like this is going to fall away now. Labour will need to get closer to this from elsewhere and likely hope for a hung parliament. At this point even if they are well behind the Tories they are likely to be the only party able to form a coalition.

Finally, there wasn’t much to report from the data yesterday. In the US, November vehicle sales came in quite strong at 17.09mn (vs. 16.90mn expected). Meanwhile in Europe PPI printed at +0.1% mom for October (vs. 0.0% expected) while the November construction PMI for the UK was a little better than expected (45.3 vs. 44.5 expected) – albeit still at very low levels.

Looking at the day ahead, this morning the focus will be on the final November PMI revisions (services and composite) in Europe while this afternoon we’ll also get that data for the US, along with the November ISM non-manufacturing and November ADP employment report. Away from that, we’re due to hear from the ECB’s Villeroy, Visco, Makhlouf and Hernandez de Cos while the Fed’s Quarles is due to speak on supervision and regulation.

*** The answer to the final number in the sequence is 3.5%. Yes, after a decade of expecting large double digit returns in the S&P 500 in his year ahead outlooks, our US equity strategist Binky Chadha is ‘only’ expecting 3.5% return from the S&P 500 out to the end of 2020 from current levels. It’s actually 0% for 2020 as a whole as his YE 2019 and 2020 forecasts are the same. So this is a major relative change in view, considering we’ve all marvelled at the bullishness (proved correct) of his previous numbers. For an explanation of why please see the link here ***

Tyler Durden Wed, 12/04/2019 - 07:55
Published:12/4/2019 6:59:37 AM
[Markets] Dow Jones Futures Rise On China Trade Deal Hopes: Alphabet CEO Larry Page Exits; 5 Key Earnings Movers Dow Jones futures rose on China trade deal hopes, a day after Trump's trade comments. Alphabet CEO Larry Page stepped down with Google stock in a buy zone, Published:12/4/2019 5:57:31 AM
[Markets] Germany Is The Rotten Heart Of Europe Germany Is The Rotten Heart Of Europe

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

The crisis in Europe will come from Germany. Germany has entered a period of political crisis that, as yet, has not exploded.

But the pyre is built, the torches lit and all that remains is dragging Chancellor Angela Merkel up and setting the whole thing on fire.

For those that want to understand the fundamental impulses which have led the European Union to where it is today and Germany’s central role one really needs to read Bernard Connolly’s “The Rotten Heart of Europe.”

It’s a book that damns pretty much everyone in their monomaniacal drive for the European Project but, Germany, in particular, to me, comes across the worst.

Because the design of the euro, as a currency, was guided by German industrialists looking for the advantage a single currency would bring them.

This is a point I’ve made many times that the single exchange rate underprices the value of Northern European industrial entities while overpricing Southern Europe’s productive capacity.

Moreover, it raised the effective quality of the debt of those countries far above the market rate. This allowed them to borrow at far lower rates than they would ever have been able to.

This has led to exactly where we are today with massive internal imbalances which have hollowed out these economies, further eroded their productive capacity and competitiveness and left them with a mountain of unpayable debt which is then used as a further means to extract the last of the country’s real wealth when the inevitable crisis hits and the debt has to be restructured.

And to think that this point wasn’t understood by the people who designed the euro is to be terminally naive. This is a point not only made by Connolly but also by Gyorgy Matolcsy, the President of the Hungarian Central Bank.

Thanks to a very generous regular reader I’m reading his book, “The American Empire Vs. the European Dream” right now. And Matolcsy opens the book with a scathing attack on the euro and how it never should have been introduced in the first place.

Because the effects of the single currency have been wholly predictable. But he makes an even larger point than Connolly did in his book. Germany, through wealth extraction and collecting rent thanks to the exchange rate arbitrage.

It may anger my German readers to hear this but, again, if you didn’t think this was the plan by some all along, to colonize countries like Greece that couldn’t be conquered militarily in WWII, then you can’t also see why the rest of Europe is becoming angry.

But Matolcsy goes one step further in his criticism of Germany, saying that if that wealth extraction had been distributed throughout the EU over the twenty-plus years of the euro via investment then things would be far better today.

But Germany never gave up its mercantilist mindset, preferring instead to sell Spanish and Greeks BMWs and Porsches while lending them the money at suppressed interest rates to do so.

And then when the bills come due demand austerity to pay them back and call them deadbeats in the process.

That’s why Germany, today, is the rotten center of a crumbling European would-be empire. And why everyone, including Germans, will now be impoverished as the mountain range of unpayable debt collapses.

Empires always rot from within.

The American empire is facing the exact same problem, but because it is the world’s reserve currency and has the biggest synthetic short against it will simply get hit later.

This is why the Dow Jones Industrials and the S&P500 are trading at all-time highs despite President Trump’s latest trade war salvos at China and the German DAX is struggling to best its 2018 high.

The Dow is sniffing out the differences in the political and economic uncertainties between the U.S. and Germany. Because …

The big news is that Angela Merkel’s coalition partner, the Social Democrats (SPD), just elected new leadership that is hostile to the governing coalition as they blame Merkel for their collapse as a political force nationally. That puts Merkel’s political future in jeopardy or, at a minimum, ensures she has even less control over a mostly gridlocked German government.

For the past couple of months we’ve seen the markets in general breath a sigh of relief after the Fed and ECB stepped in to provide liquidity.  But that doesn’t fix the underlying problems, it only delays them for a few more months by reflating the yield curve, in this case the U.S.’s and Germany’s.

But is the reflation trade the new dominant one or simply a lull between crises, as Jeff Snider at Alhambra Partners suggests?

My guess is the latter as the Fed keeps piling term Repos onto its balance sheet, now more than $207 billion since September, and another 42-day repo operation yesterday that was 2x oversubscribed.

Sure that could be normal quarter-end shenanigans but why? And will we be asking these same questions when these 42-day repos expire in late January?

The bigger questions is what is causing U.S. banks to need so many dollars to keep the money markets liquid? And why is everyone struggling with this dollar shortage?

Because everyone is feeling the same thing, something is going to change in a big way and when it does they want dollars, not euros, pounds, yen or yuan.

The German economy is slowing. It has been for more than a year.

And when the reflation trade is over, markets that haven’t made new highs will be much more vulnerable to collapse. Germany’s multi-generational mercantilist empire has reached its zenith. It can’t push it any further without conceding political ground to the rest of Europe or abandoning the very thing that created the empire in the first place, the euro.

That’s the central problem which sits at the heart of the European Project. And it can’t be papered over much longer.

*  *  *

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Tyler Durden Wed, 12/04/2019 - 03:30
Published:12/4/2019 2:57:01 AM
[Markets] Dow Jones Futures: Alphabet CEO Larry Page Exits; Salesforce Leads 5 Key Earnings Movers Dow Jones futures: Alphabet CEO Larry Page stepped down, with Google CEO Sundar Pichai taking over. Salesforce, Workday, Marvell Technology, Microchip and Zscaler reported earnings. Published:12/3/2019 5:25:54 PM
[Markets] Galloway: Facebook Is Species Failure Galloway: Facebook Is Species Failure

Authored by Scott Galloway via Medium.com,

Survival - the pursuit of more time - is the most basic instinct. Procreation is a distant number 2. But 1a, making the most of your time, is survival instinct coupled with capitalism. Communism was intended as a more noble system — economic parity that avoids the inequality bound to arise from capitalism. Only the reds failed to recognize we won’t wait in line for fish for the benefit of our comrades. A cocktail of self-interest, cooperation, the assembly line, brand, and the processor has yielded more stakeholder value, as measured by GDP, in the last 50 years than in the previous 2,000.

Religion created a lot of value - it made people feel immortal. Time post death is an asset you’d trade shame for. But the ranks of the faithful are thinning. The opium of the masses no longer provides the same high. Wealthier, more educated societies have turned their focus to time on earth.

Any company that creates more than $10 billion in shareholder value does one of two things: extend time (more time, saving time) or enhance time.

Every firm that has aspirations of creating billions in shareholder value must construct a time machine and be clear on the type of benefit — savings or enhancement. The first trillionaire will build a time machine for the healthcare industry. The T-Man, or woman, won’t reduce costs (this is where the analysts get it wrong), but give us millions of years back, in the pursuit of health, at the same or lesser cost.

I’ve had a cough for the last month. My dad and sister freaked out, as I don’t get sick. They imagined the worst and demanded I get a chest x-ray. The doctor’s visit, two trips to Diagnostic Centers of America, and a consultation cost me 8 hours. An intelligent camera, Prime Health (whenever that arrives), and AI will give me 7 hours back. The best strategy for bringing healthcare costs down is to give time back. The real innovation in healthcare will do more than save money — it will save time.

Time Machines

The economic titans of the 20th century got you places faster (Ford, Boeing) or made your life more enjoyable (P&G, Prada). We’ve now gone gangster. Microsoft saves you years in efficiency (extend). LVMH allows you to enjoy the finest in life and increases your selection set of mates (enhance). Apple skimmed the foam off the top of the Microsoft beer, moving from tech to the luxury sector. Apple offered both faster transactions and an enhanced experience (for a 100% premium). iProducts just worked, made you feel better about yourself, and the global affluent willingly paid.

The sector that has created more value than any other over the last 10 years is the disruptors in media (Google, Facebook, and Netflix). These firms pulled a Robin Hood on the greatest thieves of time in post-WWII America — ad-supported media. Modern Family / ABC values your time at $4.67/hr. They get .70c for reminding you that you suffer from diabetes (9 min of ads). CBS gets a buck a month per viewer for urging us to buy awful beer or cars manufactured in South Korea.

Advertising is a tax the poor and technologically illiterate pay.

Ways to extend life:

Clear: I fly 2.5x/wk. I’ll pay Clear $5,370 over 30 years to not stand in line for 46 days.

Walmart Delivery Unlimited: At $98/year, that’s $2,940 over 30 years to get 120 days of your life back.

Netflix: At $156/yr, I’ll pay Netflix $4,680 over the next 30 years to avoid over a year’s worth of ads. If you could pay $4,680 to extend your life by a year, would you?

2013 Bombardier Challenger 300: Total costs over 10 years — depreciation, operating, and financing costs minus tax benefits = $10 million. (Not that I’ve dreamt of this … every day.) A two-bedroom that can skim the surface of the atmosphere at .83 the speed of sound would give me another 13 days a year at home with my family. So, if you had the money, would you, at the end of life, rather have $10 million or 4 more months with family? Keep in mind, that’s 2.5 dawg years. What Apple is to Android, the Challenger is to JetBlue, times a thousand. People who own jets all describe their bird the same way: Time Machine.

Movies and HBO saved some time, but were relatively expensive. And then came Google, Facebook, and Netflix. I’ll get a year back (time spent not watching ads) in exchange for $4,680 spent on Netflix. How to even think of doing research without Google? Would I have to go to a library and log on to Lexis/Nexis? It’s hard to imagine how much time and life Google has created.

The search firm has violated our privacy, divided us, and hamstrung the economy via monopoly abuse. Yet it’s still likely worth it. This doesn’t mean we should shrug our shoulders and not break up big tech. The combustion engine and fossil fuels have created enormous economic growth across the world, but we should still correct the subsequent global warming.

The biggest unlock in shareholder value in the last 5 years is Walmart’s click & collect and delivery. Walmart gave us 4 days a year back — grocery shopping takes an average of 69 min a week; you grocery shop 1.6 times per week, and the average commute for grocery shopping is 12.5 min each way. That makes the largest dollar-volume category (grocery, 750 billion) less time expensive. Since the introduction of click & collect and grocery delivery, Walmart has added over $100 billion in shareholder value.

RedBook

Facebook is now squarely in the red and a net negative for society. The social network held the promise of enhancing our time here, via connection, and has delivered on much of that. However, most time enhancement has been negated, as the social network is depressing our teens and endangering our most precious asset, girls. Teen suicide has skyrocketed — up 77% for older teen girls and up 151% for younger teens (research by colleague Jonathan Haidt).

There are many factors, but ground zero is the nuclear weapons we’ve put in girls’ hands to objectify them, perpetually undercut their self-esteem, and enable them to bully each other relationally, 24/7. Hospital admissions due to self-harm are up 50% for 15–19-year-old girls and up 200% for 10–14-year-old girls. At Facebook, a sociopath is wallpapered over by a 700-person corporate communications department and a $2 billion beard (Sheryl Sandberg).

The Dow, GDP, the Iowa polls. We are studying to the wrong tests. There is nothing more important for the future of the country, our society, and the planet than the health and wellbeing of girls. Think about this. The S&P is up 23% YTD, and the number of girls that decide to take their own life is up 151%. Three times more of them self-harm. The pursuit of money at the expense of girls’ wellbeing is the ultimate perversion of our society. We ignore injury to our daughters in exchange for the promise of economic growth.

Facebook is the incorporation of Jeffrey Epstein and Larry Nassar. Ok, that’s not fair. The social network is Jeffrey Epstein and Larry Nassar... times a million.

Facebook, Inc. is species failure.

Tyler Durden Tue, 12/03/2019 - 16:45
Published:12/3/2019 3:56:28 PM
[Markets] Dow Jones, Apple Stock Fall Sharply On New Trump Trade Comments The Dow Jones today closed lower after new Trump comments on the U.S.-China trade deal. Apple stock sank on increased chances of new tariffs. Published:12/3/2019 3:56:28 PM
[Markets] Dow finishes down over 270 points on trade deal delay Dow finishes down over 270 points on trade deal delay Published:12/3/2019 3:29:41 PM
[Markets] US STOCKS-Wall Street falls as trade hopes wane U.S. stocks sold off for a third consecutive session on Tuesday after comments from President Donald Trump and Commerce Secretary Wilbur Ross threw cold water on hopes of a possible near-term respite from the market-bruising U.S.-China trade war. The blue-chip Dow had its worst day since Oct. 8, and all three major stock indexes backed further away from last week's record highs that were fueled by optimism that an interim deal between the United States and China was in the works. Published:12/3/2019 3:29:41 PM
[Markets] Just one of 30 components of the Dow is in positive territory at midday Just one of 30 components of the Dow is in positive territory at midday Published:12/3/2019 11:22:53 AM
[Markets] The Dow Is Tumbling Because We Were Supposed to Get a Trade Deal The Dow Jones Industrial Average is tumbling after Donald Trump intimated that he’d be happy waiting until after the U.S. presidential election to reach a trade deal with China. The Dow has dropped 436.55 points, or 1.6%, to 27,346.49, while the S&P 500 has fallen 1.1% to 3079.70. The bad news started yesterday, when Trump said he wants to place tariffs on Brazil and Argentine steel, and continued after the close when the U.S. Treasury Department said it would look into putting tariffs on more than $2 billion French goods in retaliation for a new “tech tax” in that country. Published:12/3/2019 10:22:28 AM
[Markets] All 30 constituent stocks in red as Dow’s intraday decline exceeds 425 points All 30 constituent stocks in red as Dow’s intraday decline exceeds 425 points Published:12/3/2019 9:22:15 AM
[Markets] Dow Plunges To 1-Month Lows As Trade-Deal Odds Plummet Dow Plunges To 1-Month Lows As Trade-Deal Odds Plummet

Dow futures are now down almost 800 points from post-China-PMI highs, plunging this morning after President Trump's comments on a delayed trade deal...

And the market is now discounting less of a chance of a trade deal...

Source: Bloomberg

Once again it seems like bonds were on to something all along...

Source: Bloomberg

Cue - Kudlow to save the world with a "deal is close" headline.

 

Tyler Durden Tue, 12/03/2019 - 09:37
Published:12/3/2019 8:52:58 AM
[Markets] Delta Air's November load factor falls as seat supply growth outpaces demand; stock drops Shares of Delta Air Lines Inc. fell 1.3% in premarket trading Tuesday, after the air carrier reported a decline in November load factor, as growth in seat supply outpaced demand growth. Total system load factor fell to 84.0% from 85.8% a year ago, as domestic load factor dropped to 84.2% from 87.0% while international load factor was unchanged at 83.5%. Overall capacity increased 4.0% to 20.41 billion available seat miles and traffic edged up 1.8% to 17.14 billion revenue passenger miles, as domestic capacity rose 4.9% and domestic traffic grew 1.5% while international capacity growth of 2.4% matched traffic growth. Delta's stock has slipped 0.9% over the past three months, while the Dow Jones Transportation Average has gained 7.4% and the Dow Jones Industrial Average has advanced 6.4%. Published:12/3/2019 8:22:08 AM
[Markets] Dow futures point to 200-point skid at open after Trump remark on China trade Dow futures point to 200-point skid at open after Trump remark on China trade Published:12/3/2019 7:52:05 AM
[Markets] Trump Torpedoes Global Markets As Trade War Returns Trump Torpedoes Global Markets As Trade War Returns

Last week, when Trump signed the Hong Kong bill, we asked if Trump was willing to reignite the trade war now that the S&P hit an all time high of 3,150.

That question was especially apt this morning, when European shares slumped back into the red on Tuesday, reversing an earlier attempt to claw their way back from three days of falls, US equity futures tumbled for the second day in a row and the Chinese yuan sank on renewed trade tensions after President Trump said at the start of his British NATO summit visit that a that a trade deal with China might be delayed until after November 2020 elections, denting hopes of a quick resolution to a dispute that has weighed on the world economy.

“I have no deadline, no. In some ways, I think I think it’s better to wait until after the election with China,” Trump told reporters in London, where he was due to attend a meeting of NATO leaders. "In some ways, I like the idea of waiting until after the election for the China deal. But they want to make a deal now, and we’ll see whether or not the deal’s going to be right; it’s got to be right."

Those comments, made as Trump landed in Britain for a NATO summit, also sent the offshore-traded Chinese yuan to near five-week lows.

France, the latest U.S. trade war target, saw shares tumble more than 0.6% to a one-month low, and dragged Europe's Stoxx 600 index down 0.2%, giving up earlier modest gains and extending Monday’s 1.6% tumble which was its biggest one-day loss in two months.

U.S. stock futures also turned negative, with S&P 500 futures down 0.4%.


“The markets were spooked because they didn’t expect Trump to be that severe on China,” said WisdomTree researcher Aneeka Gupta. “It’s worrying for Europe too, because it was waiting for a decision on the auto tariffs from the U.S. Investors weren’t expecting Trump to be launching trade wars on all fronts.”

Trump’s willingness to open new fronts in the trade war - with Argentina, Brazil and France - despite signs of economic damage and less than two weeks away from the China tariff deadline, spooked markets. Indeed, his latest comments dashed hopes that an agreement with China could be reached before another round of tariff hikes kicks in on Dec. 15, and suggests talks could in fact could drag on for another year.

As Reuters notes, markets had fallen sharply on Monday after Trump tweeted he would slap tariffs on Brazil and Argentina for what he saw as both countries’ "massive devaluation of their currencies." The United States then threatened duties of up to 100% on French goods from champagne to handbags because of a digital services tax that Washington says harms U.S. tech companies.

“Each step back and each step forward is just part of a slow trend toward increased barriers to international trade,” said Jonathan Bell, CIO of Stanhope Capital. “The market’s taken an optimistic view so far this year on the likelihood of a successful outcome to trade negotiations and we worry ... the market may turn back to being more concerned.”

Shares in some French luxury goods firms had been hit hard, with LVMH shedding almost 2% to one-month lows and champagne maker Vranken Pommery down 0.5%. “If history is any guide the Europeans are likely to find U.S. crosshairs start to move increasingly their way, the closer to next year’s U.S. election we get,” CMC Markets told clients.

As a result, the MSCI world equity index was down for the fourth day in a row to one-week lows. There were also hefty losses across Asian bourses earlier in the day, led by consumer staples firms, tracking U.S. declines. Most markets in the region were down, with Australia leading losses and China advancing. Japan’s Topix slid, dragged down railway companies and automakers. The Shanghai Composite Index reversed morning losses to close higher, as Ping An Insurance Group and Will Semiconductor offered support. Two Chinese companies failed to repay bonds worth a combined half a billion dollars Monday, as debt risks rose in a slowing economy. India’s Sensex declined, with ICICI Bank and HDFC Bank among the biggest drags.

Meanwhile, investors were waiting for even more shoes to drop and China's next response: Beijing has already barred U.S. military ships and aircraft from Hong Kong in response to U.S. support for pro-democracy protesters in the Chinese-ruled territory. Fears that the prolonged tariff spat will snuff out any upturn in global growth were fanned on Monday when the U.S. ISM report said manufacturing had contracted for a fourth straight month as new orders slid. That crippled the cheer from upbeat Chinese factory surveys as well as higher-than-expected manufacturing and inflation readings from the euro zone.

So with trade suddenly in limbo, hopes are now being pinned on the U.S. consumer to keep the economy afloat. Cyber Monday sales were expected to hit a record following $11.6 billion in online sales during the Thanksgiving and Black Friday shopping bonanza.

In rates, Trump’s hints of trade deal delays sent bond yields tumbling as investors dumped stocks, however, with 10-year U.S. Treasury yields falling 5 basis points to 1.79% from the previous day’s two-week high, despite a sharp selloff in Japanese bonds following a report that Tokyo is preparing a 25 trillion yen fiscal package, which in turn resulted in the worst bid to cover in the Japanese 10Y auction in three years.

German bond yields slipped off three-week highs but bond prices are likely to stay under pressure amid renewed risks of early elections or a minority government in the biggest euro zone economy.

The safe-haven bid was seen across FX too, with the yen at a one-week high to the dollar. The euro edged away from a near two-week peak versus the greenback, while the dollar reversed losses after Trump's statement. "This may have run its course, but there’s no reason to chase the dollar’s upside from here,” Daiwa Securities’ foreign exchange strategist Yukio Ishizuki said, noting that the weak manufacturing data had forced many to cut long dollar positions. “Trade friction remains a lingering threat, which is not good for market sentiment.”

Elsewhere, oil fluctuated as traders gauge the probability of OPEC and allied producers tightening supplies when they meet later this week. Australia’s dollar rose after upbeat comments on the global economy by its central bank, while its government bonds dropped.

Looking at the day ahead in the US, the only data due out are the November vehicle sales numbers. Away from the data, we’re due to hear from the ECB’s Coeure and Hernandez de Cos. Elsewhere the NATO conference kicks off in London. Salesforce and Workday are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.3% to 3,103.50
  • STOXX Europe 600 up 0.4% to 402.40
  • MXAP down 0.4% to 164.17
  • MXAPJ down 0.4% to 522.79
  • Nikkei down 0.6% to 23,379.81
  • Topix down 0.5% to 1,706.73
  • Hang Seng Index down 0.2% to 26,391.30
  • Shanghai Composite up 0.3% to 2,884.70
  • Sensex down 0.3% to 40,676.21
  • Australia S&P/ASX 200 down 2.2% to 6,712.29
  • Kospi down 0.4% to 2,084.07
  • German 10Y yield fell 0.4 bps to -0.285%
  • Euro down 0.01% to $1.1078
  • Italian 10Y yield rose 11.7 bps to 1.002%
  • Spanish 10Y yield fell 0.9 bps to 0.481%
  • Brent futures little changed at $60.96/bbl
  • Gold spot up 0.6% to $1,470.47
  • U.S. Dollar Index little changed at 97.78

Top Overnight News from Bloomberg

  • ECB officials face increasing pushback against their negative interest-rate policy in private engagements with the region’s finance ministers, according to people with knowledge of the matter
  • Pacific Investment Management Co. has become the latest high-profile critic of negative interest rates, warning that one of the key central-bank tools in economically beleaguered Europe and Japan may do more harm than good
  • The ECB’s shift in net asset purchases to corporate bonds may become a more lasting and self- fulfilling feature of this QE leg, as it expands the shopping list while encouraging new issuance
  • France’s government said the EU would retaliate if the U.S. follows through on a threat to hit about $2.4 billion of French products with tariffs over a dispute concerning how large tech companies are taxed
  • At a summit in Brussels next week, EU leaders will commit to cutting net greenhouse-gas emissions to zero by 2050, according to a draft of their joint statement for the Dec. 12-13 meeting. To meet this target, the EU will promise more green investment and adjust all of its policy making accordingly
  • After five years of negative rates imposed by the ECB, German lenders are breaking the last taboo: Charging retail clients for their savings starting with very first euro in the their accounts
  • The Bank of Thailand said measures taken so far to curb capital inflows are “baby steps” and policy makers have plenty of tools available to deploy to curb the currency’s strength

Asian equity markets retreated amid headwinds from the US where the major indices all but wiped out last week’s gains due to fresh trade concerns with lacklustre ISM Manufacturing data also adding to downbeat tone. ASX 200 (-2.2%) and Nikkei 225 (-0.6%) were lower with underperformance in Australia due to hefty losses across its sectors including financials amid continued Westpac-related woes and with life insurers facing increased capital penalties, while sentiment in Tokyo was dragged by the adverse currency flows. Hang Seng (-0.2%) and Shanghai Comp. (+0.3%) also weakened on the trade uncertainty (although the latter pared losses heading into the close) with some analysts reading in between the lines of the metal tariff resumption on Brazil and Argentina, suggesting that it could be another front in the trade war following the nations’ recent agricultural deals with China. In addition, China’s retaliation to the Hong Kong bill by sanctioning US non-profit groups and barring US military visits to Hong Kong, as well as expectations for the US House to pass a Xinjiang-related bill further exacerbated the already-opaque trade environment. Finally, 10yr JGBs failed to take advantage of the widespread risk averse tone, as prices remained dejected following the recent bond rout and with selling also triggered after the 10yr JGB auction showed weaker results across all metric including the lowest b/c since August 2016.

Top Asian News

  • Japan’s GPIF Stops Lending Shares in Blow to Short Sellers
  • Dalio Out of Favor at Asia Wealth Manager as Flagship Fund Falls
  • Hong Kong Economist Says His Views on China Cost Him His Job
  • Nomura Sets Ambitious China Hiring Plans as Rebound Persists

Major European bourses (Euro Stoxx 50 Unch) are mixed, having reversed earlier gains US President Trump said that there was no deadline on a China deal, and that it may be better to wait until after the November 2020 Presidential Election to strike a deal. Elsewhere, some underperformance is being seen in the FTSE 100 on unfavourable currency effects, while the CAC 40 is being weighed by under performance in some of its heavy weight luxury names, Kering (-1.4%), LVMH (-1.4%) and Hermes (-1.9%), on US/EU trade concerns after the US responded to France’s digital sales tax.Meanwhile, sectors are mostly in the red, apart from Utilities (+0.4%), Tech (+0.5%) and Healthcare (+0.1%). In terms of individual movers of note; easyJet (-0.5%) shares were initially higher on the news that the Co. is set to return to the FTSE 100 and will replace Hiscox (-1.3%), although gains have since reversed. Elsewhere, Telenor (+1.2%) was buoyed by an upgrade at Citigroup. Laggards include Aston Martin (-5.5%), who sunk after being downgraded to neutral from buy at Goldman Sachs.

Top European News

  • German Banks Open Floodgates to Negative Rates for all Savers
  • ECB Sub-Zero Rate Policy Faces Pushback From Finance Ministers
  • Italy’s Agnellis Add La Repubblica Publisher to Media Assets

In FX, both outperforming in the G10 FX sphere, more-so the Aussie in the aftermath of the RBA’s latest monetary policy meeting in which the Cash Rate was left unchanged. Key themes in the statement were largely a copy-and-paste job from recent meetings which repeated the gentle turning point in the economy but reaffirmed data dependency and the readiness to inject further stimulus if needed. However, desks note of a slightly more positive tone in the statement which linked rising house prices to a potential lift in spending and residential construction. AUD/USD extends its gains above the 0.6800 level and surpassed its 100 and 21 DMA (at 0.6818 and 0.6820 respectively) to a current high of 0.6860 (vs. low of 0.6815) with clean air until the psychological 0.6900 mark. The Kiwi piggybacks on its antipodean partner’s gains and covers more ground above the recently claimed 0.6500 level vs. the USD to a high of 0.6530 ahead of its 200 DMA at 0.6544.

  • GBP, EUR - Sterling rose in the G10 ranks in early European hours after the retrieval of 1.2950+ status vs the Dollar spurred upside momentum (amid potential stops/orders), and with tailwinds from the latest election Kantar poll (showing a widening gap between Tories and Labour) underpinning the currency in recent trade. Cable rose to a current high of 1.2994 after eclipsing its Nov 18th high (1.2985) with eyes remaining on election developments as election day looms. Meanwhile, the Single Currency held onto most of its gains vs. the Buck despite France’s growing trade tension with the US which prompted the latter to propose duties of up to 100% on certain French imports. EUR/USD meanders around the middle of a tight 1.1072-1.1086 intraday band, ahead of potential resistance at 1.1097 (Nov 21st high), with little impetus derived from ECB Board nominees and sources reports of pushback on the ECB’s NIRP by EZ finance ministers.
  • DXY, JPY, CNH - The broad Dollar and Index resumes their downward trajectories following yesterday’s dismal manufacturing prints and with little by way of fresh fundamental catalysts. DXY hovers around the bottom of today’s current 97.74-94 range with little on the today’s docket in terms of tier 1 data. Meanwhile, USD/JPY convincingly fell below the 109.00 mark (to a low of 108.84 vs. high 109.20) after US President Trump signalled no rush for a US-Sino trade deal. USD/JPY also sees hefty options of around USD 1bln expiring between strikes 109.00-10 and a further USD 1bln at 109.50. Subsequently, USD/CNH was bolstered to fresh session highs of 7.0690 (vs. low of 7.0360) in light of Trump’s comments on trade.
  • EM - The EM space trades mostly on the backfoot with the Rand underperforming as South Africa’s economy contracted on a QQ basis, missing expectations for modest growth. USD/ZAR took out its 200 DMA to the upside (14.5772) to a high of 14.6900 with little seen by way of resistance ahead of 14.7000. Meanwhile, the Lira recovered from initial loses which emanated from US senators urging Secretary of State Pompeo to sanction Turkey over its purchase and testing of the Russian-made S-400 system. The TRY has since pared back a bulk of its losses as President Trump continues to support Turkey.

In commodities, crude markets are flat/higher and off best levels, as risk assets take a hit following the latest US President Trump’s trade comments. However, price action remains well within yesterday’s ranges; technicians will be eyeing resistance at the USD 56.65/bbl and USD 62.10/bbl levels and support at the USD 55.65/bbl and USD 60.78/bbl levels for WTI Jan’ 20 and Brent Feb’ 19 futures (yesterday evening’s trading range). Crude specific news flow has been light; Russian Energy Minister Novak said that Russia is yet to finalise their position for OPEC+ meeting in Vienna, which takes place at the end of the week. Amid rumours that OPEC+ are considering up to an additional 400k bpd in production cuts, the Russians are known to have been resistant to further cuts, instead preferring an extension of existing cuts until mid-2020. In terms of the metals, gold gained as risk soured, with the yellow metal briefly advancing above USD 1,470/oz from overnight lows of USD 1,460/oz. Meanwhile, trade concerns are hitting copper; the red metal has slumped from overnight highs of USD 2.6550/lbs to near USD 2.6300/lbs lows. , Iron Ore prices gained overnight after its largest miner, Vale, lowered its production outlook. On Monday, the miner said that it would cut output from it Brucutu mine in Brazil for up to two months while the stability of the nearby Laranjeiras dam in assessed.

US Event Calendar

  • Wards Total Vehicle Sales, est. 16.9m, prior 16.6m

DB's Jim Reid concludes the overnight wrap

In the last 24 hours we’ve gone from a potential Santa Claus rally to a more Scrooge-like environment as the ghost of trade wars past came back to haunt the market. Indeed sentiment took a hit following President Trump’s tweet that tariffs would be reinstated on steel and aluminium from Argentina and Brazil and then on Commerce Secretary Ross telling Fox that President Trump will increase tariffs on China if nothing happens between now and December 15th. That undid some of the good work from the majority of global PMIs released earlier in the day. However, a weaker US ISM manufacturing print did bring in an element of doubt and confusion to the picture.

More on the data shortly but first off President Trump’s tweet that “Brazil and Argentina have been presiding over a massive devaluation of their currencies which is not good for our farmers” and that “effective immediately, I will restore the tariffs on all steel and aluminium that is shipped into the US from those countries”. The President followed with the Fed “should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies”.

The implications of President Trump’s tweet is important less for the direct economic impact and more because it shows the current state of President Trump’s thinking on tariffs, and thus the read-through to China. The latter came into play after Ross’ comments with the markets taking another leg down after the headlines hit. These were partially alleviated by subsequent comments from White House advisor Kellyanne Conway, who said that a deal is possible before year-end. So a fair bit resting on the next couple of weeks ahead of the December 15 tariff increase deadline. However, some reports have suggested they could still be suspended even without a deal, as long as productive talks are continuing. Nevertheless, this date is creeping up on us and something has to happen before it one way or another. Later in the day, and separately, the USTR said that it will consider higher tariffs on the EU to compensate for subsidies given to Airbus, citing a WTO ruling, though the dollar amounts under consideration are small.

After all this, the NASDAQ and trade-sensitive semi-conductor indices closed down -1.12% and -1.46%, respectively. The S&P 500 and DOW fared slightly better but still closed down -0.85% and -0.96%, while the VIX climbed to 14.64 and to the highest level since mid-October. European equities fared even worse, with the STOXX 600 ending -1.58%, its worst session since 2nd October. The DAX and CAC were down -2.05% and -2.01%, and the V2X mirrored the VIX by rising +2.72pts to 15.89.

Overnight the Global Times said that the Chinese government will soon publish a list of “unreliable entities” that could lead to sanctions against US companies. China had originally threatened to publish the list in May in response to the restrictions the US placed on Huawei. The timing seems to be linked to an accelerated US House of Representatives vote - expected today - on the Xinjiang bill, which was passed by the Senate in September. This could put sanctions on officials linked to alleged abuses of Uighur Muslims. It remains to be seen whether this will impede the path towards the Phase 1 deal, which according to President Trump yesterday has already been complicated by the signing of Hong Kong bill into law.

Elsewhere, after the US markets closed last night, Bloomberg reported that the US is proposing tariffs on roughly $2.4 bn in French products, in response to a tax on digital revenues that hits large American tech companies including Google, Apple, Facebook and Amazon. The office of the United States Trade Representative said in a statement that “France’s digital services tax discriminates against U.S. companies.” USTR Robert Lighthizer added that the agency is also exploring whether to open investigations into similar digital taxes by Austria, Italy and Turkey before saying that, “the USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies.” The tariffs would be imposed after a public comment period concludes in early 2020. As we write this on a cold December morning it doesn’t feel like the global trade problems are going to thaw anytime soon.

A quick refresh of our screens this morning shows that most Asian markets are trading lower with the Nikkei (-0.72%), Hang Seng (-0.18%), Shanghai Comp (-0.04%) and Kospi (-0.43%) all down. However, most indices are off their intraday lows. As for FX, the Australian dollar is up +0.41% this morning after the RBA held its key interest rate unchanged and highlighted that past easing is having an impact. Yield on 10y USTs are up +2.1bps while those on 10y JGBs are up +3.3bps to -0.028% as demand for the benchmark debt fell at an auction. Elsewhere, futures on the S&P are up +0.18%.

In other news, Hong Kong’s Chief Executive Carrie Lam said overnight that the government would soon announce new moves to prop up the city’s flagging economy without giving any details of what those measure would be. She just mentioned that the measures would be “targeted.” Yesterday, Financial Secretary Paul Chan said that he expected the first fiscal year budget deficit since the early 2000s, and said that the turmoil has dragged down economic growth by some 2pp this year. Elsewhere, North Korea reiterated overnight that the US has until the end of the year to make a better offer in nuclear negotiations, saying the “Christmas gift” the US receives will depend on what it brings to the table.

The bond sell-off overnight follows a similar move yesterday where 10y Treasury yields rose +4.5bps. Front-end rates rallied though, possibly pricing in slightly higher odds that the Fed will end up having to cut again next year. Two-year yields fell -1.0bps, taking the yield curve +5.7bps steeper to 21.7bps. Bunds sold off +8.0bps to -0.284% after the shock weekend SPD news (updates below). Other European bond markets followed the German move, with OATs and Gilts +7.8bps and +4.1bps, respectively. BTPs underperformed, with 10-year yields up +11.9bps, as investors de-risked.

Alongside the SPD news, the earlier decent PMIs seemed to kick start the bond sell-off. In terms of the PMIs, after China’s beat, the PMIs in Europe saw the Euro Area manufacturing print revised up 0.3pts to 46.9. That is the second consecutive monthly increase – something that hasn’t happened since 2017, which is a stunning stat – and also to the highest reading since August. Half of the increase came from Germany and France – the former revised up to 44.1 and the latter to 51.7. Also encouraging was the fact that all of the key components – including new orders, new export orders and employment – saw slight upward revisions. The outright level of the PMI is still clearly a concern but it still lends an argument to seeing a stabilisation in the data.

In the afternoon the US manufacturing PMI was revised up 0.4pts to 52.6, which matches the April levels once again. However, to complicate the picture, 15 minutes later the November ISM manufacturing missed at 48.1 (vs. 49.2 expected). You could argue that the data has stabilised somewhat – the reading was only down 0.2pts from 48.1 and remains above the 47.8 low print from September. That being said, the gap to the PMI (and regional fed surveys) is muddying the waters. In addition, the details didn’t add much encouragement with new orders down to 47.2, employment down to 46.6 and new export orders down to 47.9.

Coming back to yesterday where the fallout from the SPD leadership election in Germany played out with German Finance Minister Scholz, despite losing the leadership bid, announcing that he will still attend a meeting of Eurozone finance ministers tomorrow. Our German economists published their thoughts post the election in a note yesterday, which you can find here . In their view, the vote for Walter-Borjans and Esken increased the probability of the Groko falling apart but does not translate into an automatic or immediate collapse of the government coalition. Their baseline view remains that the new party leaders and delegates at the SPD's December 6-8 party conference will support a (possibly conditional) continuation of the Groko until the 2021 elections and that the SPD will not pull out of Groko immediately. Still, as the CDU/CSU are reluctant to renegotiate the Groko treaty, non-negligible risks of a premature end to the government coalition remain. It must be said that the internal debate within DB continues to be around how much more likely it is that fiscal spending eventually increases as a result of this political shockwave. There is little doubt that the chances have increased but the timing and scale of any policy changes are still up for much debate.

Elsewhere, new ECB President Lagarde testified to the European Parliament for the first time in her new position, but did not reveal any major policy details. She promised that policy will “continue to support the economy and respond to future risks in line with our price stability mandate.” She refused to prejudge the planned policy review, saying that the “direction and timeline” of the process is still to be determined. This tempers any expectations for near-term policy moves by the ECB, including at this month’s meeting. Notably, Lagarde did talk more about “the side effects of our policies,” which has thus far been the biggest departure from Draghi’s rhetoric and likely signals reduced appetite to cut the deposit facility rate deeper into negative territory.

To the day ahead now, which this morning includes Q2 labour costs and the November construction PMI in the UK and October PPI for the Euro Area. In the US the only data due out are the November vehicle sales numbers. Away from the data, we’re due to hear from the ECB’s Coeure and Hernandez de Cos. Elsewhere the NATO conference kicks off in London.

Tyler Durden Tue, 12/03/2019 - 07:54
Published:12/3/2019 7:21:37 AM
[Markets] Dow Jones Futures Fall As Trump Says He Might Favor China Trade Deal After 2020 Election Dow Jones futures turned lower after President Donald Trump said it might be better to wait until after the 2020 election to reach a China trade deal. Published:12/3/2019 5:56:12 AM
[Markets] Stock futures turn lower as Trump says China deal could come after election U.S. stock futures promptly turned lower Tuesday as President Trump introduced doubt, at a London press conference, that a trade deal with China was imminent. "In some ways I like the idea of waiting until after the election for the China deal," Trump said, according to a pool reporter's account. Stock futures dropped, with Dow industrials futures losing 118 points. Published:12/3/2019 5:21:57 AM
[Markets] Stocks, Bonds, & The Dollar Dumped On Dismal-Data & Trade-Tensions Stocks, Bonds, & The Dollar Dumped On Dismal-Data & Trade-Tensions

A quadruple-whammy of not-awesome trade-related comments today spoiled the party...

  • 0602ET *TRUMP TO RESTORE TARIFF ON STEEL SHIPPED FROM BRAZIL, ARGENTINA

  • 1035ET *TRUMP WILL INCREASE TARIFFS IF NO CHINA DEAL, ROSS TELLS FOX

  • 1200ET *TRUMP AIDE SAYS IT'S UP TO CHINA IF DEAL WILL BE MADE THIS YR

  • 1230ET *CHINA TO RELEASE 'UNRELIABLE ENTITY LIST': GLOBAL TIMES

And then US Macro data poured cold water on China and EU economic hope as construction spending plunged and manufacturing ISM disappointed significantly.

Source: Bloomberg

But that 'surprising' surge in a government-provided survey of manufacturers in China was offered up as evidence that (despite US weakness) everything will be ok and the trough is in...

Chinese stocks clung to very modest gains overnight (trade headlines hit after the China close)...

Source: Bloomberg

European stocks were hammered on trade turmoil (despite PMIs beating expectations)...

Source: Bloomberg

And European bonds were also down (in price) along with stocks (10Y Bunds +8bps)...

Source: Bloomberg

US equities suffered their biggest daily drop in 6 weeks...

Dow futures were down over 400 points from the overnight highs...

Momo was dumped at the open but the trend in value/momo reversed around the European close...

Source: Bloomberg

VIX spiked above 15 intraday but once again vol-sellers returned after Europe's close...

Source: Bloomberg

Credit was smashed today (after last week's insane surge)...

Source: Bloomberg

Treasury yields surged on the day, led by the long-end (2Y was marginally lower in yield)...

Source: Bloomberg

Most notably, the ultra-bond futures collapsed overnight (hitting a 3-point limit circuit breaker)...

Source: Bloomberg

And today saw a major steepening of the yield curve... (the yield curve move has the smell of rate-locks given the underlying macro data, but we will have to wait and see what the calendar looks like - high-grade dealers expect this week to bring $15b-$20b in supply. This is likely to be December’s busiest week, with just about $25b for the full-month in store, according to estimates -- that’s $8b more than last year and in line with the $23b that priced in December 2017)

Source: Bloomberg

The dollar was dumped today (biggest daily drop in 6 weeks)...

Source: Bloomberg

...breaking down through its 50- and 100-day moving-averages...

Source: Bloomberg

Yuan also lost ground as trade-deal hope faded...

Source: Bloomberg

Cryptos extended losses over the weekend and pushed lower still today...

Source: Bloomberg

Bitcoin has been unable to get back above $7400...

Source: Bloomberg

Gold, Copper, and Silver ended the day lower (despite a tumbling dollar) but oil popped on Saudi calls for more production cuts/extensions at OPEC (as its Aramco IPO looms)...

Source: Bloomberg

But, with regard to oil, it is still a lot lower than before Friday's plunge...

“This whole week is going to be based on OPEC speculations,” said James Williams, president of London, Arkansas-based WTRG Economics.

All the precious metals are green for 2019, but palladium is by far the biggest winner...

Source: Bloomberg

Finally, today was the worst day for a balanced portfolio of stocks and bonds since mid-August...

Source: Bloomberg

Additionally, as Bloomberg's Garfield Reynolds notes, global equities are gliding serenely into the end of 2019, even in the face of a dire economic landscape. To justify an exuberance that looks anything but rational, global activity will need to turn around dramatically.

Source: Bloomberg

The 2019 FOMO rally’s resilience has taken it far enough in the face of a cloudy forecast. Any declines from here could get very steep indeed.

And then there's this...

Source: Bloomberg

And the US is just as bad (if not worse)...

Source: Bloomberg

And this...

Source: Bloomberg

Tyler Durden Mon, 12/02/2019 - 16:00
Published:12/2/2019 3:18:33 PM
[Markets] Dow ends down over 260 points on manufacturing slowdown, trade worries Dow ends down over 260 points on manufacturing slowdown, trade worries Published:12/2/2019 3:18:33 PM
[Markets] Dow skids more than 200 points on weak manufacturing data, trade concerns The stock market is on track for a second session of losses, with the Dow seeing its biggest one-day decline since Oct. 18, following weak U.S. manufacturing data and President Trump’s announcement of new steel tariffs. Published:12/2/2019 2:48:22 PM
[Markets] Market Snapshot: Dow falls more than 200 points on weak manufacturing data, trade concerns The stock market is on track for a second session of losses, with the Dow seeing its biggest one-day decline since Oct. 18, following weak U.S. manufacturing data and President Trump’s announcement of new steel tariffs.
Published:12/2/2019 12:47:23 PM
[Markets] Dow Jones Sinks 255 Points On Lousy ISM Data, But This Miner Breaks Out; When To Buy InMode Again Software stocks succumbed to profit taking Monday, but the Dow Jones Industrial Average fell a bit less than the Nasdaq composite. Published:12/2/2019 12:47:23 PM
[Markets] Stocks & Dollar Plunge After Dismal US Data Stocks & Dollar Plunge After Dismal US Data

US equity markets surged overnight on China and European PMIs but have accelerated losses this morning after US Manufacturing ISM (and construction spending) disappoints.

Dow futures are down over 300 points from overnight highs...

The dollar is also being dumped...

Source: Bloomberg

For now, bonds refuse to move much after their ugly selloff overnight, but the short-end is outperforming...

Source: Bloomberg

Seems like we are going to need a "China deal is close" tweet to save the market.

Tyler Durden Mon, 12/02/2019 - 10:08
Published:12/2/2019 9:17:30 AM
[Markets] Dow Jones Today: Oil Prices, Retail Sales, Manufacturing Data Lift Stock Market Futures InMode led the IBD 50 list, Nike rose toward a buy point on the Dow Jones today, as the stock market prepared to launch into December on a positive note. Published:12/2/2019 7:17:49 AM
[Markets] Will a Santa Claus rally power the S&P 500 and Dow to their best years in a generation? Investors have grown used to Saint Nicholas leaving an extra present under their trees at the end of the year, and in 2019 the so-called Santa-Claus rally could power the major benchmarks to record-setting gains once more. The Santa Claus rally is Wall Street’s nickname for the unusually strong stock-market gains typically seen during the final five trading days of the year and the first two trading days of the following year. Since 1950, the S&P 500 index (SPX) has gained an average of 1.3% during this stretch, about six-and-a-half times the average seven-day rolling performance of 0.2%, according to Dow Jones Market Data. Published:11/30/2019 9:07:16 AM
[Markets] Here’s how smart stock-market investors assess those Black Friday and Cyber Monday shopping reports If the Dow Jones Industrial Average rises on those two days because of holiday optimism, it’s more likely to end the holiday season lower. Published:11/30/2019 8:38:50 AM
[Markets] Stocks close lower as investors weigh China trade deal U.S. stocks turned lower Friday, snapping a four-day winning streak amid light volume, as a trade deal with China remained out of reach. The Dow Jones Industrial Average was down about 112.59 points, 0.4%, to close at 28,051.41. The S&P 500 fell 12.62 points, 0.4%, to close near 3,141.01. The Nasdaq was down about 39.70 points, 0.5%, at 8,665.47. Retail giant Walmart Inc. was one of the few retailers in the green on Black Friday: shares gained about 0.3% on the day, and are up nearly 28% for the year to date. Published:11/29/2019 12:32:04 PM
[Markets] Dow, Home Depot, Caterpillar big losers as blue-chip skid runs to triple digits Dow, Home Depot, Caterpillar big losers as blue-chip skid runs to triple digits Published:11/29/2019 12:01:57 PM
[Markets] Dow Stumbles On Renewed China Fears But Rallies 212 Points For The Week China trade deal worries returned to the spotlight in the stock market today, as the Dow Jones industrials and other key indexes gapped down at the open. Published:11/29/2019 11:29:55 AM
[Markets] Stock Market Mixed On China News; Alibaba, Nvidia Slip, While Nike Has New Buy Point The major stock indexes were squarely lower in morning trade Friday. Dow Jones stock leader Nike is approaching a new buy point. Published:11/29/2019 9:28:24 AM
[Markets] Mark Hulbert: Here’s how smart stock-market investors assess those Black Friday and Cyber Monday shopping reports If the Dow Jones Industrial Average rises on those two days because of holiday optimism, it’s more likely to end the holiday season lower.
Published:11/29/2019 6:57:45 AM
[Markets] Dow Jones Today: China Trade Fears Knick Apple, AMD, Nvidia, But Alibaba Keeps Running Dow Jones today: China trade fears rose heading into a shortened Black Friday session, but Alibaba kept rising. Apple, AMD and Nvidia edged lower. Published:11/29/2019 6:57:45 AM
[Markets] Black Friday Is Coming, And 48 Million Americans Still Have Holiday Debt From Last Year Black Friday Is Coming, And 48 Million Americans Still Have Holiday Debt From Last Year

Authored by Michael Snyder via TheMostImportantNews.com,

The biggest shopping day of the year is almost here, and marketers are working hard trying to extract as much money from U.S. consumers as possible.

Unfortunately, it is becoming increasingly difficult to get consumers to open up their wallets, because many of them are already drowning in debt. As a society, we have been trained to think of this as “the happiest time of the year”, and for many Americans the most important part of the holiday season is opening presents on Christmas morning. So there is a tremendous amount of pressure to spend a lot of money on presents, but this often leads to high levels of credit card debt. In fact, a survey that was just released discovered that 48 million Americans “are still paying off credit card debt from last holiday season”

The holidays can be hard: cooking elaborate meals, facing frigid temperatures, making travel plans that please everyone.

Overspending, however, is too easy. In fact, about 48 million Americans are still paying off credit card debt from last holiday season, according to a NerdWallet survey conducted by The Harris Poll.

Sadly, some of those consumers will end up paying the credit card companies more than twice what those Christmas presents originally cost, and it can be exceedingly difficult to ever get ahead when you are trapped in a seemingly endless cycle of debt.

So why do people do it?

Well, according to one financial therapist many Americans are chasing an “emotional experience” this time of the year…

Gift-buying requires money, time and energy when you may already feel overwhelmed, says Los Angeles-based financial therapist Amanda Clayman. During the holidays, “we’re chasing a sort of emotional experience,” she says. Think: the love and happiness of a Hallmark movie.

But feelings of grief or longing may be more realistic. “This is a sad and lonely time for many people,” says Sarah Newcomb, behavioral economist for Morningstar. Shopping (for anything or everything) can be a convenient coping mechanism.

We want what we see on television, but what we see on television is not real.

In the end, many Americans leave the holiday season feeling deeply disappointed, because what they were chasing was just an illusion.

Yes, some wealthy families will literally have hundreds of presents under their Christmas trees this holiday season, but most American families are deeply struggling these days.

In fact, over two million of us are actually living without basic necessities such as “running water or indoor plumbing”. The following comes from Daisy Luther

new report says that more than 2 million Americans in West Virginia, Alabama, Texas and the Navajo Nation Reservation in the Southwest are living without clean running water or indoor plumbing. They’re drinking from polluted streams. They’re carrying buckets of the same water home for washing. They’re urinating and defecating outside with no wastewater treatment.

The gap between the rich and the poor continues to grow, and at this point the wealthiest 0.1 percent of all Americans now have as much wealth as the poorest 90 percent of all Americans combined.

Let that sink in for a moment.

That is a recipe for societal disaster, and it is getting worse with each passing year.

A big reason for this is because the Federal Reserve has been artificially pumping up the financial markets, and on Monday stocks hit yet another all-time high

The S&P 500 and Nasdaq Composite hit all-time closing highs as they rose 0.8% to 3,133.64 and 1.3% to 8,632.49, respectively. Both indexes also notched intraday records. The Dow Jones Industrial Average also had a record close, gaining 190.85 points, or 0.5% to 28,066.47.

President Donald Trump tweeted about the record, saying: “Enjoy!”

But what most Americans don’t understand is that 84 percent of all stock market wealth is owned by the wealthiest 10 percent of all Americans.

Of course the stock market bubble won’t last indefinitely. We are already in an earnings recession, and that earnings recession is expected to continue in the fourth quarter

Earnings in the S&P 500 index SPX, +0.75% are now projected to decline 1.51% in the fourth quarter from the year before, according to a FactSet computation of analysts’ average forecasts for individual companies. An earnings recession is defined as two quarters or more of consecutive year-over-year declines, and earnings for S&P 500 components dipped in the first two quarters of 2019 and are all but certain to do so again in the third quarter — with nearly 95% of calendar third-quarter reports posted, earnings have dropped 2.34%, the biggest decline so far this year.

And about 75 percent of the time, an earnings recession leads into a full-blown recession for the economy as a whole

Three-fourths (75%) of earnings recessions since World War II have morphed into economic recessions, said CFRA Chief Investment Strategist Sam Stovall, who told Market Watch that he has been “scratching his head” trying to reconcile analyst pessimism around earnings with continued stock-market rallies.

So the truth is that those that are celebrating what the stock market is doing are not likely to be celebrating for too much longer.

And every day we continue to get more bad news from the real economy. For example, we just learned that the largest maker of truck engines in the United States will be laying off about 2,000 workers

Those market trends are now impacting Cummins, a Columbus, Ind., manufacturer of heavy equipment. It’s the largest manufacturer of Class 8 truck engines, claiming a 38.3% market share in 2018 over competitors like Daimler and Volvo/Mack.

Cummins spokesperson Jon Mills confirmed to Business Insider that the company, which employs some 62,610 globally, will reduce its global workforce by about 2,000. Those layoffs will be complete by the first quarter of 2020, he said.

As a “perfect storm” overtakes America, many believe that this will be the last “normal” holiday season that Americans will be able to enjoy.

It has become exceedingly clear that very hard times are coming, and quite a few experts believe that the crisis that is ahead will be even worse than what we experienced in 2008.

So enjoy the time that you are able to spend with your family and friends over the coming weeks, because major changes are already starting to happen, and our nation will soon be dealing with one major headache after another.

Tyler Durden Thu, 11/28/2019 - 17:00
Published:11/28/2019 4:25:31 PM
[Markets] European And Middle Eastern Regulators Raise Scrutiny Of 777X As Confidence In Boeing, FAA Plummets European And Middle Eastern Regulators Raise Scrutiny Of 777X As Confidence In Boeing, FAA Plummets

Update: In the latest blow to Boeing, whose sagging shares are helping to weigh on the Dow in Wednesday's thin pre-holiday trade, WSJ has published a story claiming that regulators in Europe and the Middle East are ratcheting up their scrutiny of the new 777x. The news followed a report about a failed stress test by mere hours.

The move marks the end of an era for American aviation, when international regulators simply trusted the US to handle oversight. It's an important sign of the confidence that has been lost as Boeing struggles to move on from the crashes, and mass groundings, of the 737 MAX 8.

The European Union Aviation Safety Agency said in a statement it is performing a “concurrent validation” of the FAA’s certification of Boeing’s 777X, a new variant of the company’s popular wide-body jet. The plane is expected to be the first new airliner design from either Boeing or rival Airbus SE to come to market since the MAX crisis began. Two recent crashes of that jet exposed problems with its flight-control systems and FAA certification procedures. Regulators around the world grounded the entire fleet, creating turmoil for airlines and passengers world-wide.

The national regulator in the United Arab Emirates, meanwhile, also plans to separately scrutinize the certification process of the 777X, according to people familiar with the matter. While a small agency, the Emirati General Civil Aviation Authority wields outsize influence over the future of the 777X. That is because the U.A.E.’s state-owned carrier, Emirates Airline, is one of the new jet’s biggest customers. It is slated to be the first airline to fly the airliner in 2021.

According to WSJ, the regulators aren't insisting on performing their own complete independent certifications, rather, they're going to scrutinize the process used by the FAA.

European and Emirati regulators aren’t envisioning a full-blown certification of their own. Instead, they will independently scrutinize the processes used by the FAA and Boeing related to a number of specific systems on the plane, including its flight-control system and Boeing’s safety classification system, according to people familiar with the matter. They will also individually review the plane’s unique folding wings, these people said.

These reviews are perhaps the clearest sign yet that the FAA's status as the world's most reliable regulator has been lost, something that President Trump will need to blame on President Obama.

The separate reviews further undercut the FAA’s once-unchallenged stature as the world’s most influential regulator. The agency had lost credibility in the days after the crash of an Ethiopian Airways 737 MAX in March. That followed the deadly crash of a Lion Air MAX, under similar circumstances, late last year. The crashed killed 346 people in total.

There's no question that this is terrible news for Boeing, Fortunately, according to the latest reports, the 737 MAX should be back in the skies by early next year.

* * *

With the FAA reportedly preparing to inspect every 737 MAX individually before it signs off on the planes' return to the air - a decision that will likely delay recertification and add to Boeing's losses - the latest bad news for the aerospace firm comes from its hometown (well, sort of, Boeing is officially based in Chicago but the bulk of its operations are located in Washington State) paper, the Seattle Times.

The paper reported that a recent stress test for a new model of the Boeing 777 resulted in the fuselage (a fancy term for the body of the plane) ripping apart just below the FAA's official threshold for certification.

Driving the story home, the paper also published a grainy cellphone pic of the damage:

Back in September, the ST and a few other outlets reported that there were problems with the stress test, and that a door had flown off the handle. This, as it turns out, is not only incorrect, but it minimizes the seriousness of what actually happened.

During the test, the plane's fuselage "split dramatically" along the underside of the plane near where the landing wheels are stowed. The body of the plane was rent open with the force of a bomb. Workers in another hanger nearby said the ground the shook and they heard a load explosion. The Seattle Times clarified that their earlier reporting about a door flying off its hinges was mistaken: the 777's doors close from the inside and are larger than the holes they cover, but one door was seriously damaged.

When Boeing tested the original 777 model in 1995, it kept going until the aluminum wings snapped at 1.54 times limit load. On the 787, it chose to stop at 1.5 and then ease the composite wings back down again. Breaking a pair of composite wings could result in release of unhealthy fibers in the air, so it’s likely that with the 777X also having composite wings, that was the plan again this time.

But as Boeing personnel along with six FAA observers watched from the windows of a control room, at 1.48 times limit load - 99% of ultimate load - the structure gave way. Under the center fuselage, just aft of the wing and the well where the landing gear wheels are stowed, the extreme compression load caused the plane’s aluminum skin to buckle and rupture, according to the person familiar with the details.

The resulting depressurization was explosive enough that workers in the next bay heard it clearly. One worker said he heard “a loud boom, and the ground shook.”

Then there was the secondary damage...

That then caused secondary damage: The photos show that the fuselage skin split part of the way up the side of the airplane, along with areas of bent and twisted structure that extended through the area around a passenger door.

A day after the incident, based on incomplete information, The Seattle Times and other media outlets incorrectly reported that a cargo door had blown out.

Unlike the plane’s cargo doors, which hinge outward, the passenger doors on airliners are plug-type doors that only open inward and are larger than the hole they close. But the structure around that passenger door just aft of the 777X wing was so damaged that the pressure blew the door out and it fell to the floor.

These secondary damage sites — the rip up the side of the fuselage, the door blown out — alarming as they might seem, are not a concern to air safety engineers. “The doors were not a precipitating factor,” said the person familiar with the details.

It’s the initiating failure, the weakness in that localized area of the keel, that Boeing must now fix.

As uncomfortable as it sounds, Boeing probably won't need to do a retest: Since the rupture occurred so close to the threshold level, the FAA will likely allow Boeing to make the necessary changes independently and then show its work via analysis.

A safety engineer at the Federal Aviation Administration (FAA), speaking anonymously without permission from the agency, said that because the blowout happened so close to the target load, it barely counts as a failure.

Boeing will have so much data gathered on the way to the 99% stage that it can now compare with its computer models to analyze the failure precisely, the FAA engineer said. It can then reinforce the weak area, and prove by analysis that that’s sufficient to cover the extra 1%.

One engineer said the rip actually isn't anything to worry about.

The engineer said it’s not that unusual to find a vulnerability when taking an airplane structure to the edge of destruction.

"The good news is they found it and can address it," the FAA engineer said. "They found a problem they can fix. They can beef up the structure based on analysis."

And here are some more details about the test, including an explanation of the FAA's standards, as well as what happens to the test plane during the test.

The test conducted that day was the final test of this airplane, which was fixed in a test rig inside the Everett factory specifically to be stressed close to destruction. The jet was surrounded by scaffolding and multiple orange weights hung from the airframe. Wires were hooked to instrumentation that studded the surface to measure every stress and deflection, the data monitored in real time by engineers sitting at control room computers.

As the test neared its climax, weighted pulleys had bent the jet’s giant carbon composite wings upward more than 28 feet from their resting position. That’s far beyond the expected maximum deflection in normal flight of about 9 feet, according to a person familiar with the details.

At the same time, the fuselage was bent downward at the extreme front and aft ends with millions of pounds of force. And the interior of the plane was pressurized beyond normal levels to about 10 pounds per square inch — not typically a requirement for this test, but something Boeing chose to do.

All this simulated the loads in a flight maneuver where a pilot would experience a force of 3.75 G, compared to the maximum of 1.3 G in normal flight.

The combination of the bending forces  on the wing and fuselage created a high compression load on the bottom centerline of the fuselage — the keel — according to the person, who asked for anonymity because the details are sensitive.

Federal certification regulations require engineers to ratchet up the forces until  they reach “ultimate load” — defined as 1.5 times the “limit load,” which is the maximum that would ever be experienced in normal flight — and hold it there for at least three seconds.

Unfortunately for Boeing, traders weren't in the mood for excuses, and sent the company's shares lower in premarket trade...even as the broader market was set to open at record highs.

Tyler Durden Wed, 11/27/2019 - 11:30
Published:11/27/2019 10:46:46 AM
[Markets] Dow, Boeing, Caterpillar weigh on blue chips even as S&P, Nasdaq eke out gains Dow, Boeing, Caterpillar weigh on blue chips even as S&P, Nasdaq eke out gains Published:11/27/2019 10:18:57 AM
[Markets] Global Markets Grateful For Trade Deal Optimism, Levitate To All Time Highs Global Markets Grateful For Trade Deal Optimism, Levitate To All Time Highs

With little out there to threaten the melt-up in global stocks, and with hte occasional "trade deal optimism" trickling in from Trump's tweets or Chinese soundbites, traders were thankful for yet another all time high in S&P futures while world markets made another push for a record high on Wednesday after Trump said Washington and Beijing were in the final throes of inking an initial trade deal.

The MSCI’s all-country world index was just within 0.4%, or 2 points, of its record high from January 2018...

... while US equity futures rose all night until they rebounded off the giant gamma wall at 3,150...

... which we discussed previously has set the trading range for the S&P between 3,100 and 3,150. And so, having hit the top end of the dealer sweet spot, the S&P may now revert lower... but don't hold your breath.

Europe's Stoxx 600 index also rose to within 1% of its record close, with 15 of 19 sector groups advancing amid very subdued volumes. 

Earlier in the session, Asian stocks advanced for a fourth day, led by tech firms, with the MSCI Asia Pacific index adding  0.3% in overall quiet trading, and while Shanghai struggled after Chinese industrial company profits plunged the most since 2011, Australian shares reached record highs and Japan’s Nikkei drew support from the growing likelihood of extra fiscal stimulus, while the Topix added 0.3%, driven by electronics and machinery makers, as foreigners extended their buying of Japan equities for a seventh week, its longest stretch in two years. A senior Japanese ruling party official said on Wednesday he believed the government was striving to compile a supportive spending package worth about 10 trillion yen ($92 billion).

The Shanghai Composite Index closed 0.1% lower, with China Yangtze Power and Ping An Insurance Group among the biggest drags. Profits at Chinese industrial companies fell for a third month, dropping by the most since at least 2011. India’s Sensex rose, heading for a fresh record, as Housing Development Finance and Kotak Mahindra Bank offered strong support.

As usual, the big topic of discussion, or rather diversion, was trade, even though China continues to slow not due to the trade war but its inability to stimulate a credit impulse, while the only reason why US stocks are at record highs is QE4.

"Something will come out of the phase one (Sino-U.S. trade) talks," said TD Securities Senior Global Strategist James Rossiter. “Rolling back tariffs to where they were in August, with the December ones put on hold or canceled maybe.” But he said the two countries were unlikely to go beyond that, and China’s declining industrial profits underscored the economic strain exerted by the tensions.

Another signal of the rising market confidence was the VIX plunging to 7 month lows. It is now less than half the level it was in August, when U.S.-China talks looked close to collapsing, and a third of last December’s level when stock markets were pulled lower by trade angst and rising interest rates. Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore, said while Sino-U.S. trade headlines may be driving some tactical, near-term moves in the market, they were mostly just “noise”. And echoing what we said, the Saxo strategist said that the broader market direction is “about the accommodative Fed and accommodative monetary policy and the fact that structurally the meta-trend is still lower in yields and rates,” he said.

In FX, the dollar relentless levitation continued, and the greenback was stronger against developed and emerging currencies, with dollar/yen holding above 109 and euro/dollar steady at $1.10. That was despite softer-than-expected U.S. economic data on Tuesday, which showed a fourth straight monthly contraction in consumer confidence and an unexpected drop in new home sales in October. Sterling initially dropped then spiked as pre-election opinion polls showed some narrowing of the Conservative lead over opposition parties, although Prime Minister Boris Johnson is still favored gain an overall majority. The reaction to the polls squeeze has been modest as the prospect of another hung parliament raises the prospect of some form of coalition government made up of parties supporting a second Brexit referendum.

“So far, the market has been relatively complacent when it comes to the risks ahead,” said Thu Lan Nguyen, FX strategist at Commerzbank. “Yes, the Tories still have the lead, but they’re certainly not gaining.”

In emerging markets, traders were watching Brazil’s real, which fell to a record low, below the troughs of the 2015 recession, despite central bank intervention.

Among the main commodities, oil prices edged lower after reaching their highest since late September on the reassuring trade headlines. U.S. West Texas Intermediate crude was down 0.21% at $58.29 per barrel. Global benchmark Brent crude lost 0.11% to $64.20 per barrel.

Expected data include annualized GDP, durable-goods orders, and personal income and spending.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,149.75
  • STOXX Europe 600 up 0.4% to 410.26
  • MXAP up 0.3% to 165.63
  • MXAPJ up 0.4% to 530.12
  • Nikkei up 0.3% to 23,437.77
  • Topix up 0.3% to 1,710.98
  • Hang Seng Index up 0.2% to 26,954.00
  • Shanghai Composite down 0.1% to 2,903.20
  • Sensex up 0.4% to 40,972.32
  • Australia S&P/ASX 200 up 0.9% to 6,850.60
  • Kospi up 0.3% to 2,127.85
  • German 10Y yield unchanged at -0.372%
  • Euro down 0.1% to $1.1006
  • Italian 10Y yield rose 0.6 bps to 0.824%
  • Spanish 10Y yield fell 0.7 bps to 0.382%
  • Brent futures up 0.3% to $64.46/bbl
  • Gold spot down 0.2% to $1,459.24
  • U.S. Dollar Index up 0.1% to 98.36

Top Overnight News

  • Global central banks are approaching the end of the year with a collective shudder at the risky behavior that their low interest-rate policies are encouraging. Policy makers from European Central Bank and the Federal Reserve are among those raising cautionary flags at potentially unsafe investing stoked by their efforts to flood economies with ultra-cheap money
  • President Donald Trump declared Tuesday that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone, signaling progress on an accord in the works for nearly two years
  • Profits at Chinese industrial enterprises fell for a third straight month, dropping by the most since at least 2011 as producer prices continue falling and domestic demand slows
  • China saw strong demand for its third offering of dollar bonds in three years, though U.S. investors largely left the deal alone amid the trade war. Fund managers were also a diminished presence from last year, with the bulk of the sale taken up by banks and the public sector -- a group that includes central banks and sovereign wealth funds
  • The earliest-available indicators of China’s economic performance point to a continued slowdown in November. Economic growth was already the slowest in almost three decades in the third quarter
  • Elizabeth Warren’s steady rise in the polls has shifted into reverse as attacks from her Democratic rivals over her Medicare for All plan take a toll. A Quinnipiac poll released Tuesday found that Warren has dropped by 14 points since October, when she topped the field in the same poll. Joe Biden now has a clear lead and she is in a three-way statistical tie for second place with Pete Buttigieg and Bernie Sanders. Every other candidate had 3% support or less
  • A White House budget official said he warned his superiors that a hold on security assistance for Ukraine could be illegal, and he waited months for an explanation for the delay he described as unusual, according to transcripts released Tuesday
  • The road map for quantitative easing laid out by Reserve Bank of Australia Governor Philip Lowe is spurring a rally in the nation’s bonds as investors seize on his comments to bet on deeper interest-rate cuts
  • The earliest-available indicators of China’s economic performance point to a continued slowdown in November. Economic growth was already the slowest in almost three decades in the third quarter, and Bloomberg Economics’ gauge aggregating the earliest data from financial markets and businesses shows that continuing
  • U.K. Labour party leader Jeremy Corbyn accused Boris Johnson’s government of secretly negotiating with the U.S. over the National Health Service as he sought to shift the focus from a spat over antisemitism that has embroiled his campaign for next month’s election

Asian equity markets traded broadly firmer after Wall Street extended on record levels once again, but with gains capped given the lack of material breakthrough from the recent slew of optimistic US-China trade rhetoric and following a further slump in Chinese Industrial Profits. ASX 200 (+0.9%) and Nikkei 225 (+0.3%) were positive with notable strength in Australia’s telecoms sector as Telstra was boosted in anticipation of a stronger performance in H2 and with gold miners underpinned after the precious metal found relief from support at USD 1450/oz, while Tokyo sentiment rode on the recent upward trajectory in USD/JPY and with Toshiba lifted by prospects of a sooner return to the main market following reports the Tokyo Stock Exchange will ease requirements to fast-track promotion to the main board as soon as next year. Hang Seng (+0.2%) and Shanghai Comp. (-0.1%) were somewhat indecisive with Hong Kong kept afloat by hopes protests were waning and that the university siege may have drawn to an end, although the mainland was choppy due to continued PBoC liquidity inaction and after Industrial Profits further deteriorated with its largest decline since 2011. Finally, 10yr JGBs ignored the mostly positive tone in stocks and extended on the prior day’s post-40yr auction rebound to briefly test resistance at the 153.50 level, with prices also supported by the BoJ’s presence in the market today with the central bank’s Rinban operations heavily concentrated on 5yr-10yr maturities.

Top Asian News

  • Another Yield-Starved Japanese Bank Steps In to Buy CLOs
  • Westpac Still Under Fire as Advisers Say Directors Must Go
  • Investors in China Can’t Wait to Finally Own Alibaba Shares
  • Hong Kong Sets Record in $5 Billion Land Sale to Sun Hung Kai

Major European bourses (Euro Stoxx 50 +0.2%) are higher in quiet but choppy trade, as global equities continue to build on recent momentum amid elevated trade hopes since the latest US President Trump comments that trade talks are in the “final throes”. Meanwhile, month-end factors continue to distort price-action. Sectors are in the green across the board, with outperformance seen in Materials (+0.3%) and Consumer Discretionary (+0.3%). In terms of individual movers; British American Tobacco (+2.1%) nursed losses seen at the open after the Co. noted that it is on track for a strong year despite a slowdown in the US vaping market. Elsewhere today’s notable gainers include Aroundtown Properties (+2.5%) whose shares advanced after the Co. posted strong gains in both revenue and EBITDA. In terms of the laggards, Knorr Bremse (-3.5%) is under pressure after the Co. posted earnings that missed on top line expectations. Meanwhile, Rolls Royce (-1.5%) and Compass Group (-2.5%) are both lower following downgrades at Morgan Stanley and SocGen respectively. Taking a broader view, Barclays continue to see moderate upside for European equity markets in 2020, forecasting a further 9% of upside for the Euro Stoxx 50 by next year’s end. Although “the tactical risk-reward has become less appealing following the latest rally, as macro recovery and reducing policy uncertainty appear to be widely expected… light positioning, the relative expensiveness of ‘safe assets’, the positive delta in activity & earnings and the easier financial conditions argue for an extension of the equity bull market into 2020” the bank concludes.

Top European News

  • Better Macro Should Support European Stocks in 2020: Jefferies
  • Bain, Fortress, Apollo Consider Investing in Monte Paschi: MF
  • Lloyds to Cut Chief Executive Horta-Osorio’s Pension Award
  • Vodafone Wins German Court Backing in Price Fight With Elliott

In FX, The Dollar remains on a firm footing ahead of a packed US agenda with data front loaded and compressed due to Thursday’s Thanksgiving holiday. The Greenback is up vs most G10 rivals, albeit rangebound as the DXY meanders between 98.407-259 parameters, and just shy of resistance at 98.450. Back to today’s raft of releases, Q3 GDP and October core PCE are likely to headline, but durable goods may steal the limelight given the erratic nature of that series.

  • CAD/NZD/SEK/NOK - The major outliers and ‘outperformers’, as the Loonie maintains a degree of bullish technical momentum after Usd/Cad closed below the 200 DMA on Tuesday (1.3278) and the Kiwi benefits from favourable cross-winds with Aud/Nzd pivoting 1.0550 and Nzd/Usd holding relatively firmly above 0.6400 having largely shrugged off or taken in stride comments from RBNZ Governor Orr, the latest FSR and NZ trade data. Similarly, the Scandi Crowns have not really sustained serious or lasting damage from a dip in Swedish household lending, flip from trade surplus to a deficit twice the size or rise in the unofficial Norwegian survey-based jobless rate, as Eur/Sek tests support at 10.5500 and Eur/Nok straddles 10.1000.
  • GBP/AUD/JPY/CHF/EUR - The Pound has recovered pretty well if not impressively from early weakness and a breach of yesterday’s low (circa 1.2835) that seemed partly Eur/Gbp related amidst reports of RHS demand for the end of November. Indeed, Cable has bounced ahead of last Friday’s base (around 1.2822) towards 1.2885 and eclipsing the 21 DMA (1.2881) and the cross is back near 0.8650 having climbed to within a few pips of its 21 DMA (0.8587), as Eur/Usd hovers just above 1.1000. Note, hefty options expire close by (2 bn from 1.0995-1.1000 and 1.1 bn between 1.1035-40), while a key Fib (1.0994) is also keeping the single currency in narrow confines. Elsewhere, broadly risk-on sentiment amidst latest positive US-China trade chat (phase 1 deal in final throes per President Trump) is capping the Yen and Franc just under 109.00 and over parity respectively, with expiry interest also in proximity for Usd/Jpy (3.3 bn from 108.95-109.00 and 1 bn at 109.15). Back down under, a couple of dovish RBA calls vs 1 less dovish has weighed on Aud/Usd and protected a serious approach on 0.6800, but the pair is holding above 1bn expiries between 0.6760-75.
  • RBNZ Financial Stability Report noted that New Zealand’s financial system is resilient to a range of economic risks although global financial stability risks and domestic debt vulnerabilities remain, while it added that prolonged low long-term interest rates could generate excess leverage and overheated asset prices. Furthermore, the RBNZ stated negative OCR is not currently a central scenario in its published forecasts and it is considering potential impacts of unconventional monetary policy tools on bank profitability.

In commodities, the crude complex is slightly firmer, with Brent Feb’ 20 futures making fresh weekly highs above yesterday’s high (around USD 64.30/bbl) , as the market rebounds from overnight post bearish API inventory data lows as it opts to instead take its cue from better risk appetite spurred by trade hopes. Looking ahead, attention will be on EIA inventory data, where weekly crude stocks are seen drawing by 347k barrels, although if EIA crude stocks follow API’s lead and print a surprise build, this would mark a fifth straight week of builds. It is also the first day of the OPEC Economic Commission Board Meeting, which ends tomorrow, after which the board may provide policy recommendations to OPEC - although the recommendations are non-binding. Elsewhere, eyes turn to Libya following reports of military action around the El-Feel oilfield (circa. 100k BPD capacity), although no damage or production halts have been reported, the organisation stated that an escalation in violence could prompt evacuations and production shut-down. Looking at metals, gold prices continue to be subdued from lack of haven demand, with prices having briefly slipped below the USD 1460/oz mark. Meanwhile, copper prices continue to gain traction, as positive trade feels spur macro risk appetite, although prices did take a fleeting hit during overnight trade in the wake of abysmal IP data out of China.

US Event Calendar

  • 8:30am: GDP Annualized QoQ, est. 1.9%, prior 1.9%
    • Personal Consumption, est. 2.8%, prior 2.9%
    • Core PCE QoQ, est. 2.2%, prior 2.2%
  • 8:30am: Durable Goods Orders, est. -0.9%, prior -1.2%; Cap Goods Orders Nondef Ex Air, est. -0.2%, prior -0.6%
    • 8:30am: Cap Goods Ship Nondef Ex Air, est. -0.2%, prior -0.7%
  • 8:30am: Initial Jobless Claims, est. 220,500, prior 227,000; Continuing Claims, est. 1.69m, prior 1.7m
  • 8:30am: Durables Ex Transportation, est. 0.1%, prior -0.4%
  • 9:45am: MNI Chicago PMI, est. 47, prior 43.2
  • 10am: Personal Income, est. 0.3%, prior 0.3%; Personal Spending, est. 0.3%, prior 0.2%
  • 10am: PCE Deflator MoM, est. 0.27%, prior 0.0%; PCE Deflator YoY, est. 1.4%, prior 1.3%
  • 10am: PCE Core Deflator MoM, est. 0.11%, prior 0.0%; PCE Core Deflator YoY, est. 1.7%, prior 1.7%
  • 10am: Pending Home Sales MoM, est. 0.2%, prior 1.5%; Pending Home Sales NSA YoY, est. 6.0%, prior 6.3%
  • 2pm: U.S. Federal Reserve Releases Beige Book

DB's Jim Reid concludes the overnight wrap


I was on Bloomberg TV yesterday and one comment I made that had a few people asking me questions was the one where I said that I thought nominal yields will stay below nominal GDP for the rest of my career. I truly believe this is the only way of supporting the existing colossal global debt burden and what is likely to be more debt in the future. Central banks will end up being forced to own a lot more bonds as far as the eye can see to facilitate this but I do think both will eventually be forced higher by policy. Clearly for reasons of which I’m not aware of, my career might not have long left but given a new house this year, building renovations that cost the original estimate times Pi, and school/university fees into the 2040s that’s how long I might need to work and how long I think this period of financial repression might need to last. We talk about this a lot in this year’s long-term study on debt. See here for a reminder.

Today markets will wind down ahead of Thanksgiving tomorrow but this means that a number of important US releases are shoe-horned into one day. We’ll get the second reading for third-quarter GDP, which is expected to show no change to the headline number of 1.9% growth, though there are expectations for a 0.1pp downgrade to consumption. We’ll also get durable and capital goods orders for October, which are expected to decline a bit further month-on-month (by -0.9% and -0.2%, respectively) but watch for the impact of the GM strikes. Apart from the national accounts data, core PCE prices for October will be released, which should show below-target inflation of 1.7%, and the Chicago PMI is expected to rise +3.8pts to 47.0 after it hit its lowest level since 2015 last month at 43.2. We’ll also get the biggest opinion poll and subsequent seat model forecast of the U.K. election campaign so far tonight (more on this below).

Ahead of all this, it was another day of edging to fresh record highs for markets, with the S&P 500 (+0.22%), the NASDAQ (+0.18%) and the DOW (+0.20%) all advancing to new highs in response to yesterday’s news that there had been a phone call between the US and Chinese negotiators. It was a similar story in Europe, with the STOXX 600 up +0.10% at its highest level since May 2015. Trade-sensitive indices fell back, however, with the Philadelphia semiconductor index down -0.50%. That move came despite an assertion by President Trump that the two sides are in the “final throes” of negotiations, possibly as concerns intensified over the recently-passed Hong Kong bill, which President Trump has neither confirmed nor denied that he will sign. If he does not sign or veto the bill by December 3, it will become law regardless.

Meanwhile, after the US markets closed, President Trump said in an interview for former Fox News Bill O’Reilly’s website that he’s holding up the trade deal to ensure better terms for the US while saying, “We can’t make a deal that’s like, even. We have to make a deal where we do much better, because we have to catch up.” President Trump also spoke of Hong Kong in the interview and said that the US wanted to see things “go well in Hong Kong” while adding that he was confident of a good outcome.

Overnight, the US Department of Commerce has released an advanced notice for proposed rulemaking (ANPRM) that will implement last May's executive order on information and communications technology and services supply chain security. Also of note is that it did not name China as an "adversary nation", as suggested in an earlier draft.

A quick refresh of our screens this morning show that Asian markets are mostly trading up with the Nikkei (+0.45%), Shanghai Comp (+0.07%) and Kospi (+0.42%) all higher while the Hang Seng is trading flat. As for FX, all the G10 currencies are trading weak against the dollar with the Australian dollar (-0.21%) leading the declines. Elsewhere, futures on the S&P 500 are up +0.06% while WTI crude oil prices are down -0.21% after a report from the American Petroleum Institute indicated that US crude inventories increased by 3.64mn barrels last week. As for overnight data releases, China’s October industrial profits declined by -9.9% yoy (-5.3% yoy last month), the largest decline in the 8 years we can find data at this time of the morning. However, the series is quite volatile in nature.

In other news, S&P said in an overnight report that Australia’s AAA credit rating - one of only 11 in the world - would come under increased “downward pressure” if the government opted to deploy fiscal stimulus that changed the trajectory of the budget while adding that the top ranking is reliant on “strong fiscal outcomes.” This perhaps helps to explain the Australian government’s determination to return to a balanced budget in the backdrop of a slowing economy.

Back to yesterday and it’s worth highlighting that volatility has now returned to very low levels, with the VIX index down by -0.12pt to 11.75 - its lowest level since October 2018, while in Europe the V2X was down -0.29pts to 12.10pts - just 1.1pts off its low for the year.

Sovereign bonds also advanced on both sides of the Atlantic, with 10yr Treasury yields down -1.9bps to 1.736%. However, the 2s10s curve snapped a run of 9 successive sessions flatter as the curve steepened by +1.1bps with 2yr yields -2.8bps. Yields fell in Europe too, with 10yr bunds (-2.4bps), OATs (-2.3bps) and gilts (-4.4bps) all lower. Bank stocks underperformed as a result, with the STOXX Banks index down -0.66%, and the S&P Banks industry group down -0.31%.

Possibly supporting the bull steepening move were comments from Fed Governor Brainard, who explicitly said that she supports a form of yield curve control targeted at the front end of the yield curve. Her proposal would cap front-end Treasury yields to reinforce forward guidance and ideally drive down longer-end rates as a result. She says that this policy would be better than outright QE, though she did say that she would support QE in a severe downturn. Brainard also committed to supporting a flexible inflation target, to “anchor inflation expectations at 2 per cent by achieving inflation outcomes that average 2 per cent over time or over the cycle.” Such a change in the Fed’s target appears increasingly likely as a result of their ongoing policy review.

Earlier in the day, Dallas Fed President Kaplan said that “I think policy is in the right place now”, but also said that “We think the fourth quarter is going to be weak”. Kaplan is going to be a voting member on the FOMC next year. He expects growth around 2% for 2020, and would likely need to see a downside surprise versus that figure before supporting any change in policy.

In FX markets, sterling fell -0.26% yesterday as narrowing opinion poll leads for the Conservatives led to investor concern that there might be continued uncertainty over Brexit moving forward into next year. Following Monday’s ICM poll which had a 7pt Tory lead, yesterday morning saw another from Kantar with the lead falling from 18pts to 11pt lead in a week. As such sterling moved from being the best performing G10 currency on Monday to the worst yesterday. A YouGov poll later also showed an 11pt lead, only down 1pt since Friday.

Tonight, market attention will be on the release of YouGov’s MRP (multilevel regression and post-stratification) model at 10pm GMT, used to forecast the result. At the last election, this model predicted a hung Parliament over a week before the elections in contrast to expectations that there’d be a larger Conservative majority, so it’ll be fascinating to see if it’s forecasting any surprises this time round (albeit slightly further out from polling).

Staying with FX, the Brazilian Real depreciated -0.17% to its weakest-ever level against the dollar yesterday, in spite of intervention from the central bank. The move came after Brazil’s Economy Minister commented that a weaker currency is not a problem. Meanwhile, The Brazilian central bank has embarked on a series of rate cuts recently, with 50bp reductions at each of the last 3 meetings. Added to this has been general concerns over political stability in Latin America in light of recent protests across the continent, while former President Lula’s release from prison has raised the prospects of a more radical, populist left-wing government further down the line as he re-enters the political fray. Overnight, Brazil’s central bank chief Roberto Campos Neto has said that the central bank will intervene further if they need to normalize the foreign exchange market.

Sticking with LatAm, yesterday Chile’s central bank said that it will hold its next monetary policy decision two days earlier than scheduled in a bid to provide “timely information” about the country’s economic situation following weeks of social unrest. The central bank will now make the rate decision on December 4 (earlier December 6) and present their quarterly monetary policy report, known as the IPOM, the next day at 8:30 am (earlier December 9).

Elsewhere, the dollar weakened -0.07% after 5 days of gains, while bitcoin (-1.22%) fell for a 10th consecutive session against the dollar, with the latter falling to its lowest level since May.

In terms of data out yesterday, the Conference Board’s consumer confidence reading came in slightly below consensus at 125.5 (vs. 127.0 expected), although the previous month’s reading was revised up by two-tenths. The present situation reading fell to a 5-month low of 166.9, although the expectations indicator rose to 97.9. Looking at the labour market indicators, the differential between those saying jobs were “plentiful” and jobs were “hard to get” fell to 32.1 (vs. 36.1 previously), also at a 5-month low.

Other US data releases included new home sales beating expectations in October, coming in at a seasonally adjusted annual rate of 733k (vs. 705k expected), while the previous month was revised up by +37k to 738k. That means that new home sales have had their best two months in over 12 years and adds to a run of strong data on the US housing market. Elsewhere, the Richmond Fed’s manufacturing survey fell to -1 (vs. 5 expected), and amidst the ongoing trade war, the advanced goods trade deficit for the US fell to $66.5bn in October (vs. $71.0bn expected), its lowest level since May 2018.

In Europe, the main data out yesterday was the GfK consumer confidence reading from Germany, with the December forecast up to 9.7 (vs. 9.6 expected). More notable, however, was the expectations indicator, which rose to 1.7 in November, up from -13.8 the previous month, which was the biggest single-month increase in expectations since July 2010.

To the day ahead now, and this morning’s data include French consumer confidence for November, along with Italian consumer confidence, manufacturing confidence and economic sentiment for the month. Meanwhile, ahead of tomorrow’s Thanksgiving holiday we have a raft of US data releases, including the second reading of Q3 GDP, along with personal consumption and core PCE. Then there’s the preliminary October reading of durable goods orders and non-defence capital goods orders. And to round it off, there’s the MNI Chicago PMI reading for November, personal income and spending data for October, pending home sales for October, and the weekly initial jobless claims and MBA mortgage applications. Turning to central banks, the Fed will be releasing their Beige Book, while we’ll hear from the ECB’s Lane again.

Tyler Durden Wed, 11/27/2019 - 07:56
Published:11/27/2019 7:17:00 AM
[Markets] Asia Stocks See Modest Gains; U.S. Treasuries Flat: Markets Wrap (Bloomberg) -- Asian stocks eked out modest gains at the open Wednesday as investors monitored developments on U.S.-China trade talks. Treasuries were little changed.Benchmarks in Japan, Australia and South Korea headed higher. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all climbed to fresh records Tuesday. President Donald Trump declared that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone. The dollar was little changed.Optimism that an interim trade deal is just around the corner has pushed a global stock benchmark near an all-time high. The trade negotiations have been complicated by strong support in the U.S. for pro-democracy demonstrators in Hong Kong. “We’re getting to the point where they need to show us the money,” said Michael Reynolds, investment strategy officer at Glenmede Trust Co. “Talk is one thing but an actual deal on paper, pen to paper, is what is going to dramatically change the market narrative.”Australian 10-year bond yields ticked lower after Reserve Bank of Australia Governor Philip Lowe said that quantitative easing is an option should the benchmark interest rate drop another half percentage point, though that’s unlikely to happen in the near term.Here are some key events coming up this week:U.S. consumer spending data is due Wednesday, along with GDP, jobless claims and durable goods.The U.S. celebrates Thanksgiving on Thursday, when equity and bond markets will be shut.Euro area inflation for October is due Friday.The Bank of Korea sets policy on Friday.These are the main moves in markets:StocksTopix index rosee 0.3% as of 9:05 a.m. in Tokyo.Australia’s S&P/ASX 200 Index rose 0.4%.South Korea’s Kospi index added 0.4%.Hang Seng Index futures earlier slid 0.2%.Futures on the S&P 500 were flat. The underlying gauge rose 0.2% on Tuesday.CurrenciesThe yen was at 109.10 per dollar, down 0.1%.The offshore yuan remained at 7.0164 per dollar.Bloomberg Dollar Spot Index was little changed.The euro bought $1.1019, little changed.The pound held at $1.2853, down 0.1%.BondsThe yield on 10-year Treasuries held at 1.74%.Australia’s 10-year yield fell two basis points to 1.06%.CommoditiesWest Texas Intermediate crude slid 0.3% to $58.25 a barrel.Gold was steady at $1,460.58 an ounce.\--With assistance from Vildana Hajric and Claire Ballentine.To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.netTo contact the editor responsible for this story: Christopher Anstey at canstey@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P. Published:11/26/2019 6:42:48 PM
[Markets] S&P 500, Dow and Nasdaq clinch 10th record close in November S&P 500, Dow and Nasdaq clinch 10th record close in November Published:11/26/2019 3:46:01 PM
[Markets] US STOCKS-Wall St hits new record high on Disney, Best Buy Wall Street's three main indexes hit all-time highs on Tuesday, as gains for Disney and Best Buy countered weak consumer confidence data and a slump in shares of discount store operator Dollar Tree. Walt Disney Co was the top boost to the Dow Jones with a 1.8% rise, after a report its streaming service was averaging nearly a million new subscribers a day. Published:11/26/2019 10:12:16 AM
[Markets] S&P 500 and Nasdaq edge up to records as trade stays in focus U.S. stocks struggled for direction at the opening bell on Tuesday, with the S&P 500 and Nasdaq touching intraday records and then turning mixed, as investors monitored the state of trade talks. The S&P 500 was down less than 0.1% to 3,133. The Dow Jones Industrial Average was up 5 points, or less than 0.1%, to 28,072. The Nasdaq Composite was up less than 0.1% to 3.133. On Monday, the S&P 500 and Nasdaq each marked their ninth record close of November - the most in a month since January 2018. China's Commerce Ministry said U.S. and Chinese negotiators had exchanged a constructive phone call on trade. On Monday night, Fed Chairman Jerome Powell said he was positive on the economy and indicated prospects for a rate hike were dim. In company news, shares of Hewlett Packard Enterprise Co. tumbled after the computer manufacturer reported fourth-quarter revenues below Wall Street expectations. Published:11/26/2019 8:50:28 AM
[Markets] It's not just trade hopes fueling the U.S. stocks rally Wall Street stocks have leap-frogged over a host of concerns, including a stall in corporate earnings and political controversy in Washington, on their way to record highs this month. The S&P 500 <.SPX>, the Dow Jones Industrial Average <.DJI> and the Nasdaq <.IXIC> all closed at records on Monday as China's Global Times newspaper reported that Beijing and Washington were "moving closer to agreeing" on a "phase one" trade deal. The prospect of renewed economic growth and favorable monetary policy have arguably played greater roles than trade optimism in fueling the rally in U.S. shares, some say. Published:11/26/2019 12:41:51 AM
[Markets] It's not just trade hopes fueling the U.S. stocks rally Wall Street stocks have leap-frogged over a host of concerns, including a stall in corporate earnings and political controversy in Washington, on their way to record highs this month. The S&P 500, the Dow Jones Industrial Average and the Nasdaq all closed at records on Monday as China's Global Times newspaper reported that Beijing and Washington were "moving closer to agreeing" on a "phase one" trade deal. The prospect of renewed economic growth and favorable monetary policy have arguably played greater roles than trade optimism in fueling the rally in U.S. shares, some say. Published:11/26/2019 12:09:47 AM
[Markets] Asian Stocks to Gain Amid Trade Optimism, M&A: Markets Wrap (Bloomberg) -- Asian stocks looked set to gain Tuesday amid optimism over U.S.-China trade talks and a fresh wave of merger and acquisition activity. The yen weakened and the dollar edged higher.Futures in Japan and Hong Kong were higher in early trading. Australian shares edged up at the open. U.S. futures were little changed. The S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Indexes reached all-time highs Monday, with tech shares leading gains. Among the M&A deals, Charles Schwab Corp. agreed to buy TD Ameritrade Holding Corp., while LVMH is purchasing Tiffany & Co. Treasuries were little changed.Global equities are heading for another month of gains amid hopes that a phase-one trade deal is around the corner. China said over the weekend that it will tighten intellectual property rules, a move aimed at boosting the chances of a trade deal between the two-largest economies. The merger frenzy strengthened fueled the risk-on sentiment.“I don’t think we would be seeing these types of deals if the outlook for markets and the economy weren’t favorable,” said Adam Phillips, director of portfolio strategy for EP Wealth Advisors. “This is one additional piece we can look at to see the outlook for markets is a positive one.”Elsewhere, Beijing summoned America’s ambassador to express its opposition to U.S. interference in Hong Kong. West Texas-grade oil was steady. Bitcoin dropped as much as 11% before paring the decline.Here are some key events coming up this week:Federal Reserve Chairman Jerome Powell speaks on Monday at the Greater Providence Chamber of Commerce annual dinner in Providence, Rhode Island.Alibaba starts trading in Hong Kong on Tuesday.Reserve Bank of Australia Governor Philip Lowe will give a speech on unconventional monetary policy on Tuesday evening in Sydney.U.S. consumer spending data is due Wednesday, along with GDP, jobless claims and durable goods.The U.S. celebrates Thanksgiving on Thursday, when equity and bond markets will be shut.The Bank of Korea sets policy on Friday.These are the main moves in markets:StocksNikkei 225 futures rose 0.5%.Australia’s S&P/ASX 200 Index rose 0.4%.Hang Seng Index futures added 0.2%.S&P 500 futures slipped less than 0.1%. The S&P 500 Index advanced 0.8%.CurrenciesThe yen was steady at 108.93 per dollar after depreciating 0.3%.The offshore yuan held at 7.0307 per dollar.The Bloomberg Dollar Spot Index edged up 0.1% Monday.The euro traded at $1.1013.BondsThe yield on 10-year Treasuries dipped one basis point to 1.76%.Yields on Australia’s 10-year bonds fell two basis points to 1.07%.CommoditiesWest Texas Intermediate crude dipped 0.2% to $57.90 a barrel.Gold held at $1,455.20 an ounce.\--With assistance from Claire Ballentine and Vildana Hajric.To contact the reporter on this story: Andreea Papuc in Sydney at apapuc1@bloomberg.netTo contact the editor responsible for this story: Christopher Anstey at canstey@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P. Published:11/25/2019 5:41:24 PM
[Markets] The Dow Is Hitting New Highs Again Because Investors Expect a Trade Deal—Soon The Dow, S&P 500 and Nasdaq hit record highs, while the small-cap Russell 2000 hit a 52-week high on reports that China may be willing to tackle intellectual-property theft. Published:11/25/2019 4:45:55 PM
[Markets] VIXtermination Sends Stocks Surging Amid Massive Short-Squeeze VIXtermination Sends Stocks Surging Amid Massive Short-Squeeze

Everything's going great...

 

Stocks decoupled from bonds, gold, and the dollar today, melting up aggressively at the US cash market open...

Source: Bloomberg

Thanks to the continuation of the biggest short-squeeze since early October...

Source: Bloomberg

Which sent Small Cap stocks exploding higher...NOTE - markets really went nowhere after Europe closed...

Source: Bloomberg

As Morgan Stanley warned - Smaller-capitalization companies could see a second full year of negative EPS growth.

Additionally, the Russell 2000 massively outperformed S&P SmallCap 600 massively today...

Source: Bloomberg

Dow futures algos were entirely focused on 28,000 today...

VIX was clubbed like a baby seal to the lowest since Oct 2018...

 

Treasury yields tumbled early and held the gains on the day...

Source: Bloomberg

The Dollar extended its rebound today, taking out last week's highs...

Source: Bloomberg

Cryptos crashed overnight only to see a big bid back to almost even during the day session...

Source: Bloomberg

With Bitcoin battered down to $6500 intraday before a major bounce...

Source: Bloomberg

Commodities were chaotic today with oil higher and PMs lower...

Source: Bloomberg

WTI seems to have found a channel to play in ahead of the Aramco IPO...

 

Finally, as Bloomberg reports, market participants submitted $49.05 billion in bids for the Fed’s 42-day term repo operation, which matures Jan. 6, 2020. That was more than the $25 billion on offer. This was the first of three term operations to provide funding past the year-end period. The others will be held in the coming weeks. Meanwhile, overnight repo demands remain anything but transitory...

All of which is a huge deal as global liquidity is starting to decelerate (just as it did in April)...

Source: Bloomberg

Tyler Durden Mon, 11/25/2019 - 16:00
Published:11/25/2019 3:06:49 PM
[Markets] Dow finishes up 190 points as stocks end at records Dow finishes up 190 points as stocks end at records Published:11/25/2019 3:06:48 PM
[Markets] The Dow Is Having a Good Day. Small-Cap Stocks Are Having a Great One. The small-cap Russell 2000 has gained four times more than the Dow on Monday, but still has a lot of gaining to do before it hits a record high. Published:11/25/2019 1:39:25 PM
[Markets] Dow Jones Led By Intel As Nasdaq, S&P 500 Hit New Highs; Is This China Stock A Buy Right Now? The Nasdaq jumped to another all-time high Monday, helped by strength in chip stocks. The Dow Jones was led by Intel and Apple. Published:11/25/2019 1:05:51 PM
[Markets] Nasdaq, S&P 500 Hit Record Highs As Fresh China News Fuels Stock Market Rally The Nasdaq and S&P; 500 rallied to record highs, fueled by fresh hopes for a U.S.-China trade deal. Apple, Disney and Intel lifted the Dow Jones industrials. Published:11/25/2019 11:36:59 AM
[Markets] Dow scores triple-digit gain on rosier investor view of U.S.-China trade talks Dow scores triple-digit gain on rosier investor view of U.S.-China trade talks Published:11/25/2019 9:44:43 AM
[Markets] Dow Jones Today: Disney Stock Gets A Frozen 2 Lift, China Clamps Down, Tesla Stock Soars On Truck Orders Tesla stock rose, and Disney stock led the Dow Jones today as Monday's market geared up for a holiday-shortened final week of November. Published:11/25/2019 8:06:50 AM
[Markets] Ticking Time Bomb: Is This Powell's "Subprime Is Contained" Moment? Ticking Time Bomb: Is This Powell's "Subprime Is Contained" Moment?

Authored by Sven Henrich via NorthmanTrader.com,

I’m of the long standing view that Fed chairs have one prime responsibility above all others: Keeping confidence up, and if it requires to sweet talk problems then that’s what it takes

The often classic quote by Ben Bernanke of “subprime is contained” right before it blew up in everybody’s face being a prime example.

Is the Fed that blind to reality or just on an elaborate marketing mission to ensure that nobody panics and sells stocks? I leave that judgment to the reader.

But I can see differing messaging coming out the Fed when people are in office and when not.

Take corporate debt for example.

Here’s Jay Powell in May of this year sweeting talking and dismissing any concerns:

“Business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm to households and businesses should conditions deteriorate. Moreover, banks and other financial institutions have sizable loss-absorbing buffers,” he said. “The growth in business debt does not rely on short-term funding, and overall funding risk in the financial system is moderate.”

Sweet, no worries then. Odd then that Janet Yellen, no longer in office, feels free to say in essence the exact opposite:

“I have expressed concerns about leveraged lending,” Yellen said during a keynote discussion that was closed to the press. “I do think non-financial corporations have run up, really, quite a lot of debt.”

What I would worry about is if the economy encounters a downturn, we could see a good deal of corporate distress. If corporations are in distress, they fire workers and cut back on investment spending. And I think that’s something that could make the next recession a deeper recession,” “I have concerns about the deterioration in lending standards that we have seen,” Yellen said. “A large share of it is covenant-lite and some of the explicit ways in which covenants have weakened are a concern to me.”

No worries from Powell, worries from Yellen.

What’s reality?

Well, for one corporate debt has increased by 64% in the last 9 years now reaching $10 trillion:

Good thing profits have vastly increased in that time:

Oh wait, corporate profits have actually peaked in 2014. Well that’s odd, as markets keep racing higher from high to high you’d think there’d be this massive expansion in profits. Well of course not, profit growth peaked last year on the heels of the corporate tax cuts resulting in corporate tax payments collapsing to levels only seen during big recessions:

Ponder this: Corporations now pay roughly the same about of taxes as they did in the mid 90’s when the economy and aggregate profits were much smaller.

Quite the historic deal.

No, we know why stock markets kept rising in 2019: Thanks to Fed intervention:

Indeed if you take a look at corporate profits versus the market’s ascent we can observe a large deviation from the actually profit picture:

The above mentioned tax cuts did help the bottom line of course and one can argue the picture looks slightly better when viewed on an after tax basis:

Thanks tax cuts, but the deviation remains. And it remains if you view it through the lens of EPS:

The aggregate picture is stunning:

And of course EPS growth is in the eye of the beholder as earnings are regularly overstated via non GAAP versus GAAP accounting:

Not to mention the insidiously deceiving growth illusion created by buybacks.

So what you have is a market disconnecting ever farther from the underlying already weakening and overstated earnings growth picture, earnings that require an exorbitant amount of debt expansion to produce with much of the tax cut benefits going toward buybacks while half of the debt expansion is running on BBB fumes:

“The growing universe of triple-B rated US corporate debt — the lowest rung of the higher-quality bond market — has garnered the most attention. At $2.5tn, it is now twice as big as the entire junk bond market beneath it. The hunger for yield has “paved the way for unprecedented erosion in capital structures and credit quality”, Moody’s noted in a recent report.”

Do worry says Janet Yellen, but don’t worry says Jay Powell. The economy is in a good place he says apparently instructing all the Fed speakers to read off the same script:

Sweet. How do they all get on the same page when determining their market communication strategy? Sadly the Fed minutes are void of any such discussions. Must be a different meeting.

Yea, the economy is in a good place:

And subprime is contained and corporate debt is not a problem as long as you are Fed chair. It only becomes a problem when you’re no longer Fed chair.

No, corporate debt is a massive problem, it’s a ticking time bomb that millions of workers get to pay for during the next recession. That’s not my hyperbole, no Sir, or have you already forgotten what Janet Yellen already told you?

“if the economy encounters a downturn, we could see a good deal of corporate distress. If corporations are in distress, they fire workers and cut back on investment spending. And I think that’s something that could make the next recession a deeper recession”.

No financial crisis in our lifetime when Fed chair, the next recession could be deeper thanks to extended corporate debt when not Fed chair. Funny that.

She knows and so does Jay Powell, he’s just busy keeping confidence up by telling you everything is fine and dandy. After all that’s precisely why he cut rates 3 times and expanded the Fed’s balance sheet by over $280B in 2.5 months. Cause that’s exactly what you do when the economy is in a good place.

*  *  *

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Tyler Durden Sun, 11/24/2019 - 14:55
Published:11/24/2019 2:04:57 PM
[Markets] [video]Top 5 Stock Market Movers in the Dow Jones This Week Here are the top 5 winning stocks in the Dow Jones Industrial Average from this week ending on Nov. 22. Published:11/23/2019 6:22:54 AM
[Markets] 150 Years Of Bank Credit Expansion Is Near Its End 150 Years Of Bank Credit Expansion Is Near Its End

Authored by Alasdair Macleod via GoldMoney.com,

The legal formalisation of the creation of bank credit commenced with England’s 1844 Bank Charter Act. It has led to a regular cycle of expansion and collapse of outstanding bank credit.

Erroneously attributed to business, the origin of the boom and bust cycle is found in bank credit. Monetary policy evolved with attempts to control the cycle with added intervention, leading to the abandonment of sound money.

Today, we face infinite monetary inflation as a final solution to 150 years of monetary failures. The coming systemic and monetary collapse will probably mark the end of cycles of bank credit expansion as we know it, and the final collapse of fiat currencies.

This article is based on a speech I gave on Monday to the Ludwig von Mises Institute Europe in Brussels.

Introduction

So that we can understand the financial and banking challenges ahead of us, this article provides an historical and technical background. But we must first get an important definition right, and that is the cause of the periodic cycle of boom and bust. The cycle of economic activity is not a trade or business cycle, but a credit cycle. It is caused by fractional reserve banking and by banks loaning money into existence. The effect on business is then observed but is not the underlying cause.

Modern banking has its roots in England’s Bank Charter Act of 1844, which led to the practice of loaning money into existence, commonly described as fractional reserve banking. Fractional reserve banking is defined as making loans and taking in customer deposits in quantities that are multiples of the bank’s own capital. Case law in the wake of the 1844 Act, having more regard to the status quo as established precedent than the fundamentals of property law, ruled that irregular deposits (deposits for safekeeping) were no different from a loan. Judge Lord Cottenham’s judgment in Foley v. Hill (1848) 2 HLC 28 is a judicial decision relating to the fundamental nature of a bank which held in effect that:

“The money placed in the custody of the banker is to all intents and purposes, the money of the banker, to do with it as he pleases. He is guilty of no breach of trust in employing it. He is not answerable to the principal if he puts it into jeopardy, if he engages in haphazardous speculation….”

This was undoubtedly the most important ruling of the last two centuries over money. Today, we know of nothing else other than legally confirmed fractional reserve banking. However, sound or honest banking with banks acting as custodians had existed in the centuries before the 1844 Act and any corruption of the custody status was regarded as fraudulent.

This decision has shaped global banking to this day. It created a fundamental flaw in the gold-backed sound money system, whereby the Bank of England, as a prototype central bank, could only issue extra sterling backed entirely by gold. Meanwhile, a commercial bank could loan money into existence, the drawdown of which created deposit balances. The creation of these deposits on a system-wide basis meant that any excesses and deficiencies between banks were easily reconciled through interbank lending.

Bankers’ groupthink and the credit cycle

While an individual bank could expand its balance sheet, the implications of all banks doing the same may have escaped the early banking pioneers operating under the 1844 act. Thus, when their balance sheets expanded to a multiple of the bank’s own capital, there was little cause for concern. After all, so long as a bank paid attention to its reputation it would always have access to the informal interbank market. And so long as it can call in its loans at short notice, the duration mismatch between funding by cash deposits and its loan book would be minimised.

Since the Bank Charter Act, experience has shown the expansion of bank credit leads to a cycle of credit expansion, over-expansion, and then sudden contraction. The scale of bank lending was determined by its management, with lenders tending to be as much influenced by their own crowd psychology as by a holistic view of risk. Of course, the expansion of bank credit inflates economic activity, spreading a warm feeling of improving economic prospects and feeding back into increasing the bankers’ confidence even further. It then appears safe and reasonable to take on yet more lending business without increasing the bank’s capital.

With profits rapidly increasing due to lending being a multiple of the bank’s own capital, confident bankers begin to think strategically. They reduce their lending margins to attract business they believe to be important to their bank’s long-term future, knowing they can expand credit further against a background of improving economic conditions to compensate for lower margins. They begin to protect margins by borrowing short from depositors and offering businesses term loans, reaping the benefits of a rising slope in the yield curve.

The availability of cheap finance encourages businesses in turn to enhance their profits by increasing the ratio of debt to equity in their businesses and by funding business expansion through debt. By now, a bank is likely to be raking in net interest on loan business amounting to eight or ten times its own capital. This means that an interest margin of a net two per cent is a 20% return to the bank’s shareholders.

There is nothing like profitable success to boost confidence, and the line between it and overconfidence is naturally fuzzed by hubris. The crowd psychology fuelled by a successful banking business leads to an availability of credit too great for decent borrowers to avail for themselves, so inevitably credit expansion becomes a financing opportunity for poorly thought out loan propositions.

Having oversupplied the market with credit, banks begin to expand their interests in other directions. They finance businesses abroad, oblivious to the fact that they have less control over collateral and legal redress generally. They expand by entering other lines of banking-related business, assuming their skills as bankers can be extended into those other business lines profitably. A near-contemporary example was Deutsche Bank’s failed expansion into global investment banking and principal trading in foreign securities and commodities. And who can forget Royal Bank of Scotland’s bid for ABN-Amro, just as the credit cycle peaked before the last credit crisis.

At the time when their balance sheets have expanded to many multiples of their own capital, the banking crowd then finds itself with lending margins too low to compensate for risk. Bad debts arising from their more aggressive lending decisions begin to materialise. One bank beginning to draw in its horns, as it perceives it is out on a limb, can probably be weathered by the system. But other bankers will stop and think about their own risks, bearing in mind operational gearing works two ways.

It may be marked by an unexpected event, or just an apparent loss of bullish momentum. With bad debts beginning to have an impact, groupthink quickly takes bankers from being greedy for more business to fearful of it. Initially, banks stop offering circulating credit, the overdraft facility that lubricates business activity. But former lending decisions begin to be exposed as bad when the credit tap is turned off and investments in foreign lands begin to reflect their true risks. Lending in the interbank market dries up for the banks with poor or marginal reputations, and banks begin to report losses. Greed turns rapidly to fear.

The cycle of bank credit expansion then descends into a lending crisis with increasing numbers of banks exposed as having taken on bad loans and becoming insolvent. A slump in business activity ensues. With frightening rapidity, all the hope and hype created by monetary expansion is destroyed by its contraction.

Before central banking evolved into acting as the representative and regulator for licensed banks, the credit cycle described above threw up some classic examples. Overend Gurney was the largest discount house in the world, trading in bills of exchange before it made long-term investments and became illiquid. When the railway boom faltered in 1866 it collapsed. Bank rate rose to 10% and there were widespread failures. Then there was the Baring crisis in 1890. Poor investments in Argentina led to the bank’s near bankruptcy. The Argentine economy slumped, as did the Brazilian which had its own credit bubble. This time, a consortium of other banks rescued Barings. Nathan Rothschild remarked that if Barings hadn’t been rescued the entire banking system in London would have collapsed.

Out of Barings came the action of a central bank acting as lender of last resort, famously foreseen and promoted by Walter Bagehot.

In the nineteenth century it became clear that crowd psychology in the banks, the balance of greed and fear over lending, drove a repeating cycle of credit boom and slump. With the passage of time bankers recovering their poise from the previous slump forgot its lessons and rhymed the same mistakes all over again. Analysts promoting theories of stock market cycles and cycles of economic activity need look no further for the underlying cause.

In the absence of credit expansion, businesses would come and go in random fashion. The coordinated expansion of credit changed that, with businesses being bunched into being created at the same time, and then all failing at the same time. The process of creative destruction went from unnoticed market evolution to becoming a periodic violent event. Monetary institutions still ignore the benefits of events being random. Instead they double down, coordinating their interventions on a global scale with the inevitable consequence of making the credit cycle even more pronounced.

It is a huge mistake to call this repeating cycle a business cycle. It implies it is down to the failure of free markets, of capitalism, when in fact it is entirely due to monetary and credit inflation licensed and promoted by governments and central banks.

The rise of central banking

Following the Barings crisis in 1890 the concept of a lender of last resort was widely seen to be a solution to the extremes of free markets. Initially, this meant that the bank nominated by the government to represent it in financial markets and to oversee the supply of bank notes took on a role of coordinating the rescue of a bank in difficulty, in order to stop it becoming a full-blown financial crisis. When the gold standard applied, this was the practical limitation of a central bank’s role.

This was the general situation before the First World War. In fact, even under the gold standard there was significant inflation of base money in the background. Between 1850 and 1914 above ground gold stocks increased from about 5,000 tonnes to nearly 24,000 tonnes. Not all of it went into monetary gold, but the amount that did was decided by the economic actors that used money, not the monetary planners as is the case today.

It was against this background that the US Federal Reserve Bank was founded in December 1913. Following WW1, it became a powerful institution under the leadership of Benjamin Strong. Those early post-war years were turbulent times: due to war time inflationary financing, wholesale prices had doubled in the US between 1914-1920, while the UK’s had trebled. This was followed by a post-war slump and by mid-1921 unemployment in the UK soared to 25%. In the US, the Fordney-McCumber tariffs of 1922 restricted European debtors from trading with America, necessary to pay down their dollar debts. A number of countries descended into hyperinflation, and the Dawes plan designed to bail out the Europeans followed in 1924.

While America remained on a gold standard, Britain had suspended it, only going back on to it in 1925. While the politicians decided overall policy, it was left to central bankers such as Strong at the Fed and Montague Norman at the Bank of England to manage the fallout. Their relationship was the most tangible evidence of central banks beginning to cooperate with each other in the interests of mutual financial stability.

With the backing of ample gold reserves, Strong was an advocate of price targeting through the management of money supply, particularly following the 1920-21 slump. His inflationary policies assisted the management of the dollar-sterling exchange rate, supporting sterling which at that time was not backed by gold. Strong also made attempts to develop a discount market in the US, which inflated credit markets further. One way and another, with the Fed following expansionary money policies and commercial bankers becoming more confident of lending prospects, monetary inflation fuelled what came to be known as the roaring twenties.

That came to a sharp halt in October 1929 when the credit cycle turned, and the stock market crashed. Top to bottom, that month saw the Dow fall 35%. The trigger was Congress agreeing to the Smoot-Hawley Tariff Act on 30 October, widely recognised at the time as a suicide note for the economy and markets, by raising trade tariffs to an average of 60% from the Fordney-McCumber average of 38%. President Hoover signed it into law the following June and by mid-1932 Wall Street had fallen 89%.

With such a clear signal to the bankers it is not surprising they drew in their horns, contracting credit, indiscriminatingly bankrupting their customers. All the expansion of bank credit since 1920 was reversed by 1934. Small banks went bankrupt in their thousands, overwhelmed by bad debts, particularly in the agricultural sector, as well as through loss of confidence among their depositors.

The depression of the 1930s overshadowed politics in the capitalist economies for the next forty years. Instead of learning the lessons of the destruction wrought through cycles of bank credit, economists doubled down arguing more monetary and credit inflation was the solution. To help economic sentiment recover, Keynes favoured deficit spending by governments to take up the slack. He recommended a move away from savers being the suppliers of capital for investment, with the state taking a more active role in managing the economy through deficit spending and monetary inflation.

The printing of money, particularly dollars, continued under the guise of gold convertibility during the post-war Bretton Woods system. America had enormous gold reserves; by 1957 they were over 20,000 tonnes – one third of estimated above-ground gold stocks at that time. It felt secure in financing first the Korean then the Vietnam wars by printing dollars for export. Unsurprisingly, this led to the failure of the London gold pool in the late 1960s and President Nixon suspending the fig-leaf of dollar convertibility into gold in August 1971.

Once the dollar was freed from the discipline of gold, the repeating cycle of bank credit was augmented by the unfettered inflation of base money, a process that has continued to this day.

The current position

Since the turn of the millennium there have been two global bank credit crises: the first was the deflation of the dot-com bubble in 2001-02, and the second the 2008-09 financial crisis that wiped out Lehman. It was clear from these events that the debate over moral hazard was resolved in favour of supporting not just the banks, but big business and stock market valuations as well. Furthermore, America’s budget deficits were becoming a permanent feature.

The cyclical rhythm of bank credit expansion and crisis was taking place against a background of increasing wealth transfer from the productive sector by means of an underlying monetary inflation. The beneficiaries have been the government and non-productive finance as well as large speculators in the form of hedge funds. The evidence of this transfer of wealth through the effect on the general level of consumer prices was increasingly suppressed by statistical method. While the official consumer price inflation indicator has been pegged between one or two per cent, independent analysts (Shadowstats and Chapwood Index) reckon the true figure is closer to ten per cent.

That being the case, the use of a realistic price deflator tells us that the US economy, and presumably others, in recent years have been contracting in real terms. Furthermore, GDP, nominal or real, is an appalling indicator of economic progress, being no more than a measurement of the increasing quantities of government funny-money inflating the economy. It does not tell us how that money is used and the benefits that actually flow from it, nor the degree of price distortion it generates.

It is hard to avoid concluding that manipulating the statistics to hide the evidence is the last throw of the fiat currency dice, just as the Emperor Diocletian collapsed the Roman economy by suppressing evidence of rising prices through his edict on maximum prices in 301 AD.

This brings us to the current position, which is increasing looking like being on the edge of another cyclical crisis. If so, it marks the end of a period of far greater monetary and credit expansion than seen in previous cycles, coinciding with a Smoot-Hawley lookalike in the trade war between the two largest global economies.

The following big-picture factors are relevant to the likely timing for a credit crisis:

  • Global debt has accumulated to an estimated $255 trillion, up from about $173 trillion at the time of the Lehman crisis An alarming proportion of it is unproductive, being government, consumer borrowing, and funding for financial speculation as well as owed by unviable businesses.

  • With annual debt payments already accounting for most of the US budget deficit and that deficit getting larger, any rise in dollar interest rates would be ruinous for Federal government finances. Eurozone governments are in a similarly precarious financial position. Governments are ensnared in a classic debt trap.

  • An estimated $17 trillion of global bonds are negative yielding, which is unprecedented. This is a market distortion so extreme that it cannot be normalised without widespread financial disruption and debtor destruction. There is no exit from this condition.

  • The repo market crisis in New York indicates the banking system is in intensive care. The start of it coincided with the completion of the sale of Deutsche Bank’s prime dealership to BNP. It would be understandable if large deposits failed to transfer with the business and went to rivals instead. The problem has continued, indicating senior bankers’ groupthink is already turning from greed to fear.

  • US bank exposure to collateralised loan obligations and the leveraged loan market, comprised mainly of junk loans and bonds, is the equivalent of most of the estimated $1.9 trillion sum of bank capital. It confirms this article’s thesis that the level of ignorance over banking risk is late stage for the bank credit cycle and likely to be catastrophic.

  • The share prices of Deutsche Bank and Commerzbank indicate they are not just insolvent but will need to be rescued – and soon. Banks in other Eurozone jurisdictions are in a similar situation. However, all Eurozone countries have passed bail-in laws and do not expect to bail out individual banks. The upshot is at the first sign of a bail-in being considered, a flight of large deposits will very likely be triggered and bank bond prices for all Eurozone issuers will collapse. The room for error in crisis management by central banks is considerably greater than at the time of the Lehman crisis eleven years ago.

The forthcoming credit crisis could repeat 1929-32

An extreme amount of monetary creation over the last ten years and the US-China trade war over the last two is horribly reminiscent of late 1929, when the combination of the end of the credit cycle and escalating trade protectionism combined to wreak financial destruction on a global scale. We face a possible repeat of the 1929-32 experience and the depression that followed. The long-term expansion of global trade has already come to a halt. The secondary impact on economies such as Germany’s is beyond question.

Even if a halt to the trade war between the US and China is agreed in the coming weeks, the crisis has been triggered and our empirical evidence suggests it will get worse. It appears that common sense on trade policies is unlikely to prevail, because the conflict is far deeper than just trade, with the Hong Kong riots as part of the overall picture.

The Chinese believe America has destabilised Hong Kong with good reason: the US Treasury has become dependent to receiving the lion’s share of international portfolio flows to support the dollar and finance the US budget deficit, and China’s own investment demands are a threat. With the dollar’s hegemony under attack and China seeking those same portfolio flows to invest in her own infrastructure projects through the Hong Kong Shanghai Connect link, Hong Kong had to be destabilised.

For this and other reasons, trade tariffs are only part of a wider financial war, which is increasingly likely to escalate further rather than abate. With his trade policies having backfired badly, President Trump is now under pressure with time running out ahead of the election in a year’s time. He is threatened with impeachment by Congress over the Ukraine affair, and his popularity ahead of an election year remains subdued. He has even appealed to Jay Powell, Chairman at the Fed, to introduce negative interest rates to boost the economy. Backing down over China is unlikely, because it would be a presidential policy failure.

What will the developing crisis look like?

Clearly, central banks will respond to the next credit crisis with an even greater expansion of money quantity than at the time of the Lehman crisis eleven years ago. The consequence of this monetary inflation seems certain to lead to an even greater rate of loss of purchasing power for fiat currencies than currently indicated by independent assessments of price inflation.

Monetary inflation is likely to be directed at resolving two broad problems: providing a safety net for the banks and big businesses, as well as funding rising government deficits. Therefore, the amount of quantitative easing, which will be central to satisfying these objectives, will soar.

The effect on markets will differ from being a rerun of the 1929-32 example in one key respect. Ninety years ago, the two major currencies, the dollar and sterling, were on a gold exchange standard, which meant that during the crisis asset and commodity prices were effectively measured in gold. Today, there is no gold backing and prices will be measured in expanding quantities of fiat currency.

Prices measured in fiat currencies will be determined ultimately by the course of monetary policy. But in real terms, the outlook is for a repeat of the conditions that afflicted markets and economies during and following the 1929 Wall Street crash. A further difference from the depression years is that today western governments have extensive legal obligations to provide their citizens with welfare, the cost of which is escalating in real terms. Add to this the cost of rising unemployment and a decline in tax revenue and we can see that government deficits and debts will increase rapidly even in a moderate recession.

This brings us to an additional problem, likely to be evident in a secondary phase of the credit crisis. As it becomes obvious that the purchasing power of fiat currencies is being undermined at a rate which is impossible to conceal through statistical method, the discounted value of future money reflected in its time preference will rise irrespective of interest rate policy. Consequently, borrowers will be faced with rising interest rates to compensate for both increasing time preference and the additional loan risk faced by lending to different classes of borrowers.

Besides closing off virtually all debt financing for businesses and increasingly indebted consumers, this will play havoc with governments accustomed to borrowing at suppressed or even negative interest rates. Prices for existing bonds will collapse, and banks loaded up with government debt to benefit from Basle regulations will find their slender capital, if they have any left, will be quickly eroded.

The world of fiat currencies faces no less than its last hurrah. Indeed, some of the more prescient central bankers appear concerned the current system is running out of road, with the dollar as the world’s reserve currency no longer fit for this purpose. They want to find a means of resetting everything, exploring solutions such as digitising currency through blockchains, doing away with cash, and finding other avenues to try to control the vagaries of free markets.

None of them will work, because even a new form of money will be required to rescue government finances and prevent financial and economic failure through inflation. The accelerating pace of monetary creation to address these problems will remain the one problem central to the failure of a system of credit and monetary creation: the impossibility of resolving the debt trap that has ensnared us all.

Just as Germany found in 1923, monetary inflation as a means of funding government and other economic liabilities is a process that rapidly gets out of its control. Eventually, people understand the debasement fraud and begin to dispose of the fiat currency as rapidly as possible. It then has no value.

The ending of the fiat currency regime is bound to terminate the repeating cycles of bank credit legitimised since 1844. The socialism of money through inflationary debasement will be exposed as a fraud perpetrated on ordinary people.

Got gold?

Tyler Durden Sat, 11/23/2019 - 07:00
Published:11/23/2019 6:02:02 AM
[Markets] Dow Jones Rallies On Trump Trade Comment; Tesla Stock Falls On Cybertruck The Dow Jones rallied 115 points after President Trump said that U.S.-China trade deal is "very close." Tesla stock fell on the debut of its new Cybertruck Published:11/22/2019 2:50:04 PM
[Markets] Barron’s on MarketWatch: A fresh look at the Dow’s worst stock Barron’s on MarketWatch: A fresh look at the Dow’s worst stock Published:11/22/2019 11:47:58 AM
[Markets] Dow Jones Close To Session Highs; This Warren Buffett Stock Takes Off Stocks were mixed after gapping up at the open amid bullish trade comments from the U.S. and China. The Dow Jones industrials led the upside. Published:11/22/2019 11:47:58 AM
[Markets] Trump Vs. Warren, & The Fake Battle Against The Elites Trump Vs. Warren, & The Fake Battle Against The Elites

Authored by Brandon Smith via Alt-Market.com,

It seems like a simple and easy to identify pattern, but for some reason the public keeps falling for the same old globalist tricks. A well-worn tactic the money elites use to endear certain puppet political candidates to Americans is to encourage those candidates to use anti-elitist rhetoric, only to then flood their cabinets with those same elites once they get into office. The rule of politics seems to be, “Say whatever you want to get the people on your side, but once you're in office, you do as we tell you...”

These candidates will aggressively attack the banks, corporations and wall street, lamenting the rapid decline of the middle class or “working class”. They will point out that a mere handful of ultra-rich, the top 1%, control more wealth than nearly half of the population combined. They will seize upon the travesties of the poor and argue for “change” to bring balance back to the system. They will pretend to expose the crimes of the banking cabal and the upper echelons of Wall Street. They will put on a grand show; and then, they will do the bidding of their masters and play the role they were groomed for...

Americans are suckers for fake “people's candidates” and always have been.

But perhaps I should expand on this with some real world examples. How about Jimmy Carter, who started out his presidential campaign with a dismal 4% in the Democratic polls. Carter would go on to explode in popularity after attacking what he referred to as the “Washington insiders”, the elites that ran the show from behind the curtain. A widely distributed paperback book that promoted Carter during his campaign called “I'll Never Lie To You: Jimmy Carter In His Own Words” quoted the candidate as saying at a Boston rally:

The people of this country know from bitter experience that we are not going to get … changes merely by shifting around the same group of insiders.”

His own top aide, Hamilton Jordan, promised:

If, after the inauguration, you find a Cy Vance as Secretary of State and Zbigniew Brzezinski as head of National Security, then I would say we failed. And I’d quit.”

Carter was portrayed as a statesman free from connections to the globalists; a religious man and veritable white knight pure in his associations. This was viewed as an important image to maintain at the time. After the assassination of John F. Kennedy, the presidential candidacy of true anti-globalist Barry Goldwater and the highly questionable role of Henry Kissinger in Richard Nixon's administration, the public was growing increasingly suspicious of the nature of government and who was really in charge. Carter was initially seen as a cure for the public's distrust.

Of course, as soon as Carter entered office he injected no less than ten members of the globalist Trilateral Commission and numerous other elites into key positions in his administration, including Cy Vance and Zbigniew Brzezinski. And of course, his top aide never quit. The elites knew exactly what the public wanted at that moment in history, and so they gave it to them in the form of Jimmy Carter. Carter's administration would go on to serve numerous globalist interests, but this attracted the ire of the American public, who felt betrayed.

How about another example of fake anti-globalists and anti-elites?

Enter Ronald Reagan, the anti-Carter. The conservative (and former democrat) who wasn't afraid to point out that Carter was surrounded by Trilateral Commission ghouls and question his honesty. Reagan attacked Carter while maintaining a distance from more “conspiratorial” language. Reagan stated in 1980 during his campaign:

I don’t believe that the Trilateral Commission is a conspiratorial group, but I do think its interests are devoted to international banking, multinational corporations, and so forth. I don’t think that any Administration of the U.S. Government should have the top nineteen positions filled by people from any one group or organization representing one viewpoint. No, I would go in a different direction...”

Reagan, like Carter, was touted as having no affiliations with the elites. He was pure and unsullied by the globalists. But alas, Reagan also quickly picked at least 10 Trilateral Commission members for his transition team once he was elected, and he served the interests of the elites throughout his two terms in the White House (for the most part) under the watchful eye of George H.W. Bush.

If this is starting to sound familiar then you are probably more awake and aware than most. The elites use the same strategies over and over and over again, usually with minor variances to keep things fresh. As many of my readers are well aware, I have been consistently pointing out the fraudulent anti-globalist image of Donald Trump the past few years, and his administration has followed a very similar path to those described above with a few important differences.

Trump ran his campaign as a populist and opponent of the elites. His image was that of a person untouched by the influence of the establishment. In fact, the primary argument among his supporters was that Trump was “so rich” that he “could not be bought”. He criticized Hillary Clinton and her deep state connections with banks like Goldman Sachs and announced that once in office he would “drain the swamp” of special interests in Washington.

He also made bold accusations against the Federal Reserve, pointing out that the supposed “economic recovery” and the stock market rally was a fraud; a bubble created through stimulus and near zero interest rates that he didn't want to inherit. Trump was yet another pure white knight ready to expose and do battle with the globalist dragon.

As many liberty activists are well aware by now, Trump is the furthest thing from an anti-globalist. Like Carter and Reagan, Trump swiftly loaded his cabinet with elites from the Council on Foreign Relations, Goldman Sachs, JP Morgan, etc. His background was also not so pure; Trump had in fact been bought a couple decades in advance by the Rothschild banking family. Rothschild agent Wilber Ross was the man who brokered the deal to bail Trump out of his massive debts in multiple properties in Atlantic City, saving Trumps fortune and his image. Today, Wilber Ross is Trump's commerce secretary.

Trump also completely shifted his position on the economy, taking full credit for the stock market bubble as well as the fake GDP numbers and fake unemployment numbers he had attacked during his campaign. Trump has now completely tied his administration to the Everything Bubble – a bubble that has been popped and is now deflating into a hard recession.

Trump's theatrical character is different from Carter and Reagan in a couple of ways.

  • First, in the Carter era, the public had a wider trust of the mainstream media, and so, Carter was presented as a media darling. Today, the majority of the public has a severe distaste of the media, and so, Trump was presented as their enemy; a thorn in their side. The media attacks on Trump only garnered him MORE attention and favor with conservatives and independents.

  • Second, Trump's acting role as an anti-globlist in the new world order screenplay is far more important to the elites than Carter or Reagan. Trump is meant to become a symbol of ALL anti-globalism, a nexus point and representative of sovereignty activism. He is meant to co-opt the entire liberty movement, and then sink it into oblivion. In other words, as the economy crumbles around Trump, conservatives and liberty proponents are made guilty by association.

Trump serves the elites by pretending to be starkly anti-establishment while at the same time taking credit for their economic works, not to mention the blame for the collapse of the bubble the establishment created.

But what happens after Trump? Who is next in line to take the lead role in the globalist theater for the American masses? Again, it's important to remember that the elites are not very imaginative, but they do have a lot of practice with tried and true tactics. They will present us with a candidate that is decidedly anti-Trump, but who also continues certain projects that Trump started.

Enter Elizabeth Warren...

Warren is yet another candidate that is being groomed as "unaffiliated" with the elites. Her image as the “daughter of a janitor” from the American midwest who went on to succeed as a woman in a “man's world” is heavily pushed in the media. But here is why I think Warren is the most likely political anti-thesis to Trump and the most likely Democratic candidate; the screenplay essentially writes itself...

Consider this – Warren grows up in a lower middle class family in Oklahoma, the daughter of a lowly service worker. Trump grows up rich, the son of a real estate tycoon who inherits a fortune.

Trump is a billionaire businessman and member of the 1% whose economic policies and tax cuts have consistently favored corporations and stock markets over the middle class. Warren claims she is a “capitalist”, but wants restrictions on stock market buybacks and Wall Street in general, accusing it of being nothing more than a money generator for the super wealthy.

Trump has faced bankruptcy on numerous occasions and his administration sits at the doorstep of the highest national, consumer and corporate debt levels in American history. Warren's background is in bankruptcy and bankruptcy law.

Trump has taken full credit for the economic bubble and boasts about his influence over markets regularly while completely ignoring the crash in fundamentals as well as his own warnings in 2016. Warren is the ONLY democratic candidate so far to predict an economic crash in the near term.

The differences in image are important here, but there are also some similarities between Trump and Warren in terms of policy.

Trump's economic policies demand ever lower interest rates and higher levels of central bank stimulus in order to work. He won't get exactly what he wants, but he is demanding endless central bank intervention all the same.  Elizabeth Warren is a proponent of Neoclassical Economics, which is closely tied to Keynesian economics. Warren was also on the oversight committee for the TARP bailout, and can claim that she's intimately familiar with monetary stimulus measures. Real QE4 and near zero interest rates (not just repo purchases) would be more likely under Warren, after the “Trump collapse”.  In fact, it is likely that Warren would demand and get MMT (modern monetary theory) policies passed.

Trump has instituted aggressive tariff measures against China and the trade war continues unabated so far.  Warren also wants to continue hard-line policies against China, while at the same time blaming Trump for starting the conflict in the first place.

Finally, like Trump, Warren has long been a hawk in support of Israel and it is likely that US troops will be staying in the Middle East for many years to come if she is elected.  She will criticize certain aspects of Israel's Palestinian policy to appeal to the Democratic base.  But, like Trump, her actions will not match her rhetoric.

The setup of this story is almost too perfect. Midwestern middle class girl and self made professional takes on a boastful arrogant billionaire and the 1%. Democrat voters love this kind of garbage. But it doesn't stop there...

Warren's attacks on billionaires are gaining extreme media attention, and the media loves it. Her latest ad campaign criticized four rich guys by name, including Leon Cooperman, the former Ameritrade CEO Joe Ricketts, the former Goldman Sachs CEO Lloyd Blankfein and the investor Peter Thiel. Some of these men have responded publicly and angrily, and so another great farce of a wrestling match begins and propels another supposedly anti-establishment candidate into stardom.

But here's the thing – Warren's wealth tax is not so anti-establishment. Elites like Warren Buffet and Bill Gates have been openly calling for higher taxes on the super-rich.  In tandem with the wealth tax, her climate change position is seen as a shot across the bow of oil companies and the financial power structure.  Yet, her policies are almost exactly in line with the Green New Deal and the UN's Agenda 2030, which the globalists greatly desire.

Warren's image as anti-establishment? It's as fake as Trump's image.

Warren has been featured multiple times in the magazine Foreign Affairs, the official magazine of the Council On Foreign Relations. On top of that they published her article "A Foreign Policy for All: Strengthening Democracy - at Home and Abroad”. For those that are unaware, the CFR is the premier globalist organization and its membership roster is saturated with many of the billionaire elites Warren claims to stand against. Yet, she has courted Foreign Affairs many times and they have written about her favorably.

Another interesting little fact is that the CFR does not publish articles by presidential candidates often. In fact, candidates that do get their articles published by Foreign Affairs tend to become president, or get a massive boost in their polling numbers and cash support. An example of this would be Richard Nixon, who suffered a stream of campaign failures until his article “Asia After Vietnam” was published in Foreign Affairs in October 1967.  A little over a year later he entered the White House. Another example would be Barack Obama, who published articles in Foreign Affairs in the early stages of his 2008 campaign. Getting an article accepted by the CFR seems to be a signal that the candidate in question is ready to be useful to the establishment.

Warren's explosion in the polls relative to candidates like Joe Biden started a few months after her article was published in the CFR magazine. So far she is the only candidate graced with an article in Foreign Affairs.

Does this mean that the elites want Warren over Donald Trump in 2020? Not necessarily. It is still too early to identify the trend and the signals for the next election. I believe next spring will bring clarity on the matter. However, the point remains that almost every candidate that is given serious consideration within the system is controlled or is seeking favor with the elites. The election process is highly moderated. Good people are not allowed to get though the net. Those that get close are ridiculed and then ignored until their campaigns fade into obscurity.

The candidates that serve the purposes of the elites get endless attention in the media, sometimes positive and sometimes negative, but they are never ignored. And, above all, the candidates that are most likely to be chosen as president are those that pretend to be anti-establishment. This is what sells with the American public, and the globalists know it. Warren is following this pattern, just as Trump did.

*  *  *

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Tyler Durden Thu, 11/21/2019 - 23:45
Tags
Published:11/21/2019 11:15:53 PM
[Markets] Dow Down 239 Points For The Week On China Trade Concerns; Tesla Stock In Buy Zone The Dow Jones closed lower Thursday, down 239 points for the week. Tesla stock traded higher ahead of its cybertruck debut and is in a buy zone. Published:11/21/2019 4:15:20 PM
[Markets] US STOCKS-Wall Street muted on doubts over progress in U.S.-China trade deal The S&P 500 and Dow indexes treaded water on Thursday as mixed headlines on U.S.-China relations and a diplomatic row over the Hong Kong protests added to uncertainty over the timing of a "phase one" trade deal. The U.S. House of Representatives passed two bills to back protesters in Hong Kong and send a warning to China about human rights, a measure which angered Beijing. Published:11/21/2019 2:17:18 PM
[Markets] GE's stock surges toward 13-month high, to pace gains of its industrial peers over the past 3 months Shares of General Electric Co. rallied 1.7% in afternoon trading, putting them on track for the highest close since Oct. 24, 2018. The industrial conglomerate's stock has now run up 27.8% since it reported better-than-expected third-quarter earnings before the Oct. 30 open. The stock is now the best performer of the 69 equity components of the SPDR Industrial Select Sector ETF over the past month, with a 31.6% gain, and over the past three months, with a 41.9% rise. The ETF has gained 8.6% the past three months, while the Dow Jones Industrial Average has advanced 6.1%. Published:11/21/2019 1:45:16 PM
[Markets] Dow Leads As China Trade War Fears Weigh On Market; This Dow Stock Near Buy The Dow Jones Industrial Average held up best among the key indexes as China trade war concerns continued to hang over the stock market today. Published:11/21/2019 1:15:14 PM
[Markets] Deal On, Deal Off: Futures Jump And Slide Amid Barrage Of Conflicting Trade Headlines Deal On, Deal Off: Futures Jump And Slide Amid Barrage Of Conflicting Trade Headlines

Stocks bounced around over the past 24 hours amid an optimistic/pessimistic headline barrage that triggered wave after wave of buying then selling then buying again, as the standoff between the world’s two largest economies expanded beyond trade, reducing the odds of a "phase-one" deal this year and forcing investors to shed risky assets.

The barrage of news, facts, rumor, innuendo, speculation and outright lies, started around noon on Wednesday, when Reuters reported that the trade deal could be delayed into 2020, while Global Times' EIC sniped periodically from his twitter account warning that China is ready for full-blown trade war. Futures then staged their latest miraculous comeback, gravitating around the "gamma gravity" of S&P 3,100 before the House passed the Bill of support for Hong Kong protestors just after 5pm, once again spooking futures, especially after Bloomberg reported that Trump would likely sign the bill. Futures then slid to session lows again before rebounding on a Bloomberg report that China's top trade negotiator Liu He was "cautiously optimistic" if "confused" at a dinner on Wednesday, even if Bloomberg failed to point out that due to the magic of time zones, the dinner took place some 12 hours earlier. A few hours later, around 2am, futures pushed to session highs after China's commerce ministry said that China will "strive to reach an initial trade agreement" with the United States as both sides keep communication channels open. The good mood lasted for about an hour, when senior Chinese diplomat Wawng Yi said China "resolutely opposes" US lawmakers passing the Hong Kong human rights bill. Then, pessimism quickly turned to optimism just after 5am when the WSJ reported that China invited US trade negotiators to Beijing for further talks. The burst higher quickly faded when algos read a little deeper into the article to find that the phone call invitation took place last week, long before all the latest turmoil took place. As the WSJ added "US negotiators said they would be willing to meet in person, but would be reluctant travel all the way to China, unless they make it clear that it would make commitments on IP protection, forced technology transfers and ag purchases." Needless to say, there was no trip.

All of this leaves us roughly where we started, with S&P futures virtually unchanged, as shown in the summary below.

And as the WSJ's Lingling Wei summarized this ping-ponging back and forth, this is what the main impasse is currently:

  • China resisting US request to guarantee ag purchase;
  • China balks at stronger language on IP and tech without guarantee on tariff rollback, while U.S. doesn't want to agree to tariff move until they get Chinese commitment.

Or as another twitter commentator summarized, "Both sides are locked in a game of chicken, and the clock is ticking towards Dec. 15th."

"The cracks in equity market sentiment widened a little further yesterday, although this setback remains modest in the context of the index gains enjoyed so far in Q4," said Ian Williams, economics & strategy research analyst at Peel Hunt.

So with November almost over, and a December 15 tariff hike looming without any plan for a meeting between Trump and Xi in place, let along agreement on a deal, where does all this leave us? As Reuters puts it, investors had hoped for a U.S.-China trade deal by mid-November but the absence of one, and Washington’s bill to support protesters in Hong Kong, has brought progress grinding to a halt. With U.S. President Donald Trump seen as likely to sign the bill, Deutsche Bank said this "could risk progress toward a phase one trade deal."

On the other hand, since neither news nor fundamentals matter, European shares and US equity futures bounced back from day lows in late morning trade as fresh reports emerged that China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing... only for it to be later revealed that the invitation took place last week.

In any case, the trade-sensitive German blue-chip index was down 0.2%, recovering from a 0.9% fall, after the Wall Street Journal reported Beijing hopes the round of talks can take place before next Thursday's Thanksgiving holiday in the United States. Thyssenkrupp AG shares tumbled, after the steelmaker said it was suspending dividend payments and warned of deepening losses; the move helped the Stoxx 600 fall to its lowest intraday level since Nov. 1; basic resources, financial services and technology lead the drop, dropping as much as 1%.

U.S. S&P 500 futures were marginally down, having dropped as much as 0.6% in Asian trade (see chart above). The S&P 500 had hit a record high as recently as Tuesday on trade deal hopes, but Washington’s move on Hong Kong derailed the rally.

Earlier in the session, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1% to a near three-week lows, with Hong Kong's Hang Seng tumbling 1.6% while Japan's Nikkei dropped 0.5%. Chinese mainland shares dropped 0.3%. Asian stocks retreated for a second day, led by technology firms, as the House passage of a bill supporting Hong Kong protesters stoked concern that trade talks between Beijing and Washington would collapse. Japan’s Topix edged lower for a third day as electric-appliance makers and pharmaceutical companies weighed on the gauge. The Shanghai Composite Index dropped, dragged lower by large insurers and banks. India’s Sensex fluctuated, with gains in financial stocks offsetting concerns about slowing economic growth.

Meanwhile, investors who had sought the safety of government bonds, the yen and gold in early trade shifted back from those positions after China reportedly invited U.S. negotiators for talks. German government bond yields bounced back from two-week lows, while the 10-year U.S. Treasuries yield rose to 1.7551% off three-week lows touched earlier in the day.

In FX, the Bloomberg Dollar Spot Index reversed modest gains to drop 0.1% on the day, still up 0.1% on the week so far after the optimistic comment’s by China’s chief trade negotiator. The Chinese yuan meanwhile cut some losses after hitting three-week lows, and were last trading at 7.0210 to the dollar in onshore trade. The Japanese yen, which rallied almost 1% from more than five-month lows, was flat against the greenback. The euro gained slightly and was last trading at $1.1083 ahead of the release of minutes of the European Central Bank's most recent policy meeting.

“Our short-term strategy remains fairly cautious, as markets are very narrowly driven — every positive piece of news in trade negotiations sends markets higher, while any disappointment sinks,” said Marija Veitmane, Senior Strategist at State Street Global Markets. “This makes it very hard for investors to build positions in risk trades.”

In commodities, oil prices dipped, paring some of the 2% gains made on Wednesday after a better-than-expected U.S. crude inventories report and as Russia said it would continue its cooperation with OPEC to keep the market balanced. Global benchmark Brent futures dropped 0.4% to $62.08. U.S. West Texas Intermediate (WTI) crude futures were down 0.4% at $56.73 per barrel in early Thursday trade. Spot gold gains to trade 0.2% lower at $1,468.91 per ounce as of 1127 GMT.

In geopolitics, US Defence Secretary Esper said US does not regret taking high road on halting joint drills, while he added that North Korea's response was not positive and that he hasn't heard of reports to withdraw troops from South Korea.

Turning to the day ahead, we’ll get the Philadelphia Fed’s business outlook for November, existing home sales and the leading index for October, and weekly initial jobless claims. Finally, the OECD will be releasing their economic outlook, and we’ll get earnings from Thyssenkrupp and Macy’s. Back on this side of the Atlantic, the opposition Labour Party will be launching their election manifesto today.

Market Snapshot

  • S&P 500 futures little changed at 3,110.25
  • STOXX Europe 600 down 0.7% to 401.20
  • MXAP down 0.7% to 163.42
  • MXAPJ down 1.1% to 520.98
  • Nikkei down 0.5% to 23,038.58
  • Topix down 0.1% to 1,689.38
  • Hang Seng Index down 1.6% to 26,466.88
  • Shanghai Composite down 0.3% to 2,903.64
  • Sensex down 0.2% to 40,565.32
  • Australia S&P/ASX 200 down 0.7% to 6,672.91
  • Kospi down 1.4% to 2,096.60
  • German 10Y yield unchanged at -0.346%
  • Euro up 0.1% to $1.1086
  • Italian 10Y yield fell 4.4 bps to 0.855%
  • Spanish 10Y yield rose 0.6 bps to 0.431%
  • Brent futures down 0.4% to $62.15/bbl
  • Gold spot down 0.2% to $1,468.85
  • U.S. Dollar Index down 0.1% to 97.80

Top Overnight News from Bloomberg

  • U.S. President Donald Trump is expected to sign legislation passed by Congress supporting Hong Kong protesters, setting up a confrontation with China that could imperil a long-awaited trade deal between the world’s two largest economies
  • China’s chief negotiator, Liu He, told one of the attendees at Wednesday night’s dinner that he was “confused” about the U.S. demands, but was confident the first phase of an agreement could be completed
  • U.S. House clears legislation showing support for pro-democracy protesters in Hong Kong by requiring an annual review of whether the city is sufficiently autonomous from Beijing to justify its special trading status, defying objections from China
  • Labour leader Jeremy Corbyn will urge voters in the U.K. election to take down bankers and billionaires who “profit from a rigged system.” Corbyn will launch an all-out assault on the wealthiest people in Britain on Thursday, when he unveils an election manifesto
  • U.K. Prime Minister Boris Johnson blew the lid off his Conservative Party’s biggest election tax-cut pledge so far, in a chaotic and disjointed announcement in which he repeatedly got the details wrong
  • European Central Bank is nearing a decision to launch a review of its policy strategy, chief economist Philip Lane said Wednesday, as officials struggle to boost inflation despite years of massive stimulus
  • U.S. envoy Gordon Sondland said Rudy Giuliani demanded a quid pro quo from Ukraine by holding up a White House meeting unless the country’s leader announced investigations that would benefit Trump politically
  • Former Israeli military chief Benny Gantz failed to muster enough support in parliament to form a government and dislodge Prime Minister Benjamin Netanyahu, bringing the nation closer to its third election in a year
  • Oil jumps the most since the first of the month as American crude stockpiles at a key storage hub shrank by the most since August
  • U.K. government borrowing is on the rise even before the winner of next month’s election opens up the spending taps
  • Oil and gas companies operating in Norway raised their investment forecast for next year, thanks to more projects and also higher costs on some developments
  • Indonesia’s central bank left its key interest rate unchanged at 5% on Thursday after four straight cuts but reduced the proportion of funds banks must hold in reserve, a move to stimulate Southeast Asia’s largest economy
  • Former U.S. Secretary of State Henry Kissinger said the U.S. and China were in the “foothills of a Cold War,” and warned that the conflict could be worse than World War I if left to run unconstrained

Asian equity markets declined across the board with risk sentiment rattled by increased trade pessimism after source reports noted the US-China phase one deal may not be completed this year and US President Trump suggested China is not stepping up to the level he wants. In addition, the House passage of the Hong Kong rights bill which President Trump is expected to sign, added another front to the trade uncertainty. ASX 200 (-0.7%) and Nikkei 225 (-0.5%) traded negatively with Australia dragged by underperformance in trade sensitive sectors such as tech, materials, and industrials, while Tokyo exporters suffered the ill-effects from safe-haven flows into the domestic currency. Hang Seng (-1.6%) and Shanghai Comp. (-0.3%) were also downbeat on the trade-related doubts and with China media outlets continuing to voice their backlash to the US ‘interference’, while the losses in Hong Kong initially snowballed as all components in its benchmark index briefly resided in the red, although there was mild relief following comments from Chinese Vice Premier Liu He who was cautiously optimistic about reaching an agreement and remained confident despite being confused regarding US demands. Finally, 10yr JGBs were underpinned by the early safe-haven demand although gains were later capped as advances in T-notes stalled around the 130.00 level and with the BoJ only in the market today for Treasury Discount bills.

People's Daily commentary stated the Hong Kong Human Rights and Democracy Act is a piece of wastepaper that interferes in China's internal affairs, while China Global Times tweeted that the US Senate's move on Hong Kong bill will hurt US investments in Hong Kong and may lead to retaliation citing an expert. Elsewhere, CNBC's Yoon tweeted that China will double down on attacks of US Congress after the House passed legislation supporting Hong Kong protesters, while she suggested both China and the US will not want to link the Hong Kong bill to current trade talks and also tweeted the Chinese feel the US is the one that needs to make the next move with tariff rollbacks to show sincerity, make deal “balanced” and give Beijing face.

Chinese Premier Li said China's economy maintained stable performance this year and that China will keep macro policies stable, while it needs to use all possible means to lower real interest rates. Premier Li added China will stick to its reform agenda and that both foreign and domestic companies will be treated as equals regardless of ownership structure.

Top Asian News

  • Bankers Say Hong Kong’s Rich Are Ensuring Their Cash Can Escape
  • Czech Tycoon’s Home Credit Cancels $1.5 Billion Hong Kong IPO
  • China Still Has Room for Monetary Policy, Ex-PBOC Head Zhou Says
  • India to Privatize Oil Refiner, Ship Owner in Big Sales Push

Major European bourses (Euro Stoxx 50 -0.7%) are lower across the board but off worst levels, as hopes for a prompt US/China phase 1 trade accord fade on a series of negative developments. However, global equities were lifted off overnight lows on more upbeat comments from Chinese Vice Premier Liu, who said he is cautiously optimistic about agreeing a Phase One deal with US and remains confident but confused about US demands, whilst the WSJ report on China inviting US negotiators for a meeting also aided sentiment. Sectors are mostly in the red, barring Telecoms (-0.1%), with the more defensive Utilities (+0.2%) and Consumer Staples (-0.2%) holding up slightly better. In terms of notable movers; Tobacco names Imperial Brands (+0.8%) and British American Tobacco (+3.0%) received a boost from the news that US regulators have dropped a plan to sharply reduce nicotine content in cigarettes, with the former affected by ex-divs. Topping the Stoxx 600 chart is Centrica (+8.2%), who maintained its FY outlook, which some desks noted is a positive turn around after a series of downgrades to its outlook. Conversely, the notable Stoxx 600 loser is Royal Mail (-16.2%), who warned that revenue and cost headwinds could possibly result in a break-even or loss-making position for UK business in 2020-21 whilst warnings that its transformation plan to expand its parcels business internationally was behind schedule. Another laggard is ThyssenKrupp (-10.3%), sinking post-earnings on the news that the Co. will not achieve its medium-term targets set for 2020/21, with a weak economy weighing on margins, thus its peers Salzgitter (-1.4%) and ArcelorMittal (-2.2%) are lower in sympathy. Elsewhere, Fiat Chrysler (-1.8%) is under pressure after General Motors yesterday filed a racketeering lawsuit against Fiat Chrysler and three former executives, asserting that it bribed UAW officials to get more favourable contract terms. A Fiat Chrysler spokesperson said that the Co. believes GM is trying to disrupt its merger with PSA (-0.6%), who opened lower in sympathy but have since come off worst levels. Separately, LVMH (-1.1%) upped its offer for Tiffany & Co. to USD 130/shr the previous USD 120/shr offer, prompting Tiffany to open its books and thus upping the chances of a deal, according to sources. Finally, Sanofi (+1.6%) sharply reversed early losses on the news that the Co. is mulling options for its USD 30bln consumer health unit.

Top European News

  • U.K. Budget Deficit Widens Before Election Spending Bonanza
  • Bouygues Is Said to Seek Partners for $2.2 Billion Fiber Work
  • Gazprom Unit Offers $3.3 Billion of Gas Giant’s Shares Today
  • CMA Opens Investigation Into Hasbro, Entertainment One Deal

In FX, the broad Dollar and Index have drifted off overnight highs in early EU trade in wake of upbeat comments from China’s MOFCOM, who reaffirmed determination to reach a Phase One deal whilst dismissing rumours of disagreements in discussions. This follow comments from Chinese Vice Premier overnight who expressed cautious optimism regarding a deal. However, markets are gathering focus around the Hong Kong Human Rights bill, which was almost unanimously passed by the House overnight, with sources stating that US President Trump plans to sign the bill, which could be on his desk as soon as today. The bill could potentially imperil the trade deal between the two nations and is facing fierce backlash from Chinese officials. DXY remains below 98.00 (having shown little reaction to the FOMC Minutes) and has dipped under its 21 DMA and WMAs both coinciding around 97.86-87 to a session low of 97.80. The CNH meanwhile remains little changed on the day, albeit choppy as it balances trade optimism with potential ramifications from the HK bill. USD/CNH trades near the bottom of its current 7.0350-0530 range having earlier dipped below its 100 DMA (7.0428). CNH then saw a mild bout of strength amid sources reports noting that China last week invited US negotiators for further talks.

  • AUD, NZD, JPY - All modestly firmer and moving in tandem to the weakening USD as conflicting trade sentiment provide little to move on, although late source reports on China inviting US negotiators underpinned the antipodeans and influence mild outflow in the JPY. AUD climbed off overnight lows (0.6785) to reclaim 0.6800+ status ahead of its 50 DMA at 0.6812 (with AUD 1bln expiring at strikes 0.6800-10) whilst its Kiwi counterpart remains above 0.6400 (0.6424 current intraday high) having earlier tested the figure to the downside. Similarly, safe-havens remain firmer; USD/JPY trades just above 108.50 (current intraday range 108.30-66) looking ahead to a barrage of option expiries at 108.25-35 (1.7bln), 108.40-50 (2.7bln) abd 108.65-75 (1.3bln), whilst technicians will be eyeing resistance and support 108.74 (21 DMA) and 108.27 (50 DMA) respectively.
  • EUR, GBP - Once again, Sterling and the Single currency move in lockstep to the Dollar with little on the domestic front to spark individual movements ahead of the Labour manifesto release later today. Cable took out touted offers at 1.2945 ahead of more at 1.2950 with around 1bln in options expiring at 1.2955-65 and a further 1.8bln around 1.2990-1.300. Meanwhile, EUR/USD eclipsed its 100 DMA at 1.1087-88 in early trade with the next level to the upside its 21 WMA at 1.1094. Large options expiries for the pair reside at 1.1090 (1.4bln) and 1.1100-10 (1bln) for today’s NY cut, with little fireworks expected from the ECB Minutes.

In commodities, the crude complex is modestly lower on Thursday morning, reflective of the markets cautious tone following a litany of mixed US/China trade updates, although in the context of yesterday’s post bullish EIA Inventory data upside the moves are relatively small. Front month WTI and Brent contracts are subdued under 57/bbl and modestly above USD 62/bbl, some way off yesterday’s USD 57.40 and USD 62.80/bbl highs. In terms of crude specific news flow; the Norwegian Q4 oil investment survey revealed that 2019’s figure was revised slightly higher NOK 183bln, while the 2020 figure came in at NOK 182.7bln. Although lower than their expectations, Nordea notes that “the survey did not yet cover some big field developments such as Balder X which we assumed would be included”. In terms of metals, gold was consolidating between the USD 1470-1475/oz levels but saw some mild downside in recent trade on the WSJ source article. Market caution is, however, exerting downward pressure on Copper, which is heading towards weekly lows around USD 2.614/lbs after hitting weekly highs yesterday at USD 2.666/lbs.

US Event Calendar

  • 8:30am: Philadelphia Fed Business Outlook, est. 6, prior 5.6
  • 8:30am: Initial Jobless Claims, est. 218,000, prior 225,000; Continuing Claims, est. 1.68m, prior 1.68m
  • 9:45am: Bloomberg Consumer Comfort, prior 58; Bloomberg Economic Expectations, prior 49
  • 10am: Leading Index, est. -0.2%, prior -0.1%
  • 10am: Existing Home Sales, est. 5.49m, prior 5.38m; Existing Home Sales MoM, est. 2.04%, prior -2.2%

DB's Jim Reid concludes the overnight wrap

I’ve been trying to predict the future of markets for nearly 25 years now and for the vast majority of that time have written an annual outlook. The fact that we published a new credit strategy one yesterday for 2020 suggests that I may not have got it 100% right every single year in the last quarter of a century and therefore still need to work. So maybe the people you should listen to for the year ahead no longer have to write outlooks!! Assuming you can’t find them then here is our view. Within the team we all think spreads will be wider in 2020 but there is a bit of disagreement on the magnitude. At one end Michal thinks that whilst valuations are stretched, it’s too early to price in the end of the cycle and he only has mild widening. At the other end I think the US cycle looks more vulnerable the nearer you get to 2021 - partly but not solely due to 2019’s yield curve inversions. So no certainties here but elevated risks. The 2020 US election could also be a big risk to markets depending on the Democratic candidate chosen. This risk could of course dissipate early in 2020 or could build. We don’t know yet but probability weighted outcomes suggest some risk premium is needed for it. In the note we show our trade preferences. For example, we expect further decompression between IG and HY, prefer US to EU HY and like Sterling IG. For more see the link here . This is the top level macro credit strategy view. Next week the team will do more detailed IG and LevFin 2020 notes with much more granularity about these universes.

Onto markets and back on October 11th, President Trump and China Vice President Liu He had a meeting and public briefing at the White House to confirm the “Phase One” arrangement. Indeed, looking back at the transcript this line from Mr Trump stands out, “We have come to a deal, pretty much, subject to getting it written. It’ll take probably three weeks, four weeks, or five weeks. As you know, we’re going to be in Chile together for a big summit. And maybe it’ll be then, or maybe it’ll be sometime around then.”

That summit in Chile was supposed to be last weekend before the domestic issues there led to it being cancelled. Nevertheless, it is now nearly six weeks since that trade breakthrough and rather than the market simply wondering when it will be signed there has to be a small but growing risk as to whether it gets signed at all.

Indeed, US markets were volatile again yesterday as trade news reverberated and outweighed earnings results. The S&P 500 dropped as much as -0.92% before retracing to end -0.38%. The DOW and NASDAQ were down a similar amount, -0.51% and -0.40% respectively. The initial move lower was driven by a Reuters article saying that a US-China trade deal might not get finished this year, citing sources close to the White House. However, Deputy Press Secretary Judd Deere then came out and said that “negotiations are continuing and progress is being made,” which arrested the decline and helped equities stabilise. For his part, President Trump spoke to reporters and said that he is fine with the status quo situation of tariffs on imports from China. He also said that “China would much rather make a trade deal than I would, I don’t think they’re stepping up to the level that I want.” Separate from the conflicting headlines about an imminent deal, the longer-term issue of US concern over the situation in Hong Kong came again to the fore, as the House of Representatives unanimously passed the same bill that the Senate passed unanimously on Tuesday.

The bill will now go straight to President Trump’s desk quicker than expected, since the two chambers no longer need to reconcile differences in language. This will force Trump to decide whether to accept the legislation, which could risk progress towards a phase one trade deal, or veto it and possibly face an override if two thirds of each chamber votes to overrule his veto. If he takes no action over the next ten days, the bill will automatically become law anyway. Bloomberg have a story this morning saying that “a person familiar” with events say he will sign it.

As a reminder, the bill requires the US State Department to certify each year whether Hong Kong should retain its special status and also places sanctions on those involved in human rights abuses. Reacting to the bill, the HK government said overnight that allowing the legislation to become law “would send the wrong signal to violent protesters, which doesn’t help in cooling the situation.”

Risk off is the theme in Asia this morning as a quick refresh of our screen shows that the Nikkei (-0.70%), Hang Seng (-1.65%), Shanghai Comp (-0.48%) and Kospi (-1.71%) are all trading in the red alongside almost all other markets in the region. However, most indices are off their respective intraday lows on positive trade comments by China’s top trade negotiator Liu He (more below). Elsewhere, futures on the S&P 500 are down -0.25% and yields on 10y USTs are down -1.5bps.

We also got a fresh set of trade headlines overnight with China’s Vice Premier Liu He saying in a private speech that he was “cautiously optimistic” about reaching a phase one deal. However, the speech which got reported by Bloomberg overnight, was made before the latest developments in the HK bill. In other news, President Trump said that he’s “looking at” exempting the iPhone maker from tariffs on goods imported from China while touring an Apple Inc. assembly plant in Texas.

Back to yesterday and in Europe, the STOXX 600 (-0.41%) also posted a small loss, while the DAX (-0.48%) was down similarly. Sovereign bonds advanced with bund yields down -0.7bps, while BTPs outperformed (-4.3bps).Ten-year Treasuries fell -4.1bps, while the US yield curve flattened for a 6th successive session, with the 2s10s -2.3bps to 16.2bps. Oil prices gained +2.45%, as official US data showed a smaller-than-expected build in stockpiles. The details for the report were also bullish, with a large increase in exports and a jump in refinery utilisation.

Regarding those positive earnings, both Target (+14.08%) and Lowe’s (+3.88%) bucked the previous day’s trend and surged to record highs yesterday as both companies raised their forecasts. The positive releases were in contrast to the poor Home Depot and Kohl’s announcements the previous day. On the whole, it’s been a pretty good earnings season, and of the 468 S&P 500 companies who’ve reported, 79% have reported a positive surprise on earnings for an aggregate beat of 4.75%. And in Europe, of the 414 in the STOXX 600 who’ve released, 58% have had a positive earnings surprise for an aggregate beat of 3.22%.

The FOMC minutes yesterday were full of interesting tidbits but bare on new substance. Officials continue to see risks as tilted to the downside, though some “have eased a bit.” Most officials now see rates as “well calibrated” after the October cut, though a couple of officials who supported the cut viewed it as a close call. There was an extended discussion about alternative monetary policy tools, with all participants agreeing that negative interest rates are currently an unattractive option. Many raised concerns about the prospect of capping long-term yields in a yield curve control-type framework, but a majority “saw greater benefits in using balance sheet tools to cap shorter-term interest rates and reinforce forward guidance.” As for nearer-term policy signals, there were disagreements about the pros and cons of starting a standing repo facility, which probably reduced the likelihood that any new program is announced before year-end.

In Europe, ECB Chief Economist Lane said that the institution is likely to launch a review of its policy strategy, possibly in a similar way to the Fed’s current policy review. He said that “we will make decisions fairly soon,” but emphasised that they want to take their time designing it before implementation.

Elsewhere in Europe, the European Commission gave its opinions on the draft budgets of Euro Area members yesterday. For 8 countries, including France, Italy and Spain, the Commission said that “the Draft Budgetary Plans pose a risk of non-compliance with the Stability and Growth pact in 2020.” Furthermore, their document said that “Belgium, Spain, France and Italy show declining or even negative primary balances, with debt only marginally declining or not declining at all, according to the Commission 2019 autumn forecast. … they are not taking sufficient advantage of recent declines in interest expenditure in order to reduce their debt ratios.” Italy in particular was identified as a risk, with the document saying that the “short-term sustainability of Italian public finances appears vulnerable to increases in the cost of debt issuance.”

Before we wrap up with yesterday’s data and the day ahead, yesterday we went live with the latest podcast from our Podzept series, where DB’s head of European Utilities Research, James Brand, shares his insights on ‘decarbonising heating’. Heating and cooling represents around half of all EU energy use and almost a quarter of all EU emissions. If European countries are serious about substantially reducing emissions, emissions from heating will need to be tackled. Click here to access or subscribe to Podzept on iTunes or Spotify.***

Recapping yesterday’s data releases, we saw further positive signs for US housing in the MBA’s weekly mortgage application index. Although weekly mortgage applications were down -2.2% last week, the purchase index rose to 270.4, its highest level since early July. It comes after the previous day saw US building permits rise to their highest level since the crisis. In terms of other data, German producer prices fell -0.6% yoy (vs. -0.4% expected), which was the biggest fall since September 2016. Meanwhile in Canada, inflation remained at +1.9% in October, in line with expectations, which comes ahead of Bank of Canada Governor Poloz speaking later today, so it’ll be interesting to see to what extent the possibility of rate cuts at the December meeting are left open. The current market pricing for a cut is at 22.7%.

Turning to the day ahead, from central banks we can expect the ECB’s account of their October monetary policy meeting, as well as policy decisions from South Africa and Indonesia. We’ll also hear from the ECB’s Mersch and de Guindos, along with the Fed’s Kashkari and Mester. In terms of data, we’ll get the Euro Area’s advance consumer confidence reading for November, French business confidence for November and the UK’s public finances for October. And from the US we’ll get the Philadelphia Fed’s business outlook for November, existing home sales and the leading index for October, and weekly initial jobless claims. Finally, the OECD will be releasing their economic outlook, and we’ll get earnings from Thyssenkrupp and Macy’s. Back on this side of the Atlantic, the opposition Labour Party will be launching their election manifesto today.

Tyler Durden Thu, 11/21/2019 - 07:57
Published:11/21/2019 7:11:42 AM
[Markets] Dow Jones Futures: China Trade Deal News Cools Apple, AMD, Tesla; A New Hope For Stock Market Rally Dow Jones futures: Apple stock, AMD stock and Tesla fell on fears a China trade deal may slip to 2020. Software offers hope for the stock market rally. Published:11/20/2019 4:43:23 PM
[Markets] Stocks & Bond Yields Tumble As China Trade Deal Hope Fades Stocks & Bond Yields Tumble As China Trade Deal Hope Fades

The so-called "resilience" of US equities overnight as they shrugged off the Washington Democracy Bill vote and the China retaliation threat is more a signal of ignorance (or total complacency) as every negative trade headline was met with a sudden wall of bids to try and get back to even...

As US sources told Reuters that the deal may be delayed, the market began to drop the odds of a trade deal (albeit modestly)

Source: Bloomberg

This was just a fleshwound though for the algos who know only buying matters now...

Chinese stocks faded overnight (as they should rationally)...

Source: Bloomberg

European stocks started ugly but were bid all day...

Source: Bloomberg

US equities were all lower on the day (Trannies worst) but note the two BTFD efforts...

The Dow is down two days in a row, and less than 1%, but that is still the biggest such drop in 6 weeks!!

Source: Bloomberg

The VIX term structure continues to steepen dramatically...

Source: Bloomberg

Momo has erased almost all the month's losses (as bond yields have tumbled)...

Source: Bloomberg

Treasury yields were all lower once again today with the long-end notably outperforming...

Source: Bloomberg

With 10Y back below the key 1.75% level...

Source: Bloomberg

The yield continues to flatten dramatically back towards inversion...

Source: Bloomberg

The dollar rallied for the 2nd day in a row...

Source: Bloomberg

Offshore Yuan fell to three-week lows...

Source: Bloomberg

Cryptos ambled modestly lower today...

Source: Bloomberg

Bitcoin was choppy intraday but ended marginally lower...

Source: Bloomberg

Gold, Silver, and Copper were relatively flat today but oil prices surged (despite the odds of a trade deal fading and a build in crude stocks)....

Source: Bloomberg

But the rebound was purely technical in nature...

 

And finally, whatever you do, don't worry about there being a recession anytime soon, the 'experts' know better...

And this was notable, Warren has collapsed in the betting to equal Biden as Buttigieg is surging...

Source: Bloomberg

Who's right - the FX markets or the equity markets?

Source: Bloomberg

Tyler Durden Wed, 11/20/2019 - 16:00
Published:11/20/2019 3:06:32 PM
[Markets] The Dow is down more than 200 points as stocks extend their decline The Dow is down more than 200 points as stocks extend their decline Published:11/20/2019 12:38:34 PM
[Markets] Dow Jones Falls Mildly, This Retailer Surges From A New Buy Point; Pinduoduo Hits 2 Sell Rules Target reaffirmed budding strength in the discount retail sector as the Dow Jones Industrial Average kept losses small. Pinduoduo sold off hard. Published:11/20/2019 11:37:44 AM
[Markets] Nasdaq edges into positive territory, but Dow and S&P remain saddled with losses Nasdaq edges into positive territory, but Dow and S&P remain saddled with losses Published:11/20/2019 10:35:47 AM
[Markets] Dow Jones Today Faces Test, Futures Slip On China Threat; Target Stock, Lowe's Stock Soar Target and Lowe's traded sharply higher, but global markets slumped as China threatened the U.S., setting up the Dow Jones today for a key test. Published:11/20/2019 7:34:28 AM
[Markets] Global Markets Slide After China Says It's Ready For "Worst Case Scenario" Following Senate Vote In Support Of Hong Kong Protest Global Markets Slide After China Says It's Ready For "Worst Case Scenario" Following Senate Vote In Support Of Hong Kong Protest

Trade deal "optimism", which together with QE4 (which even Bloomberg now admits) has helped push the S&P to all time highs, was decidedly lacking on Wednesday when the global mood soured after the U.S. Senate angered China by passing a bill requiring annual certification of Hong Kong’s autonomy and warning Beijing against violently suppressing protesters.

In response to the unanimous Senate vote, China Foreign Ministry said it strongly condemns the US Senate measure on Hong Kong and resolutely opposes the action, while calling for the US to stop interfering in Hong Kong and China affairs, as well as stop the latest bills on Hong Kong from becoming law. Furthermore, it added China must take necessary measures to safeguard its sovereignty and security, while it summoned the US Embassy representative in China and lodged stern representations with US over the Senate action on Hong Kong.

Then, shortly after 2am, China's notorious twitter troll, Global Times editor Hu Xijin opined, stating that "China wants a deal but is prepared for the worst-case scenario, a prolonged trade war."

President Donald Trump also threatened to up tariffs on Chinese goods if a trade deal is not reached soon.

As a result of the renewed flare-up in Sino-U.S. tensions and the creeping return of U.S. recession fears, world stocks were knocked off 22-month highs with US equity futures sliding as low as 3,105 amid a bid for bonds and other “safe” assets such as gold.

European markets tumbled half a percent at the open, edging further off recent four-year highs hit when it appeared - to some confused, naive souls and algorithms - that Washington and Beijing were about to agree the first phase of a trade deal. Europe's Stoxx 600 Basic Resources Index dropped as much as 2.1%, trading below its 200-DMA, as nickel neared a bear market. Diversified miners fell, with BHP -1.8%, Anglo American -1.4%, Rio Tinto -2%, Glencore -1.4% (these 4 stocks account for ~64% of the index). Steelmakers also fell: ArcelorMittal -2.5%, Evraz -2.2%, Voestalpine -2.3%.

Wall Street futures were also lower amid a sea of red in global stocks, while oil prices suffered their biggest daily loss in seven weeks. MSCI's All World index slipped 0.3%, ending a three-day winning streak.

“Markets have taken a bit of a wobble due to the talk about Hong Kong, but they had rallied a lot in recent weeks on expectations of a (trade) deal,” said Salman Ahmed, chief investment strategist at Lombard Odier.

Ahmed said both sides needed a deal to be signed — Trump cannot afford a recession because of his re-election bid next year, while China’s economy is slowing markedly. “I think we are looking at a short-term setback rather than a major issue that would derail the process. The bill still has to be signed into law by Trump so there’s a high probability he will use it as leverage against China.”

Earlier in the session, MSCI's index of Asia-Pacific shares ex-Japan tumbled 0.7%, Japan's Nikkei .N225 fell 0.8% and Shanghai blue chips lost 1%. Asia stocks fell, as the U.S. Senate passed a legislation supporting Hong Kong protesters, triggering China to repeat its threat to impose unspecified retaliation. Most markets in the region were down, with South Korea among the weakest. Hong Kong’s Hang Seng Index closed 0.8% lower, paring a world-beating rally earlier this week. In contrast, India’s benchmark Sensex headed for another record high, helped by a surge in telecommunications-related stocks. The passage of the U.S. bill on Tuesday may potentially complicate trade talks between the world’s two largest economies.

On Tuesday, US stocks closed just below record highs as world stocks remained just 0.5% off all-time peaks hit last year. “It was noticeable that fixed income markets rallied despite equity markets being stable, suggestive of a market that remains cautious about the growth outlook,” ANZ said in a note.

After falling in six out of the past seven sessions, US Treasury yields dropped again, with 10Y US paper sliding as much as 5bps, from 1.78% to 1.73% amid the flight to safety. In Europe, German Bunds yields fell for the third straight day to touch a 2-1/2 week, shrugging off European Central Bank Chief Economist Philip Lane’s comment that the euro zone economy would not fall into a recession. Bunds bull flattened after Germany’s 30-year bond sale meets steady demand, with bid-to-cover of 1.17x versus 1.20x prior, although the real subscription rate, which accounts for retention by the Bundesbank, increased to 0.91x against 0.76x at the previous sale. In Italy, BTPs outperformed euro-area peers, tightening the BTP-bund spread 2bps to 156bps.

“It’s all about sentiment on trade ... We have this classical risk-off trade taking place again,” Rainer Guntermann, a rates strategist at Commerzbank, said.

In FX, the dollar and yen both rose versus major peers as the Senate vote threatened to complicate a potential U.S.-China trade deal. Australia’s dollar fell with other risk assets, while the euro snapped a four-day advance.

Moves on commodity prices imply fears of economic recession may be creeping back. Japan’s October exports fanned those fears further, tumbling at their quickest rate in three years, with shipments to China and the United States suffering big falls.

US WTI stocks rose far more than expected according to the latest API report, driving Brent crude into a 2.6% slide. Brent fell another half percent, inching towards the $60 mark last breached three weeks ago.

A marked flattening of the 2s10s Treasury curve also hints at a return of recession fears. The curve inverted earlier this year, returning to normal only after three U.S. interest rate cuts. But Federal Reserve officials have hinted there will be no further easing for now, a message the U.S. central bank may reiterate later in the day when it releases minutes from its last meeting. Markets are now pricing in just a 0.8% chance of a December rate cut

Dour forecasts from retailers Home Depot and Kohl’s also fueled worries about U.S. consumer spending, which has so far been extremely robust, in contrast to manufacturing. On the other hand, stellar results from Target have helped offset the downbeat retail sentiment somewhat.

“We’ve had a bit of topping out of the U.S. consumer in the past couple of months, possibly we are seeing some catch up between consumer and manufacturing sectors,” Lombard Odier’s Ahmed said.

In geopolitics, Israel attacked buildings belonging to Iranian militias in southern Damascus where heavy explosions were reported. At the same time, US aircraft carrier strike group Abraham Lincoln transited through the Strait of Hormuz on Tuesday according to US Navy statement, which officials had been considering and suggested would send a strong message to Iran. Elsewhere, Russia's Foreign Ministry said the US decision to remove sanction waivers for the Iranian Fordow nuclear plant violates US international commitments and that Moscow continues to cooperate with Iran on Fordow reconfiguration.

Looking at the day ahead, it’s fairly light on data, with October’s PPI release from Germany and CPI release from Canada, along with the weekly MBA mortgage applications from the US. From central banks, the FOMC’s October minutes and the ECB’s Financial Stability Review will be released, while we’ll hear from the ECB’s Lane and Irish central bank governor Makhlouf. Earnings out today include Lowe’s and Target, and in the US tonight there’s another Democratic primary debate.

Market Snapshot

  • S&P 500 futures down 0.3% to 3,109.25
  • STOXX Europe 600 down 0.6% to 402.94
  • MXAP down 0.6% to 164.79
  • MXAPJ down 0.7% to 527.43
  • Nikkei down 0.6% to 23,148.57
  • Topix down 0.3% to 1,691.11
  • Hang Seng Index down 0.8% to 26,889.61
  • Shanghai Composite down 0.8% to 2,911.05
  • Sensex up 0.6% to 40,690.50
  • Australia S&P/ASX 200 down 1.4% to 6,722.42
  • Kospi down 1.3% to 2,125.32
  • German 10Y yield fell 3.3 bps to -0.372%
  • Euro down 0.1% to $1.1066
  • Brent Futures down 0.4% to $60.68/bbl
  • Italian 10Y yield rose 3.7 bps to 0.899%
  • Spanish 10Y yield fell 3.5 bps to 0.396%
  • Brent Futures down 0.4% to $60.68/bbl
  • Gold spot up 0.3% to $1,476.12
  • U.S. Dollar Index up 0.1% to 97.95

Top Overnight News

  • The U.S. Senate unanimously passed a bill aimed at supporting protesters in Hong Kong and warning China against a violent suppression of the demonstrations -- drawing a rebuke from Beijing
  • The near-deal between the U.S. and China that fell apart six months ago is now being used as the benchmark to decide how much tariffs should be rolled back in the initial phase of a broader trade agreement, people familiar with the talks say
  • Labour Leader Jeremy Corbyn defied his negative ratings to draw level with Prime Minister Boris Johnson in a crucial television debate ahead of the U.K.’s general election. His plan to make the top 5% of earners pay more income tax could raise less than the party thinks, according to the Institute for Fiscal Studies
  • China’s base rate for new corporate bank loans dropped in November, following a series of policy-rate cuts from the central bank aimed at easing liquidity concerns
  • Japan’s export slump deepened in October, with the value of shipments dropping the most in three years, as the U.S.-China trade war weighs on global demand. Japan’s ruling coalition will ask the government to devote 10t yen in fresh spending for the extra budget it’s compiling, Nikkei reports, without attribution
  • Argentine President-elect Alberto Fernandez told International Monetary Fund Managing Director Kristalina Georgieva that he has a plan to grow the economy and tackle the nation’s debt after his predecessor agreed to a $56 billion credit line from the fund
  • Oil dropped the most in seven weeks as American crude stockpiles are forecast to rise and U.S.-China trade talks stall
  • President Donald Trump’s former special envoy to Ukraine said he only realized after the fact that the president and a few close advisers were putting “unacceptable” pressure on Ukraine to launch a politically motivated investigation
  • The European Central Bank warned of potential side effects from its loose monetary policy, highlighting how years of unprecedented economic stimulus is contributing to an erosion of financial stability. Low interest rates have encouraged excessive risk-taking by investment funds and insurers as well as in some real estate markets, the ECB said in its semi-annual Financial Stability Review released Wednesday
  • Traders should brace for heightened volatility in 2020 as the U.S. presidential election becomes one more reason for investors to hedge, according to TD Securities.
  • Helicopter money could be both the best and worst options for the European Central Bank if the euro-area slowdown morphed into a recession, according to a Peterson Institute paper.
  • European Central Bank watchers who monitor its every signal to gauge the future of interest rates would quite like new President Christine Lagarde to give them some clues when she breaks her silence this week.

Asian equity markets traded mostly lower as investor sentiment continued to hang on the US-China trade uncertainty and after the US Senate unanimously passed the legislation aimed at supporting Hong Kong protests, which was met by condemnation from China and spurred concerns of a derailment in trade talks. ASX 200 (-1.4%) and Nikkei 225 (-0.6%) were both negative with Australia pressured by losses in its largest weighted financials sector after Westpac was accused by AUSTRAC of 23mln breaches related to anti-money laundering, while the weakness in Japan was a function of the JPY-risk dynamic, tumultuous trade headlines and disappointing data including a larger than expected contraction in the nation’s Exports. Elsewhere, Hang Seng (-0.8%) and Shanghai Comp. (-0.8%) conformed to the subdued picture following China’s stern response to the US Senate’s passage of the Hong Kong Human Rights Bill, in which it called on the US to stop interfering in its affairs and suggested that it must take necessary measures to safeguard its sovereignty and security. However, losses in the mainland were somewhat limited by optimistic comments from US Commerce Secretary Ross that they still think there's hope a China deal can be done and following the PBoC’s 5bps reduction to its Loan Prime Rates. Finally, 10yr JGBs tracked the gains in T-notes and was spurred by safe-haven demand following China’s retaliation threat, while the 20yr JGB auction was inconclusive as the results showed stronger demand at lower accepted prices.

Top Asian News

  • World’s Largest Wealth Manager Says Add Asian Stocks on Earnings
  • Nissan Plans First Bond Sale Since Scandals After Leader Changes

Concerns regarding the state of US/China trade negotiations are weighing on major European bourses (Euro Stoxx 50 -0.8%) on Wednesday morning, after the US Senate unanimously voted in favour of the Hong Kong Human Rights bill and sent it to the House of Representatives overnight, drawing strong condemnation from China and raising fears that trade talks will be complicated. Downside has extended during European trade, with negative comments from China’s Global Times Editor Hu Xijin only exacerbating things. In terms of the sectors, Energy (-1.6%) is the laggard, as yesterday’s steep decline weighs. Other more risk sensitive sectors including Consumer Discretionary (-1.0%), Tech (-0.5%) and Financials (-1.3%) are also suffering, while defensive sectors are holding up better. Moving on to the most notable stock specific movers; Nexi (+3.1%) tops the Stoxx 600 table, with the news that it is in preliminary talks with Intesa Sanpaolo (-0.4%) regarding a possible commercial partnership supportive. Moreover, positive broker moves for Novozymes (+2.5%) and ADP (+1.5%) from Citigroup and RBC respectively saw their shares move higher. In terms of the laggards; Kingfisher (-6.7%) sunk after downbeat earnings, in which the Co. noted there is clearly much to be done to improve performance and that they had not found the correct balance between group scale benefits and local market. Sage Group (-3.6%) is lower after underlying operating profit and EPS fell, although the Co. did increase its FY dividend. Swedbank (-3.8%) shares are lower, with US authorities investigating the Co’s Baltic unit to determine if transactions violated US sanctions on Russia; the Co.’s CEO said he was not aware of any violations and internal investigations to be concluded early next year. Elsewhere amongst the laggards are Wirecard (-2.8%); auditors at EY have reportedly refused to approve Co’s 2017 Singapore accounts, reported Handelsblatt citing documents.

Top European News

  • ECB Flags Risks to Financial Stability From Its Own Stimulus
  • Emirates Trims Boeing Wide-Body Plan as It Curbs Global Ambition
  • Corbyn Holds Johnson to Debate Draw: U.K. Campaign Trail

In FX, the broad Dollar and Index gains traction in early European trade amid underlying safe-haven support given the bleaker rhetoric out of China regarding an imminent Phase One deal and potential complications from the US Hong Kong bill. On trade, Global Time’s Chief Editor highlighted China’s readiness for a prolonged trade spat, aiding the DXY to test 98.00 to the upside (vs. an overnight low of ~97.80) shortly after the cash open and eclipse its 100 DMA (98.02) before stabilising below the round figure. Meanwhile, China condemned the US bill supporting Hong Kong protesters which was unanimously passed in Senate and makes way to the House for a re-vote, with some wondering whether this could be another wedge in trade talks despite the official previously highlighting the issues are separate. USD/CNH sees renewed upside in early hours (after little move on the expected PBoC LPR cut) with the pair now above its 21 and 100 DMAs (7.0288 and 7.0411) and at the top of its current 7.0250-0430 intraday range.

  • AUD, NZD, CAD - All moving in-line with the current trade-induced risk aversion. The non-US Dollars are all pressured in wake of the aforementioned pilling of bearish-sentiment factors which dwindle the prospect of a long-lasting truce between the two nations. AUD/USD reversed a bulk of yesterday’s gains and retested 0.6800 to the downside at one point, currently residing just off the lower bound of today’s 0.6800-30 parameter. Similarly, its Kiwi counterpart fell below its 100 DMA (0.6432) in overnight trade following China’s condemnation of US Senate’s action and tested support at 0.6400 (vs. high of 0.6435). The Loonie meanwhile bears the brunt of softer energy prices but looks forwards to the Canadian CPI metrics with the headline YY remaining steady at 1.9%. USD/CAD took out its 200 DMA (1.3275) in early EU hours as it takes a stab at 1.3300 to the upside.
  • JPY, CHF - Supported by their safe-haven statuses as the trade landscape shifts away from the recent hopefulness. USD/JPY meanders a touch below the 108.50 mark ahead of a Fib level and its 50 DMA both at 108.26 whilst notable option expiries include USD 1bln at strikes 108.50-65. Correspondingly, the Franc sees modest gains with EUR/CHF back under its 100 DMA and 21 DMAs both at 1.0960.
  • GBP, EUR - Both modestly softer and largely at the whim of a firming Buck. Last night’s UK leadership debate provided little by way of new substance, whilst a YouGov snap poll on performance (1600 respondents) showed the leaders more-or-less neck and neck, and the election survey from the same pollster indicated a slight narrowing in Tory’s lead over Labour. GBP/USD hovers around a 38.2.% Fib level just above 1.2900 having dipped below the figure earlier on a firmer Buck. EUR/USD losses more ground below its 100 DMA (1.1089) but found a base at 1.1060 ahead of its 21 DMA at 1.1042.

In commodities, crude futures are relatively flat following a mammoth sell-off in the prior session where anti-production cut commentary out of Russia and bearish supply updates in Europe saw the complex sell off. There was little by way of reactions to last night’s mixed API Inventory data; headline crude stocks built much more than expected but gasoline and distillates posted larger than expected draws, and front month WTI and Brent contracts stabilised around the USD 55.20/bbl and USD 60.80/bbl levels overnight, although both have since crept slightly lower since the arrival of European players. Subdued risk appetite has lent a hand to gold, which advanced to near the USD 1480/oz mark before pulling back slightly, with upside being capped by a firmer buck. Meanwhile, copper was caught between the conflicting forces of the PBoC’s latest LPR cuts and negative developments on the US/China trade front overnight, but has since seen some upside since the arrival of European players, making new highs for the week at USD 2.666/lbs.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 9.6%
  • 2pm: FOMC Meeting Minutes

DB's Jim Reid concludes the overnight wrap

If you’re looking to top up the performance of your fund before year end you could do worse than to visit Blackhall Colliery, County Durham, North England. This week has seen the twelfth time in five years that a bundle of notes totalling exactly £2000 pounds has been found in a bag on a street and handed into Police. If twelve bags have been handed in, how many have actually been “absorbed” into the local economy. I would wager many many more. Police are totally confused by these “drops” and made this info public late yesterday. Maybe we’ll get the 21st century version of The Gold Rush on our hands today.

There wasn’t quite the same rush in markets yesterday as Equity markets traded in the red for most of the day after some poor US retail earnings, before more positive trade headlines spurred risk assets back towards flat into the close. The S&P 500 had been down as much as -0.27% but it ended -0.06%. The DOW lost -0.36%, with most of that attributable to Home Depot’s -5.44% move after they said that comparable sales in Q3 rose +3.6% (vs. +4.6% expected), and downgraded their comparable sales growth guidance to 3.5%, having been 4.0% previously. Kohl’s (-19.49%) also reported soft demand, lowering their guidance for adjusted annual earnings per diluted share to $4.75-$4.95, down from $5.15-$5.45 previously. Investor attention will now turn to Lowe’s (-1.41%) and Target (-0.96%), both of whom are releasing results today.

Offsetting the poor earnings reports were some optimistic trade headlines, with Bloomberg reporting that the US-China deal that fell through in May is now the benchmark in terms of the amount of tariffs to be rolled back in an initial agreement between the two sides. The reports suggest that China is asking that all tariffs applied since May be immediately removed, then earlier tariffs removed in tranches moving forward. If realised, this would be a notably more risk-positive outcome than most had expected. However, the article also noted apparent differences among US officials as to how comprehensive the phase one deal would be and how much tariffs would be rolled back. So if this is right it doesn’t look as though there’s an agreed viewpoint within the US administration. So hard to get too excited one way or other by the story.

Staying with trade, in a move that could well have significance for upcoming discussions, the US Senate unanimously passed the Hong Kong Human Rights and Democracy Act that would require the US State Department to assess each year whether Hong Kong has sufficiently “autonomous decision-making” to justify retaining its different tariff treatment compared to China. Last month the House of Representatives passed a modestly different version, so the two will now be reconciled in committee. President Trump has been silent on the bill. Both the Chinese and Hong Kong governments expressed disappointment over the legislation. Chinese Foreign Ministry spokesman Geng Shuang urged the US to take immediate measures to prevent the bill from becoming law, although it appears to have sufficient support to over-ride a Presidential veto.

Staying with trade themes, Bloomberg reported overnight that China’s antitrust regulator is closely monitoring US chipmaker Diodes Inc.’s proposed $428mn takeover of Taiwan’s Lite-On Semiconductor Corp, responding to complaints that a deal will deliver the Taiwanese company’s Shanghai-based affiliate On-Bright Electronics Inc. into US hands. Lite-On Semiconductor shares fell by their daily limit of 10% overnight.

Overnight Asian markets are trading lower as the passage of the Hong Kong bill casts a shadow over the US-China trade deal. The Nikkei (-0.66%), Hang Seng (-0.67%), Shanghai Comp (-0.39%) and Kospi (-1.15%) are all lower. Elsewhere, futures on the S&P 500 are -0.14% lower and yields on 10y USTs are down -3.5bps this morning. As for overnight data releases, Japan’s October adjusted trade balance came in at JPY -34.7bn (vs. JPY 248.1bn expected) as declines in exports (-9.2% yoy vs. -7.5% yoy expected) outpaced small declines in imports (-14.8% yoy vs. -15.2 yoy expected).

The main highlight today will be the FOMC minutes, which will likely signal that policy is on hold for now, barring a material reassessment in the outlook, per Chair Powell’s recent rhetoric. It’ll be interesting to see if the minutes shed any light on what exactly would qualify as a “material reassessment,” as well as details on how deep the internal disagreement over the rate cut was. Also any updates on the policy review, and any new thoughts on dealing with funding market disruptions will be looked for. Staying with the Fed, the New York Fed’s Williams spoke yesterday, and maintained his existing rhetoric, saying that “the current stance of monetary policy seems appropriate” for the economy’s current position. He also noted that the current system of ad hoc repo operations is a temporary solution to problems in funding markets, the need for which will hopefully be obviated by the Fed’s balance sheet expansion currently underway.

Turning to sovereign bonds, peripheral spreads widened yesterday, with Italian debt leading the sell-off. 10yr BTP yields were up +3.8bps, while Spanish (+1.4bps) and Portuguese (+2.3bps) yields also rose. Sovereign debt elsewhere advanced however, with 10yr Bunds -0.5bps and Treasuries -3.4bps to 1.781%. The 2s10s curve flattened for a 5th consecutive session, taking it -8.8bps lower over the last week (-3.3bps yesterday). Meanwhile in commodities, oil fell for a second successive day, with both WTI (-3.24%) and Brent Crude (-2.51%) losing ground, as expectations are for official data to show a large inventory build later today.

Here in the UK, with just over 3 weeks now until the general election, last night’s TV leader’s debate is unlikely to change anyone’s view of either candidate measurably. A YouGov poll people canvassed immediately after the event showed that Johnson edged it by a wafer thin 51%/49%. On balance given how far Corbyn’s personal ratings are below Johnson’s and how far Labour are behind in the polls, then such a split could be seen a small victory for the opposition. Sterling is trading down -0.13% this morning.

Indeed a poll out yesterday from Kantar put the Conservatives 18pts ahead of Labour, their biggest lead of the campaign so far in any opinion poll. The Tories were on 45% (up 8pts on the previous week), Labour on 27% (unchanged), while the Brexit Party collapsed to 2% (down 7pts). However, another poll from YouGov showed the Tories 12pts ahead of Labour, down from a 17pt lead on Friday, so it’s a slightly volatile picture even if the range of the lead continues to be in the 8-18 percentage point area.

We got some strong housing data out of the US yesterday, with building permits rising to a seasonally-adjusted annual rate of 1461k in October (vs. 1385k expected), their highest level since May 2007. Looking within the data, all four US regions saw an increase in building permits, and the less-volatile single-family permits also rose to a post-crisis high of 909k. October’s housing starts were also up to 1314k (vs. 1320k expected).

To the day ahead now, and it’s fairly light on data, with October’s PPI release from Germany and CPI release from Canada, along with the weekly MBA mortgage applications from the US. From central banks, the FOMC’s October minutes and the ECB’s Financial Stability Review will be released, while we’ll hear from the ECB’s Lane and Irish central bank governor Makhlouf. Earnings out today include Lowe’s and Target, and in the US tonight there’s another Democratic primary debate.

 

Tyler Durden Wed, 11/20/2019 - 07:55
Published:11/20/2019 7:05:18 AM
[Markets] Dow Jones Futures: Stock Market Leadership Expands Bullishly; Pinduoduo, Target Earnings On Tap Dow Jones futures: Facebook, Visa, Broadcom, Mastercard and Carvana broke out Tuesday, expanding stock market leadership. Pinduoduo and Target earnings are due early Wednesday. Published:11/19/2019 5:34:17 PM
[Markets] Dow Jones Futures: These 5 Stocks Expand Market Leadership; Pinduoduo, Target Earnings On Tap Dow Jones futures: Facebook, Visa, Broadcom, Mastercard and Carvana broke out Tuesday, expanding stock market leadership. Pinduoduo and Target earnings are due early Wednesday. Published:11/19/2019 5:03:53 PM
[Markets] US STOCKS-Retail sector weighs on Wall Street; Dow and S&P end lower The Dow Jones Industrial Average and the S&P 500 fell from record levels on Tuesday as dour forecasts from retailers Home Depot and Kohl's fueled worries about consumer spending and the U.S.-China trade dispute dragged on. U.S. President Donald Trump on Tuesday threatened to escalate the trade war by raising tariffs on Chinese imports if no deal is reached with Beijing. Published:11/19/2019 4:00:58 PM
[Markets] Dow finishes lower as Home Depot weighs; Nasdaq ekes out gain Dow finishes lower as Home Depot weighs; Nasdaq ekes out gain Published:11/19/2019 3:32:02 PM
[Markets] Dow Jones Backs Off 28,000, Hurt By Home Depot Sell-Off; 2 Chip Giants Lead Nasdaq 100 The Dow Jones industrials ended modestly lower Tuesday despite a harsh sell-off in Home Depot stock. Broadcom and AMD stock led another tech rally. Published:11/19/2019 3:32:02 PM
[Markets] US STOCKS-Retail drags on Wall St; Dow falls, S&P holds steady The Dow Jones Industrial Average fell from record levels while the S&P was flat on Tuesday as dour forecasts from retailers Home Depot and Kohl's fueled worries about consumer spending while uncertainty over the U.S.-China trade dispute simmered in the background. The tech-heavy Nasdaq was the best-performing of the three indexes, with support from Facebook Inc and Broadcom Inc helping to counter a drag from Qualcomm after the chip maker held an investor meeting. Published:11/19/2019 2:30:51 PM
[Markets] Dow Jones Reverses Off High On Home Depot, But Nasdaq Rallies To Record High The Dow Jones Industrial Average was under modest selling pressure Tuesday afternoon, while the Nasdaq hit a new record high. Smal caps outperformed. Published:11/19/2019 1:00:30 PM
[Markets] Dow Jones Down On Home Depot Sell-Off; Will This Sector Produce New Stock Market Winners? Despite a big drop by Dow Jones Industrial Average component Home Depot, the 30-stock Dow is off just mildly. This sector is boosting the Nasdaq. Published:11/19/2019 12:00:13 PM
[Markets] Boeing's stock dives after NTSB recommends 'more robust redesign' of 737-700s Shares of Boeing Co. took a midday dive into negative territory Tuesday, after the National Transportation Safety Board recommended a "more robust redesign" of the engine structure and its components, as it holds a board meeting to determine the probably cause of the fatal April 2018 crash of the Boeing 737-700 aircraft. The stock was up about 0.7%, then sank as much as 2.1%, before bouncing to be down just 0.1%. Boeing's stock has gained 10.5% over the past three months, while the Dow Jones Industrial Average has advanced 6.9%. Published:11/19/2019 11:29:32 AM
[Markets] GLOBAL MARKETS-Shares, dollar dip as limp results, impeachment inquiry offset trade hopes Shares in Europe dipped, Wall Street backed off record highs and the U.S. dollar was poised to extend a three-day losing streak as underwhelming earnings and uncertainty over an ongoing U.S. impeachment inquiry overshadowed hopes for a U.S.-China trade deal. The U.S. benchmark S&P 500 index was nominally lower and Home Depot Inc pulled the blue-chip Dow Jones Industrial index firmly into the red after the home improvement retailer cut its 2019 sales forecast. The inquiry focuses on a July 25 phone call in which President Donald Trump asked Ukrainian President Volodymyr Zelenskiy to carry out two investigations that would benefit him politically. Published:11/19/2019 10:30:07 AM
[Markets] Dow industrials down 50 points as Tuesday morning’s gains evaporate Dow industrials down 50 points as Tuesday morning’s gains evaporate Published:11/19/2019 10:00:41 AM
[Markets] Dow Dives Into Red, Home Depot Hammered Dow Dives Into Red, Home Depot Hammered

Another overnight ramp evaporates...

As Home Depot weighs heavy on The Dow...

But the consumer is strong, right?

Treasury yields are tumbling too...

Source: Bloomberg

Tyler Durden Tue, 11/19/2019 - 09:53
Published:11/19/2019 8:59:30 AM
[Markets] S&P Futs Hit New All Time High As Tsunami Of Central Bank Liquidity Pushes Everything Higher S&P Futs Hit New All Time High As Tsunami Of Central Bank Liquidity Pushes Everything Higher

It was not very easy to glean from the disjointed overnight headlines and comments if the prevailing trader mood was one of "optimism" or "not so much optimism" when it comes to the daily US-China trade deal barometer, but one look at stocks which are a sea of green this morning...

... the narrative quickly becomes one of smooth sailing between Washington and Beijing, even though in fact none of that matters, and it's all been a diagonal line since the start of QE4, pardon, "NOT QE" on Oct. 14.

Meanwhile, Reuters did not disappoint with its regurgitated, stock explanation for the market move, noting that "world shares touched their highest in nearly two years on Tuesday as investors maintained bets that the United States and China can reach a deal to end their damaging trade war."

It gets better: confirming what we said at the top, Reuters then goes on to state that "A lack of clear news on the progress of talks has not deterred investors emboldened by a growing sense that risks of a recession, a specter through the year, have receded. Looser monetary policy from major central banks like China has also helped bolster expectations for equities."

In other words, there was no actual news, but because a record burst of central bank liquidity since the financial crisis has pushed risk assets higher, the goalseeked explanation is that, somehow, a deal must be closer. And there you have reflexivity in all its fallacious glory.

So amid this liquidity barrage, it's hardly a surprise that the MSCI world equity index gained 0.1% to touch its highest since January last year.

European shares stocks rallied again from the open led by miners, autos and financial services in the absence of fresh news or economic data, with the broad Euro STOXX 600 adding 0.4% to move to its highest since July 2015. Indexes in Frankfurt and London gained 0.4% and 0.5% respectively. DAX rose 1% to outperform peers, while S&P futures breached Monday’s highs above 3,130, and not even dismal results from Home Depot or Kohl's could derail this train.

Earlier in the session, MSCI's index of Asia-Pacific shares ex-Japan rose 0.6%, with Shanghai blue chips gaining 1% and Hong Kong's Hang Seng up 1.6% as Hong Kong equities extended a rebound to recoup some of last week’s losses, shrugging off another night of chaos as a university siege continued, following another major reverse-repo liquidity injection to the tune of 120BN yuan by the PBOC. India’s Sensex rose, but many stocks fell as investors mulled a health check of the nation’s shadow banks that pointed to prolonged distress. Outside of Hong Kong, Asia was quiet as investors awaited signs of progress in U.S.-China trade negotiations. Trading volume was below average in markets including Japan, China and India. While the MSCI Asia Pacific Index has gained more than 6% since the rally began less than six weeks ago, it hasn’t had a price swing greater than 1 percentage point. It’s the longest such stretch in a year and a half.

Going back to the 'imminent' US-China trade deal, investors said assumptions that an initial trade deal would be reached had outweighed any creeping doubts on progress in talks that stemmed from a lack of clear news, with a growing sense of positive economic fundamentals ahead. "Consensus is assuming that there will be a cyclical upturn," Stéphane Barbier de la Serre, a strategist at Makor Capital Markets. "It’s like the market lowered its guard on the big risk metrics — and that has triggered a reweighting of funds from bonds to equities."

Ironically, on Monday markets barely moved, after dipping initially as CNBC reported the mood in Beijing was pessimistic about prospects of sealing a trade agreement with the United States, buffeting the dollar. But signs that suggested growing detente between the sides clouded the picture: a new extension granted by Washington to let U.S. companies keep doing business with Chinese telecoms giant Huawei suggested a possible olive branch.

Still, that lack of clarity did unnerve some investors: “The longer we go on, the more concerns will arise. The reality is the clock is ticking,” said Michael McCarthy, chief market strategist at brokerage CMC Markets in Sydney.

As usual, much of the optimism relied on hopes that Beijing will deliver some economic stimulus in addition to Monday’s surprise cut to a closely watched lending rate provided a boost to sentiment in Asian markets. Alas, as we showed yesterday, that won't happen, setting up markets for another major disappointment once the Fed's NOT QE fizzles.

Meanwhile, as we also noted yesterday, a full-blown economic recovery is now fully priced in by the S&P.

In rates, bunds fell, underperforming Treasuries which were unchanged at 1.815% amid lighter-than-average trading volumes as stocks extend gains to fresh highs. The bund curve steepens, with 10-year bond underperforming Treasuries by 0.5bps; bund futures trading volumes are running at around 70% of the 10-day average.  BTPs are little changed with futures trading volumes about 55% of the 10-day average. Gilts traded steady, while curve flattens; 2041 gilt linker size is set at GBP2.25b, with final orderbook over GBP17.5b; compares with orders of GBP20.5b for the prior reopening in October 2018.

In FX, the dollar halted a three-day decline while the yen and the Swiss franc came under pressure as risk appetite gained some traction after the London open. “Trade headlines are dominating sentiment but in terms of the key event risk, the release of the Fed minutes will be a big one for market participants,” said Nordea FX strategist Morten Lund.

The EUR/USD traded in a narrow range, with the 21-DMA seemingly capping the upside. The pound slipped as hedge funds took profit on short-term long positions, ahead of the first election debate between the two main party leaders due later Tuesday. Australia’s dollar recovered from an earlier decline that came after the latest minutes from the central bank suggested it was considering another rate cut in November.

In commodities, Brent crude fell, losing 0.2% to $62.29 a barrel, with a combination of jitters over trade and expectations of a rise in U.S. inventories jangling nerves.

Looking at the day ahead, politics is expected to dominate the agenda as the US impeachment inquiry continues and we have the first head-to-head TV debate ahead of the UK election. Today’s data highlights from Europe include September’s Euro Area construction output, Italian industrial sales and orders, and UK industrial trends survey from the CBI. In the US there is October’s building permits and housing starts data, and we’ll also get Canada’s manufacturing sales for September. From central banks, New York Fed President Williams will be speaking, while Home Depot will be releasing earnings.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,128.75
  • STOXX Europe 600 up 0.6% to 408.29
  • MXAP up 0.2% to 165.44
  • MXAPJ up 0.6% to 530.80
  • Nikkei down 0.5% to 23,292.65
  • Topix down 0.2% to 1,696.73
  • Hang Seng Index up 1.6% to 27,093.80
  • Shanghai Composite up 0.9% to 2,933.99
  • Sensex up 0.4% to 40,430.46
  • Australia S&P/ASX 200 up 0.7% to 6,814.22
  • Kospi down 0.3% to 2,153.24
  • German 10Y yield rose 0.4 bps to -0.332%
  • Euro down 0.05% to $1.1066
  • Brent Futures down 0.8% to $61.95/bbl
  • Italian 10Y yield fell 2.4 bps to 0.862%
  • Spanish 10Y yield fell 0.8 bps to 0.406%
  • Gold spot down 0.3% to $1,467.67
  • U.S. Dollar Index up 0.09% to 97.88

Top Overnight News

  • Federal Reserve Chairman Jerome Powell met with President Donald Trump and Treasury Secretary Steven Mnuchin Monday to discuss the economy, marking a second face-to-face sit-down this year amid relentless White House criticism of the U.S. central bank. President Donald Trump said he “protested” U.S. interest rates that he considers too high relative to other developed countries
  • Boris Johnson and Jeremy Corbyn are preparing for their first head-to-head election debate as the Labour leader seeks to reverse the prime minister’s double-digit lead in the polls. The premier wrote an open letter to Corbyn accusing him of “dither” over Brexit, while Labour said Tories are more committed to the billionaires who fund the party
  • A U.S. chipmaker’s attempt to acquire a peer with a valuable Chinese affiliate has spurred concern in Beijing, as tensions between the world’s two biggest economies threaten to disrupt the global tech supply chain.
  • Options traders are the most bullish on the euro’s short- term prospects in a month, as expectations for further policy easing by the European Central Bank fade and with euro-area yields off their cycle lows
  • Fixed-income investors have lagged in incorporating environmental, social and governance (ESG) factors into their strategies, but BlackRock Inc. says they now have more tools -- including benchmark indexes -- to bring sustainable debt into their portfolios
  • Australia’s central bank considered cutting interest rates at its latest meeting, but decided instead to hold steady and monitor the impact of earlier easing amid concern that households were being spooked by very low borrowing costs
  • Caught between a Brexit they don’t want and a firebrand socialist they fear, business executives were not impressed after the leading candidates in Britain’s upcoming general election tried to win their support
  • Bank of Japan Governor Haruhiko Kuroda said the bank would consider additional easing including cutting interest rates if risks were to rise
  • Hong Kong leader Carrie Lam has called for a peaceful resolution to a university siege that has transfixed the city and raised fears of a crackdown on scores of protesters who remain trapped in a campus surrounded by police. Lam said she had instructed police to try and resolve the situation at Hong Kong Polytechnic University peacefully
  • Oil dropped for a second day on indications U.S. crude stockpiles and shale output will continue expanding, while investors wait for news on a breakthrough to the prolonged trade war
  • Japan remained the top foreign holder of U.S. Treasuries in September even after reducing its government securities holdings by the most since at least 2000.

Asian equity markets eventually traded mostly higher but with gains capped after an initial lack of commitment due to the ongoing US-China uncertainty triggered by contrasting trade headlines, including reports of a pessimistic mood in Beijing about a deal being passed. ASX 200 (+0.7%) and Nikkei 225 (-0.5%) were mixed with Australia lifted as gains in the defensive sectors and recovery in financials superseded the heavy losses in tech, while Tokyo sentiment was snagged by detrimental currency flows and with SoftBank pressured by further WeWork troubles as the New York Attorney General was said to be investigating the embattled workspace company. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (+0.9%) began indecisively but gradually improved as reports of Beijing trade pessimism was offset by a 90-day license extension for US firms to continue doing business with Huawei, while the PBoC also continued its liquidity efforts with another firm injection of CNY 120bln through 7-Day Reverse Repos. Finally, 10yr JGBs were mildly higher as they tracked recent upside in T-notes and amid weakness in Japanese stocks, while demand was also supported by the BoJ’s presence in the market for over JPY 1.1tln of JGBs in 1yr-10yr maturities.

Top Asian News

  • Chain Hated by Hong Kong Protesters Sees Double Digit Drop
  • Alibaba’s H.K. Share Sale Multiple Times Subscribed: DJ
  • China’s State Grid Chooses JD.com to Smarten Up Electric Meters

Major European bourses (Euro Stoxx 50 +0.7%) are on the front foot in another day of quiet trade, following on from a broadly positive APAC handover. A decent liquidity injection from the PBoC, a lack of fresh negative US/China trade negatives (the 90-day Huawei waiver appears to have mostly offset negativity regarding reported pessimism on deal in China), plus a lack of looming risk events appear to be enabling the recent trend in global equities to continue, i.e. a persistent grind higher. Also, possibly acting in support are reports that US President Trump’s Section 232 auto tariff authority (which he could have used to put tariffs on European auto imports) has run out of time, meaning he may have to find other means if he wants to pursue auto tariffs on Europe/Japan, legal experts said. As a reminder, Trump last Thursday took no action to impose or delay national security tariffs on auto imports, despite a deadline to do so by that date. Regardless, US index futures made YTD highs again this morning, with the ES Dec’19 contract reaching highs of 3129, while back in Europe, the Euro Stoxx 50 broke out of last week’s range to make new highs around 3720, with ATHs seemingly now within reach at 3769. In terms of the sectors, things are mostly in the green, with underperformance being seen in the more defensive Utilities (-0.1%), Consumer Stapes (+0.1%) and Health Care (+0.3%) sectors, while Telecoms (unch.) have also been on the back foot, with the news that France’s 5G auction has been delayed until March 2020 doing little to help. Risk sensitive sectors, including Consumer Discretionary (+1.1%) and Financials (+1.1%) are amongst the outperformers. In terms of the standout movers; Halma (+12.0%) tops the Stoxx 600 performance chart, where the Co. posted decent gains in pre-tax profit and increased its interim dividend. Propping up the Stoxx 600 table is SES (-19.4%), after the US FCC chairman voiced support for a public auction to free up space for 5G – SES had been lobbying for a private auction. EasyJet (+3.6%) is higher after the Co. posted earnings which beat on top and bottom line expectations and said bookings are “slightly ahead” of last year. Looking at flow data from EPFR, they show that European equities received inflows averaging USD 9.6bln for a third straight, compared to an average USD 5bln weekly outflow since December last year. Morgan Stanley cited the return of flows as part of the reason why they are overweight European equities, adding that the region has room for a further price-to-earnings re-rating, citing reduced Brexit risk, possible shift from monetary to fiscal stimulus, and tighter peripheral and credit spreads as other catalysts.

Top European News

  • Swiss Watch Exports Stagnate as Shipments to Hong Kong Slump
  • Private Equity Muscles Into Britain’s Booming Pension Market
  • Labour Attacks Tory Billionaires Before TV Showdown: U.K. Votes

In FX, the broad Dollar and Index have rebounded off APAC lows after the latter found a base at the 97.75 mark. DXY resides near the top end of today’s 97.75-88 parameter ahead of another quiet session in terms of scheduled events and with sights still locked on US-Sino trade developments. Meanwhile, USD/CNH trades little changed on the day having earlier tested its 21 DMA to the upside at 7.0320 (vs. intraday low of 7.0230) ahead of its 100 DMA at 7.0415

  • GBP, EUR - Both intially moved sideways and within tight ranges against the Buck amid a lack of fresh catalysts and with eyes on the tonight’s Johnson/Corbyn showdown debate commencing at 2000GMT and the latest YouGov polling at 2100GMT. Upside in Sterling remains somewhat capped in light of comments from EU Trade Chief Weyand who warned of a “bare bones” or no trade deal from Brussels next year, however traders need to steer through domestic political landscape first with election day drawing closer. GBP/USD remains drifted from the 1.2950 mark to around 1.2925, whilst the upside includes reported barriers at 1.3000 and reported stops at 1.3030. EUR/USD resides just north of 1.1050 having earlier tested its 21 DMA at 1.1081 and with eyes on its 100 DMA at 1.1091.
  • AUD, NZD - The antipodeans are flat in early European trade with AUD/USD and NZD/USD around 0.6800 and 0.6400 respectively, but off overnight lows. The pairs were initially pressured (albeit modestly) upon the release of the RBA minutes which noted that a case could be made for a cut at the November meeting and reiterated that the Board is prepared to ease further if needed. However, analysts at Westpac believe that the case for a December cut is heavily downplayed in the minutes and the dismal Aussie labour force figures from last week may not be sufficient enough for a move from its current “monitoring” approach, and thus Westpac maintains its forecast for a 25bps February cut. AUD/USD rebounded from its overnight post-RBA base of 0.6785 back above 0.6800 ahead of its 50 DMA at 0.6814. Similarly, its Kiwi counterpart reclaimed 0.6400+ status from an APAC low of 0.6383 (21 DMA) with the next level to the upside its 50 DMA at 0.6435.
  • JPY, CHF - Little action on the safe-heaven front thus far although prices seem to have a downside bias against the USD, potentially on the latter’s recovery from its APAC trough. Participants will again be eyeing developments on the US-Sino trade front amid mixed/contrasting recent reports. Meanwhile, the situation in Hong Kong seems to feel some reprieve (for now at least) after the number of protesters trapped inside the Polytechnic University fell from around 700 to between 100-200, however sources cite by the SCMP noted of over 8000 petrol bombs at the Chinese University ready for use. USD/JPY tested and resides around 108.75 (21 DMA) ahead of potential resistance at 108.83 (Tenkan line) with a barrage of options expiring with USD 1bln between 108.50-55 and a further USD 1bln between 108.90-109.00. The Franc also awaits further risk-driven action as USD/CHF meanders around 0.9900 in early EU trade and eyes its 21 DMA at 0.9911.
  • RBA Minutes from November meeting stated the board is prepared to ease further if needed and agreed a case could be made for a rate cut at the meeting but decided rates should be held steady. RBA board recognized negative effects of lower rates on savers and confidence as rate cuts could have a different impact on confidence than in the past, while it saw a case to wait and assess impact of its prior substantial stimulus and agreed an extended period of low rates is needed to achieve targets.

In commodities, crude markets are lower, with the complex trading heavy despite this morning’s rally in the equity market and a lack of fresh fundamental catalysts. WTI Dec’ 19 futures fell to lows of USD 56.48/bbl, while Brent Jan’ 19 futures fell as low as USD 61.74/bbl, before losses were somewhat pared. In terms of crude specific news of note; Norwegian oil production stood at 1.519mln bpd in October (prelim) vs. Prev. 1.312mln BPD in September, according to the Norwegian Petroleum Directorate. As a reminder, this Thursday sees the release of the Norwegian oil investment survey, with Q3 oil and gas pipeline/extraction investment seen coming in at NOK 181bln, as estimated by the prior release. Elsewhere, and on the docket today, traders will be eyeing tonight’s API Inventory figure which last week printed a draw of 0.54mln barrels. Finally, gold prices slid back beneath the USD 1470/oz mark and copper has been moving higher, assisted by advancing equity prices with eyes remaining on US-China trade developments.

US Event Calendar

  • 8:30am: Housing Starts, est. 1.32m, prior 1.26m; Housing Starts MoM, est. 5.1%, prior -9.4%
  • 8:30am: Building Permits MoM, est. -0.43%, prior -2.7%; Building Permits, est. 1.39m, prior 1.39m
  • 9am: Fed’s Williams Speaks at Capital Markets Conference

DB's Jim Reid concludes the overnight wrap

Yesterday I mentioned how twin Eddie locked himself in the toilet for nearly 30 mins on Sunday and became hysterical before eventually calming down and realising he could unlock the same door. Well yesterday twin Jamie apparently got in such a rage that he broke his car seat in a violent protest at not getting a rice cake. That’s what I go home to every day.

In comparison markets were relatively calm yesterday but trade sentiment again drove some volatility, with major indexes bouncing between gains and losses as news dripped out of Beijing and Washington. A reminder from our survey (link here ) last week that only 14% thought the trade war would get worse over the next 12 months. So the vast majority think it will de-escalate in election year. However, things are getting a little tense ahead of the ”phase one” signing. The first catalyst that sent equities lower yesterday was a tweet from CNBC’s Beijing Bureau Chief, who said that the mood in Beijing “is pessimistic”. She also said that China was “troubled after Trump said no tariff rollback” and said “Strategy now to talk but wait due to impeachment, US election. Also prioritize China economic support.” The tweet came before the US open, but the impact in Europe was clear, with the STOXX 600 falling from its intraday high of +0.28% to drop as low as -0.33%. However, it rebounded to end flat (-0.01%) after the newsflow shifted in a more optimistic direction. Fox Business reported that the US will extend its licenses, which allow firms to continue doing business with Huawei for another 90 days, which was better than the two-week extension reported earlier. That apparent olive branch from the US administration to China helped equities rebound, with the S&P 500 (+0.04%), NASDAQ (+0.11%), and DOW (+0.11%) all edging to fresh all-time highs. Energy stocks were the worst hit on both sides of the Atlantic though thanks to the decline in oil prices, with Brent crude oil down -1.39% and the S&P 500 energy group ending the session down -1.33%.

This morning in Asia markets are mixed with the Hang Seng (+1.03%) and Shanghai Comp (+0.46%) up while the Nikkei (-0.41%) and Kospi (-0.46%) are down. Elsewhere, futures on the S&P 500 are up +0.07%.

In other news, Hong Kong Chief Executive Carrie Lam said that she very much wants to resolve the PolyU situation peacefully, after it has been taken over by protestors for the past two days, but she can’t guarantee that would happen. She also said that minors at PolyU would be treated in a “humanitarian” way and stressed the special arrangements being made so that they would not be immediately arrested while adding that, “right now” the city’s government is confident it can handle the unrest without the army’s help. Meanwhile, US Senate Majority Leader Mitch McConnell urged President Trump to speak out on behalf of the protesters as he said, “The world should hear from him directly that the United States stands with these brave women and men”. Further to this, Senator Marco Rubio’s bipartisan bill supporting Hong Kong protestors could pass as soon as today.

10yr USTs are -1bp lower overnight following a firm day yesterday as treasuries rallied even if bunds traded flat. 10-year yields in the US were -1.7bps lower, while other European bonds also gained with OATs and BTPs rallying -0.8bps and -2.3bps. Yield curves flattened, with the US 2s10s -0.3bps to 21.6bps and the German 2s10s also flattening by -0.7bps. Gold also recovered, having been down -0.80% before the initial trade headlines to end the session +0.19%.

Moving away from trade, we got the news yesterday that Fed Chair Powell had a meeting with both President Trump and Treasury Secretary Mnuchin at the White House. In a statement from the Federal Reserve, it said that Powell “did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that bears on the outlook for the economy.” Afterwards, President Trump tweeted that he’d “finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve”, and that the issues discussed included interest rates and trade with China. A few hours later there was another tweet from Mr Trump saying that “At my meeting with Jay Powell this morning, I protested fact that our Fed Rate is set too high relative to the interest rates of other competitor countries. In fact, our rates should be lower than all others (we are the U.S.). Too strong a Dollar hurting manufacturers & growth!’. So tensions still high between the two. The market has made up its mind which way the Fed are going to go for now though as they’ve removed any pricing of another cut until mid-2020, with the odds for a December cut now around zero.

Other Fed speakers included Cleveland’s Mester and Boston’s Rosengren. Mester said that policy is in a good spot, but that she will be “watchfully waiting,” while Rosengren justified his dissent against the most recent rate cut by saying that he is concerned about having available policy space before the next downturn. He also suggested that a future downturn will necessitate a greater role for fiscal policy to provide support. In Europe, the only central bank communication came from ECB Chief Economist Philip Lane, who said that rates are not at their limit and that their current negative levels are “not particularly a super loose policy. If it were super loose, inflation would be higher.” He also suggested that negative rates have been successful in driving corporates to increase their levels of capital spending.

From the UK yesterday, we got the significant announcement from Prime Minister Johnson that planned corporation tax cuts due to take place in April would be scrapped to help fund the NHS. The rate had been due to fall from 19% at present to 17%. This chimes with our Corporate Bank note out last week, An inflection point in global corporate tax? (link here ), where we wrote how 2020 could see the end of a 40 year race to the bottom on corporate tax. Governments have got precarious finances at a time when corporates are in good health. It doesn’t seem politically viable to see this trend continue with the risks that it reverses if certain politicians get elected. The OECD global taxation plan - set to move on to the next stage early next year - is also key.

In terms of the upcoming U.K. election, attention will turn to tonight’s head-to-head debate between Prime Minister Johnson and Labour leader Corbyn. The Lib Dems and the SNP had challenged their exclusion, but two High Court judges dismissed the attempt yesterday, so it’ll just be the Conservative and Labour leaders on stage tonight. Corbyn has to make these events count with Johnson if he wants to catch up so expect a full on attack from the challenger.

In FX markets, sterling was actually the best-performing G10 currency yesterday, up +0.45% against the dollar and to 6+ month highs against the EUR. The pound looks to have benefited from some strong weekend polls (with more of the same yesterday/last night) for the Conservatives, with the logic being that a Conservative majority in the House of Commons will allow for a smooth ratification of the Withdrawal Agreement through Parliament. Finally, we got the news from Prime Minister Johnson that he would keep Sajid Javid as Chancellor of the Exchequer.

There was very little data of note to report on yesterday, though we did see the NAHB housing market index from the US fall to 70 (vs. 71 expected) in November, a slight decline from its 20-month high back in October.

To the day ahead now, and politics is expected to dominate the agenda as the US impeachment inquiry continues and we have the first head-to-head TV debate ahead of the UK election. Today’s data highlights from Europe include September’s Euro Area construction output, Italian industrial sales and orders, while here in the UK we’ll have this month’s industrial trends survey from the CBI. From the US there’ll be October’s building permits and housing starts data, and we’ll also get Canada’s manufacturing sales for September. From central banks, New York Fed President Williams will be speaking, while Home Depot will be releasing earnings.

Tyler Durden Tue, 11/19/2019 - 07:40
Published:11/19/2019 6:58:43 AM
[World] Market Snapshot: Dow seen opening higher despite doubts about China trade deal, Home Depot outlook U.S. stock-index futures on Tuesday drift higher as investors look to extend a record rally for stocks despite uncertainty about progress for a partial China trade deal and headwinds from an influential Dow component, Home Depot, which delivered quarterly results that disappointed on sales.
Published:11/19/2019 6:58:43 AM
[Markets] Home Depot Shares Plunge Most Since 2008 After Slashing Sales Outlook Home Depot Shares Plunge Most Since 2008 After Slashing Sales Outlook

Home Depot shares slumped more than 7% in premarket trade, putting shares on track for their worst daily drop since 2008, after the company slashed its full-year sales guidance on Tuesday.

The company also posted Q3 sales that slightly missed expectations.

Here's BBG's breakdown of the company's Q3 earnings report...

  • Sees FY comparable sales about +3.5%, saw about +4%

  • Sees FY revenue about +1.8%, saw about +2.30%

  • 3Q comparable sales +3.6% vs. +4.80% y/y, estimate +4.6% (Consensus Metrix, average of 25 estimates)

  • 3Q EPS $2.53 vs. $2.51 y/y, estimate $2.53 (range $2.48 to $2.58) (Bloomberg data)

  • 3Q net sales $27.22 billion, +3.5% y/y, estimate $27.52 billion (range $27.35 billion to $27.72 billion) (BD)

  • 3Q U.S. comparable sales +3.8% vs. +5.40% y/y

  • 3Q average ticket sales $66.36, +1.9% y/y

  • 3Q total location count 2,290, estimate 2,290

  • 3Q customer transactions +1.5%

  • 3Q average ticket +1.9%, estimate +2.41%

The action in Home Depot shares weighed on Dow futures ahead of the bell:

Home Depot CEO Craig Menear cited continued lumber deflation for the lower sales forecast. The company also blamed potential tariff impact for its lower full-year revenue guidance.

Read the company's press release below:

* * *

The Home Depot, the world's largest home improvement retailer, today reported third quarter fiscal 2019 sales of $27.2 billion, an increase of 3.5 percent, or $921 million, compared to the third quarter of fiscal 2018. Comparable sales for the third quarter of fiscal 2019 were positive 3.6 percent, and comparable sales in the U.S. were positive 3.8 percent. Net earnings for the third quarter of fiscal 2019 were $2.8 billion, or $2.53 per diluted share, compared with net earnings of $2.9 billion, or $2.51 per diluted share, in the same period of fiscal 2018.

For the third quarter of fiscal 2019, diluted earnings per share increased 0.8 percent from the same period in the prior year.

“Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments,” said Craig Menear, chairman, CEO and president.

“We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions. As a result, today we are updating our fiscal 2019 sales guidance, and we are reaffirming our fiscal 2019 earnings-per-share guidance. We are encouraged by the momentum in our business as we invest to extend our competitive advantages. I would like to thank our associates for their hard work and continued dedication to our customers.”

Fiscal 2019 Guidance

The Company updated its guidance for fiscal 2019, a 52-week year compared to fiscal 2018, a 53-week year. The Company expects its fiscal 2019 sales to grow by approximately 1.8 percent and comp sales for the comparable 52-week period to increase approximately 3.5 percent. This compares to the Company’s prior fiscal 2019 sales growth guidance of 2.3 percent and comp sales growth of 4.0 percent. The Company reaffirmed its diluted earnings per-share guidance for the year and expects diluted earnings-per-share growth of approximately 3.1 percent from fiscal 2018 to $10.03.

* * *

With so many traders worried about a possible pullback in the US economy, signs of weakness at retailers like HD, long a standout in a troubled sector, will entice analysts to take a closer look. HD rival Lowe's will report earnings after the bell on Wednesday. Expect analysts to pay close attention.

Tyler Durden Tue, 11/19/2019 - 06:27
Published:11/19/2019 5:59:43 AM
[Markets] Home Depot's stock selloff a 78-point drag on the Dow Shares of Home Depot Inc. are dropping 4.8% in premarket trading Tuesday, enough to keep the Dow Jones Industrial Average's gains from reaching triple digits, after the home improvement retailer missed fiscal third-quarter revenue expectations and cut its full-year outlook. The stock's implied price decline would shave about 78 points off the Dow's price, while Dow futures rose 59 points. The decline would snap a five-day win streak that took the stock to a record close on Monday. The stock had run up 14.9% over the past three months through Monday, while the Dow had gained 7.3%. Published:11/19/2019 5:59:43 AM
[Markets] Dow futures pare gains as Home Depot's stock sinks 5% after third-quarter earnings Futures for the Dow Jones Industrial Average pared firm gains early Tuesday after quarterly results for the home-improvement giant Home Depot came in weaker than expected. Futures for the Dow were up 46 points at 28,053 but had been up at around 28,128. Home Depot reported a 3% decline in its third-quarter earnings and lowered its full-year sales guidance. The company, however, saw an increase in comparable-store sales, up 3.8%, and revenue rose, up 3.5%. The decline in shares of Dow component Home Depot, down about 5% in premarket action, would exact a roughly 88-point toll on the blue-chip index. A dollar move in any one of the 30 components equates to a roughly 6.8-point swing in the price-weighted index. The Dow still remains poised to post a third consecutive record close, along with the S&P 500 index and the Nasdaq Composite Index . Published:11/19/2019 5:28:06 AM
[Markets] As the market hits new highs, most stocks are sinking In a recent period of almost two weeks, the S&P 500 Index reached new all-time highs on four of eight trading days. Can the S&P 500 (SPX) Nasdaq (COMP) and Dow Jones Industrial Average (DJIA) continue higher despite this kind of internal weakness? The chart below helps us identify other times the S&P 500 reached new all-time highs as less than 50% of NYSE-traded stocks advanced. Published:11/18/2019 4:26:50 PM
[Markets] Dow, Nasdaq finish at record high but trade fears cap gains Dow, Nasdaq finish at record high but trade fears cap gains Published:11/18/2019 3:27:53 PM
[Markets] Dow, Nasdaq Hit Record Highs Despite China News; Disney Rebounds Stocks turned positive in afternoon trading, sending the key indexes to new highs in the stock market today. Disney boosted the Dow Jones industrials. Published:11/18/2019 1:25:17 PM
[Markets] US Futures Breach New All-Time Highs As Global Stocks Approach Record On Unexpected Chinese Rate Cut US Futures Breach New All-Time Highs As Global Stocks Approach Record On Unexpected Chinese Rate Cut

At this rate, rising by about 20 points er day, Trump will only be happy if the S&P hits 4,000 around the time of the 2020 election.

While US equity futures drifted ever higher into all time high territory, with S&P futures now above 3,120 on what many erroneously claim is trade deal optimism but in reality is the Fed and ECB's injection of $80 billion in liquidity every month, world shares were also close to a record high on Monday, after Beijing surprised markets by trimming a key interest rate for the first time since 2015.

Confirming what we said just on Friday, that China has major structural problems that are far greater than just its GDP and slowing economy, and that the PBOC will be forced to step in with support, early on Monday, China’s central bank cut rates on seven-day reverse repurchase agreements by five basis points to 2.50% in its latest show of support for its economy.

The news helped Asia's main markets close higher, surprising various experts who would not reconcile the war-like scenes out of Hong Kong and the jump in the Hang Seng and Shanghai Composite...

... and Europe followed suit, though early moves showed the initial reaction was cautious.

The Chinese intervention helped nudge MSCI’s 49-country world share index 0.12% higher to leave it less than 1% off the record high it set back in early 2018.

"It is a slow start to a slow week, but risk is marginally on,” said SocGen FX strategist Kit Juckes, who added it was now hard to avoid concluding that China was slowly easing monetary policy, having held off in recent months, wary of drawing fresh criticism from U.S. President Donald Trump during trade talks. "Maybe that’s what 5 basis points is all about. It’s not rocking the boat, but it’s a shift."

As the region digested the unexpected cut in the PBoC’s 7-Day Reverse Repo rate, Asian markets resumed the momentum from last Friday’s record-setting performance in the US where all major indices notched all-time highs and the DJIA breached the 28,000-milestone for the first time. ASX 200 (-0.4%) and Nikkei 225 (+0.5%) were mixed with Australia dragged by broad weakness across its sectors including underperformance in gold miners and losses for the top-weighted financials, while the Japanese benchmark was relatively quiet with mild gains spurred on the back of a weaker currency. Shanghai Comp. (+0.6%) was initially choppy with markets somewhat desensitized by the latest trade headlines including reports of a constructive call between US-China top trade negotiators and recent comments from US Commerce Secretary Ross that the finish line is close regarding a phase one trade deal. However, Chinese stocks were eventually supported after the PBoC injected liquidity through reverse repos for the first time in 3 weeks and lowered the rate by 5bps to 2.50%, while the Hang Seng (+1.4%) was resilient despite continued Hong Kong unrest with the index lifted by outperformance in property names and on touted short-covering following last week’s 5% slump, as well as reports of government rescue for mid-sized lender Harbin Bank. Finally, 10yr JGBs traded choppy amid the somewhat indecisive risk sentiment and mixed results from the enhanced liquidity auction, although prices have eked mild gains as it continues its rebound from support at 153.00.

After a solid Asian session, the European STOXX 600 index fluctuated in early trading, initially trimming gains in Monday morning trading as construction materials and autos sectors decline, before extending its six-week winning streak  as advances in Switzerland offset weakness in France and Germany. The index is only 8 points short of its own record high of 415.18 points hit in mid-April.

In the US, E-Mini futures pointed to S&P 500 adding to Friday's record highs, with an open around 3,124. Just around 1am, S&P e-minis breached 3120 to the upside, triggering a raft of stop orders in a surge of volume but then faded from the highs.

Beijing’s latest easing bolstered to hopes it might also be more serious about making progress in trade talks with the United States. On Saturday, Chinese state media said the two sides had “constructive talks” on trade in a high-level phone call that included Vice Premier Liu He, U.S. trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

“More than in previous rounds, we see momentum toward reaching at least a limited trade deal, and certainly a mini-deal would remove some of the negative sentiment overhang for the real economy and markets,” said Patrik Schowitz, global multi-asset strategist at J.P. Morgan Asset Management.

“We have upgraded our outlook on equities as an asset class,” he added. “Emerging-market equities are now our most favoured region alongside U.S. large-cap equities.”

Emerging-market stocks and currencies advanced for a second day on the above-mentioned trade deal optimism and China's easing: Turkey’s lira and South Korea’s won outperformed peers after U.S. and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns of phase one of the trade deal. White House economic adviser Larry Kudlow’s comment late Thursday that U.S.-China talks were nearing the final stages helped to trim emerging-market losses last week. "It seems market reaction to trade discussions has been asymmetric recently, with a stronger reaction to any slightly positive news" said Credit Agricole strategist Guillaume Tresca, unwittingly hitting the nail on the head, that the market is not responding to trade news at all but to the Fed's QE "The news flow on the global front is limited in the week ahead and barring any negative surprise, the positive momentum should continue.”

In rates, the 10Y TSY yield rose 2 bps from the Friday close, trading around 1.850%, while German Bunds also fell amid positive signals from "constructive discussions" in U.S. and China trade talks. The Bunds decline was led by the 5- to 10-year sectors as core bonds underperform semi-core peers. Italian BTPs were little changed as Greek bonds fare best among peripheral peers. Gilts slip led by the belly ahead of speeches by PM Johnson and opposition leader Corbyn at the Confederation of British Industry conference in London later Monday.

In FX, the dollar was little changed against other major currencies on Monday and within recent trading ranges. Volatility in the market has been the lowest in decades recently and shows no sign of shifting. The dollar rose against the safe-haven yen to 108.94. The Bloomberg Dollar Spot Index initially headed for its third day of losses before reversing back to unchanged as the pound rallied following a series of opinion polls that showed U.K. Prime Minister Boris Johnson’s party well ahead of the opposition. 

A UK election Survation poll conducted November 14th-16th showed Conservatives at 42% (+7), Labour at 28% (-1), Lib Dems at 13% (-4) and Brexit Party at 5% (-5). (Twitter) UK election YouGov/Times poll conducted November 14th-15th showed Conservatives at 45% (+3), Labour at 28% (unch), Lib Dems at 15% (unch) and Brexit Party at 4% (unch). Mail on Sunday poll conducted November 14th-16th showed Conservatives 45% (+4), Labour 30% (+1), Lib Dems 11% (-5%), Brexit Party 6% (unch).

The dollar and bonds are likely to be sensitive to minutes of the Federal Reserve’s last policy meeting, set to be released on Wednesday.  “The minutes are likely to reiterate that the U.S. economy is ‘solid’ and that current monetary policy settings are ‘appropriate’, which would support the dollar,” said Joseph Capurso, a currency analyst at Commonwealth Bank of Australia. However, he noted a report on October U.S. retail sales released on Friday suggested previously strong consumption might be slowing. “Any further weakness in consumption could warrant a material reassessment of the outlook by the FOMC.  Under our baseline, the FOMC would most likely start cutting interest rates again in 2020,” said Capurso.

The yen is leading losses amid a thin data calendar and as investors await fresh developments on trade discussions. Sterling gains as investors add longs in the cash market on the back of low uncertainty over the U.K. election, while demand to hedge downside risks emerges through the options market, The pound strengthened against all its Group-of-10 peers after U.K. Prime Minister Boris Johnson said Conservative candidates pledged to vote for his Brexit deal if he wins the Dec. 12 election. GBPUSD gains a fourth day, up 0.5% to 1.2963 after high of 1.2985; stops triggered above 1.2930 and 1.2940, with some stop entries also going through, a Europe-based trader says. The pair was headed for its best run in a month as it touches its strongest level since Oct. 22; Johnson will try to win business leaders over to his side Monday, offering them tax cuts as an olive branch for the disruption caused by Brexit.

In commodities, spot gold fell to $1,459 per ounce; oil prices also fell, after Brent touched a seven-week high on Friday. Brent crude futures dropped 18 cents to $63.12 a barrel. WTI slipped by 4 cents to $57.69.

In overnight central bank comments, ECB's de Guindos defended the central bank's catastrophic NIRp policy, said the most significant vulnerabilities of euro area banks relates to their weak profitability prospects. Notes banking system is operating with significant overcapacity resulting in cost inefficiencies and competitive pressures; weaker cyclical momentum and associated low interest rates are weighing on bank profitability, although monetary policy accommodation has supported lending volumes.

In geopolitics, US Defence Secretary Esper met with Chinese Defence Minister Wei in Bangkok which experts described as significant in strengthening mutual military trust, while China was said to ask US to stop escalating the South China Sea situation. In related news, China's Defence Ministry spokesman said China will not tolerate any Taiwan independence incidents and a China Navy spokesperson confirmed a Chinese carrier sailed through the Taiwan Straits but noted the passage is not directed at any target nor is it related to current situation.

Over the weekend, Iran experienced widespread protests in more than 100 cities and towns following a 50% gas price increase; separately, protestors are reportedly blocking the entrance to Iraq’s Umm Qasr port, operations are down by 50%., according to port sources

No major economic data is expected. Woodward is among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.2% to 3,123.00
  • STOXX Europe 600 up 0.02% to 406.14
  • MXAP up 0.4% to 164.98
  • MXAPJ up 0.5% to 528.02
  • Nikkei up 0.5% to 23,416.76
  • Topix up 0.2% to 1,700.72
  • Hang Seng Index up 1.4% to 26,681.09
  • Shanghai Composite up 0.6% to 2,909.20
  • Sensex down 0.2% to 40,293.79
  • Australia S&P/ASX 200 down 0.4% to 6,766.82
  • Kospi down 0.07% to 2,160.69
  • German 10Y yield rose 0.7 bps to -0.327%
  • Euro up 0.1% to $1.1064
  • Italian 10Y yield fell 9.1 bps to 0.886%
  • Spanish 10Y yield fell 1.2 bps to 0.428%
  • Brent futures little changed at $63.28/bbl
  • Gold spot down 0.6% to $1,459.99
  • U.S. Dollar Index down 0.1% to 97.90

Top Overnight News from Bloomberg

  • Donald Trump used Twitter on Sunday to slam Jennifer Williams, an aide to Vice President Mike Pence, who’s due to testify in the public impeachment inquiry into the president’s actions with Ukraine
  • The political peril for Trump, will be heightened as the House investigation accelerates with three days of public hearings starting Tuesday. Gordon Sondland, the U.S. Ambassador to the EU, a Trump donor and a confederate with Rudy Giuliani in back-channel diplomatic efforts for the president in Ukraine is scheduled to testify Wednesday
  • Hong Kong police urged protesters to drop their weapons and leave a university campus in Kowloon, but many remained holed up after a weekend standoff led to dramatic scenes with smoke billowing from multiple fires at the campus as the work week kicked off
  • Protesters called for rallies on Monday night near Hong Kong Polytechnic University, which is surrounded by police vowing to arrest hundreds of demonstrators who have taken over the campus. Clashes around Kowloon university has led to multiple arrests and injuries
  • China lowered the cost it charges on short-term open-market operations for the first time since October 2015, a move aimed at shoring up confidence following a string of poor economic data
  • British PM Johnson will try to win business leaders to his side with an offer of tax cuts at the start of a crucial week in the U.K. general election campaign. Britain goes to the polls on Dec. 12 and a slew of opinion polls in Sunday’s newspapers all put Johnson’s Conservatives well ahead of the opposition Labour Party
  • U.S. and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns of phase one of the trade deal. China’s Vice Premier Liu He, the country’s key negotiator in the trade talks with the U.S., spoke with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, according to the Chinese Commerce Ministry
  • China lowered the cost it charges on short-term open-market operations for the first time since October 2015, a move aimed at shoring up confidence following a string of poor economic data

Asian equity markets partially resumed the momentum from last Friday’s record-setting performance on Wall St. where all major indices notched all-time highs and the DJIA breached the 28000-milestone for the first time. Furthermore, the region also digested a cut in the PBoC’s 7-Day Reverse Repo rate but with gains limited as participants await the next developments on the trade front. ASX 200 (-0.4%) and Nikkei 225 (+0.5%) were mixed with Australia dragged by broad weakness across its sectors including underperformance in gold miners and losses for the top-weighted financials, while the Japanese benchmark was relatively quiet with mild gains spurred on the back of a weaker currency. Shanghai Comp. (+0.6%) was initially choppy with markets somewhat desensitized by the latest trade headlines including reports of a constructive call between US-China top trade negotiators and recent comments from US Commerce Secretary Ross that the finish line is close regarding a phase one trade deal. However, Chinese stocks were eventually supported after the PBoC injected liquidity through reverse repos for the first time in 3 weeks and lowered the rate by 5bps to 2.50%, while the Hang Seng (+1.4%) was resilient despite continued Hong Kong unrest with the index lifted by outperformance in property names and on touted short-covering following last week’s 5% slump, as well as reports of government rescue for mid-sized lender Harbin Bank. Finally, 10yr JGBs traded choppy amid the somewhat indecisive risk sentiment and mixed results from the enhanced liquidity auction, although prices have eked mild gains as it continues its rebound from support at 153.00.

Top Asian News

  • China Trims Market Borrowing Costs as Economic Outlook Dims
  • China Bond Traders Still on Edge After Rate Cuts Spur Rally
  • Malaysian Stocks Get Cheaper by the Day But Few Want to Buy

Major European bourses (Euro Stoxx 50 -0.2%) are choppy and mostly directionless thus far on the first trading session of the week, following a mostly positive APAC session where sentiment was supported by Wall Street’s Friday rally, seemingly positive US/China trade headlines and the latest cut to the PBoC’s 7-Day Reverse Repo rate. European bourses trade mostly within last week’s ranges, however, US indices futures made fresh ATHs again this morning, with ES Dec’ 19 futures reaching as high as 3127.50. Looking ahead, further impetus is most likely to come from further developments on the US/China trade front, with the data docket largely empty for the day, aside from Central Bank speak. Moving on to the sectors, the picture is mixed; Utilities (+0.1%), Financials (+0.3%) and Health Care (+0.6%) are on the front foot, while Tech (-0.3%) and Industrials (-0.3%) the slight laggards. In terms of the most notable individual movers; BME (+38.1%) shot higher on increased hopes for a bidding war between Euronext (+1.2%) and SIX Exchange, the former having confirmed it is in discussions for the Co. and the latter putting in a bid worth EUR 34.0/shr. Meanwhile, Qiagen (+12.1%) opened higher on the news that the Co. has received several conditional non-binding indications of interest and has decided to start discussions to examine potential strategic alternatives. In terms of the laggards, Aviva (-3.5%) shares were sent tumbling on the news that, after an options review for its Singapore business, the Co. had concluded that retaining the business will achieve the best shareholder value.

Top European News

  • Bunds Caught in a Battle Between Sentiment and Fundamentals
  • Qiagen Rises to Highest Level Since 2001 as Bidders Multiply
  • Aviva Retains Singapore, China Ops After Review; Shares Fall
  • Yandex Changes Ownership Structure as Kremlin Tightens Rules

In FX, another subdued day for the broad Dollar and Index with the latter losing further ground below the 98.00 figure amid Friday’s downbeat US IP figure coupled with strength in some G10 peers. DXY probes the 97.90 mark having dipped to 97.87 as European participants entered the market with the next level to the downside its 21 DMA at 97.83. Meanwhile, the Yuan is on a modestly softer footing after the PBoC cut its 7-day reverse repo rate by 5bps ahead of the Central Bank’s LPR decision later this week - with consensus pointing towards a maintained rate, but against growing views of a 5bps reduction. USD/CNH remains off highs after the pair rose to to almost 7.0200 post-PBoC ahead of its 100 DMA at 7.0381. Looking ahead, this week sees a mammoth USD 5bln in USD/CNH at strike 7.0000, with the largest chunk of USD 2.1bln for tomorrow.

  • GBP, EUR - Sterling stands as the marked outperformer thus far amid tailwinds from weekend polls suggesting an uptrend in the Conservative’s lead over Labour, with the weekend polls showing a lead between 14-17 points across three surveys. Thus, Cable extends upside above 1.2900 to test 1.2950 in early EU trade before taking out resistance at 1.2972-5 (Oct31/Nov1 highs) and ahead of touted barriers at 1.3000. As a result, EUR/GBP continues to edge lower towards the 0.8500 mark (0.8535 intraday low) with bears’ targets now including the YTD low at 0.8456 ahead of the 55 MMA (0.8437). Meanwhile, the Single Currency sees little action and largely moves at the whim of the Buck having clocked in a 20 pip intraday parameter for now and with a few pertinent speakers on today’s docket and a lack of notable data points. EUR/USD meanders just above 1.1050 and with options expiries eyeing a hefty EUR 1.3bln at 1.1055 for today’s NY cut.
  • JPY - Modestly softer start to the week with little by way of major weekend risk events to sway sentiment. USD/JPY tested 109.00 in early trade and has since meandered around the round figure where its 200 DMA also resides. Scheduled events today are unlikely to affect the market mood, but as always traders will be on the lookout for developments on the trade and Hong Kong front for catalysts.

In commodities, crude prices are flat to lower, as the market consolidates following last Friday’s healthy gains on the back of trade related optimism tailwinds. Both WTI and Brent front month contracts trade at the top of recent ranges, the former just below the USD 58.00/bbl mark and the latter comfortably above USD 63.00/bbl. Other geopolitical developments are focused over in East Asia; the US and South Korea postponed joint military drills to help provide an opportunity to bring North Korea back to negotiations, while US Defence Secretary Esper reportedly met with Chinese Defence Minister Wei in Bangkok which experts described as significant in strengthening mutual military trust and China was said to ask US to stop escalating the South China Sea situation. In terms of metals; Gold has been heading lower, breaking below resistance just above the USD 1460/oz level. Copper, meanwhile, has been moving sideways after making modest gains overnight on the back of PBoC liquidity injections at a lower RRR and trade hopes.

US Event Calendar

  • 10am: NAHB Housing Market Index, est. 71, prior 71
  • 4pm: Net Long- term TIC Flows, prior $41.1b deficit
  • 4pm: Total Net TIC Flows, prior $70.5b
  • 12pm: Fed’s Mester Speaks at University of Maryland

DB's Jim Reid concludes the overnight wrap

Happy Monday. We discovered the first major design flaw in our new house yesterday as 2 year old twin Eddie locked himself in our downstairs toilet and was then so hysterical for 20 minutes that we couldn’t reason with him that it was just as easy to unlock as it was to lock. I must admit, I was mentally working out whether it was cheaper to call a locksmith or to try to bash the door down and get it repaired. In the end, he calmed down in time and managed to unlock the door and I saved myself some money and/or another injury.

We might find ourselves stuck a little this week as well as it isn’t the biggest for important data but there are still some key highlights for markets and the global economy to look forward to. We have to be patient for the main data release which comes in the form of the preliminary November PMIs on Friday. If global data is on the turn this will be a useful point for it to show itself. Ahead of that, both the Federal Reserve (Weds) and the ECB (Thurs) will be releasing accounts of their October monetary policy meetings. In politics, we’ll see the first televised debate for the UK general election (Tues) alongside further impeachment hearings in the US and a Democratic primary debate (Weds). Finally, we’ll hear from ECB President Lagarde on Friday, and earnings season will continue to draw to a close.

The preliminary November PMIs on Friday will be important as expectations have risen that the global economy has bottomed. Indeed, our economists put out a global piece on Friday suggesting such an outcome (albeit with event risks still there) in the US, Europe and in Asia. See here for their report. Back to PMIs, and consensus for the German composite currently stands at 49.2, above October’s 48.9 but still in contractionary territory. Meanwhile, the Euro Area composite PMI is seen rising to 50.8, having been 50.6 in October. A similar increase is expected in the US.

Elsewhere in the US, there aren’t a great deal of data releases out this week. We’ll get the final University of Michigan sentiment indicator for November on Friday, following the preliminary reading which saw a small increase to 95.7, a three-month high. On Wednesday, October’s building permits and housing starts data comes out, before Thursday sees the release of October’s existing homes sales, along with the Philadelphia Fed’s business outlook indicator for November.

The FOMC minutes on Wednesday will be interesting but with the Fed seemingly on hold until further notice it’ll be difficult to gain too much new insight into it. However our economists think that given the growing contingent of policymakers that have either voiced opposition to the latest rate cut or only supported it conditional on sending a hawkish signal with it, then the minutes could provide more intelligence as to the power of the different camps in the Fed at the moment.

Before we look at the rest of the weekly economic highlights, this morning in Asia the PBOC has cut the interest rate on its seven-day reverse repurchase agreements to 2.5% from 2.55% for the first time since October 2015. Along with the reduction in interest rates, the PBoC also added CNY 180bn of cash into the financial system via open market operations, helping to alleviate liquidity concerns. Meanwhile, over the weekend the PBOC’s quarterly report warned not only on growth risks but also on rising inflation, highlighting the limited room that monetary policy has to respond. The PBoC also said in the report that it will “increase counter-cyclical adjustment” to ward off downward pressure on the economy while adding that monetary policy will “properly handle the short-term pressure,” making sure not to offer excessive funding, while keeping an eye on the risk of expectations that inflation may spread.

We also saw new trade headlines over the weekend with the Chinese Commerce Ministry saying in a statement that the US and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns ahead of “phase one“ of the trade deal. The talk was held between China’s Vice Premier Liu He and the US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer. The report further added that the call was held at the request of the U.S. negotiators, and the two sides agreed to remain in close communication.

Asian markets are trading mixed this morning with the Nikkei (+0.22%), Hang Seng (+0.83%) and Shanghai Comp (+0.43%) all up while the Kospi (-0.29%) is trading down. Elsewhere, futures on the S&P 500 are trading flat.

Back to this week’s highlights and we have a number of central bank speakers over the week ahead, with ECB President Lagarde scheduled to speak on Friday. Her first speech at the start of the month didn’t feature monetary policy at all, so if her remarks do cover monetary policy issues, markets will be paying close attention in order to find out more about her views. Alongside Lagarde, we’ll hear from ECB Vice President de Guindos, along with Bundesbank President Weidmann. And from the US, this week’s Fed speakers include Cleveland Fed President Mester, New York Fed President Williams, and Minneapolis Fed President Kashkari.

Turning to politics, this week has two notable debates occurring on either side of the Atlantic. The first will be the televised head-to-head debate tomorrow between Prime Minister Johnson and Labour Party leader Corbyn, which comes ahead of the UK general election on 12 December. The polls this weekend showed the Conservatives anywhere from 8 to 16 percentage points in the lead with some evidence of Brexit Party votes slightly going their way this week relative to the week before. Elsewhere, Bloomberg reported that in a speech today at the CBI, PM Johnson will offer tax cuts to the business leaders for the disruption caused by Brexit. He will say a Conservative government victory at the December 12 election will lead to a “fundamental review” of business rates. On taxes, the U.K. and US elections over the next 12 months possibly bring the sharpest divide between cutting and raising taxes in living memory. A fascinating fork in the road moment for both countries. Staying with the U.K., over the weekend PM Johnson said that every Conservative candidate has signed a pledge to vote for his deal if elected, thereby giving credibility to his claim that he can break the Brexit deadlock. Sterling is up +0.20% this morning on the news.

Staying with politics, there’ll be another debate in the US between the Democratic primary candidates on Wednesday. Although the presidential election itself isn’t until November 2020, the first primaries and caucuses occur in February. Finally, we’ll see further impeachment hearings in the US over the week ahead.

On earnings, we’re nearing the end of this season, with 461 of the S&P 500 companies having reported. Of those that have, nearly 80% have reported a positive surprise on earnings, while just under 60% have reported a positive surprise on sales. Even if your view is that expectations were managed beforehand or that share buybacks continue to distort the picture, it’s hard not to be impressed with the resilience of US markets. Highlights to watch out for this week include Home Depot on Tuesday, Lowe’s and Target on Wednesday, and Thyssenkrupp and Macy’s on Thursday.

Reviewing last week briefly, equity markets staged a small rally with the S&P 500, NASDAQ, and DOW all nudging to fresh all-time highs. Those three US indexes gained +0.89%, +0.77%, and +1.17% on the week (+0.77%, +0.73%, and +0.80% and most of the week’s gains on Friday), respectively. The S&P 500 has now gone 27 session without consecutive down days, the longest streak since January 2012. In Europe, the STOXX 600 gained a more modest +0.15% (+0.44% Friday), with the IBEX (-1.41% on the week, +0.96% Friday) underperforming after the Socialist party partnered with a more left-wing group to form a new government after elections. EMs were also pressured, with an index of equities falling -1.26% (+0.79% Friday), and an index of EM currencies dipping -0.65% (flat Friday).

In fixed income, bond yields rallied, partially retracing the previous week’s selloff and partially a reflection of still-muted US inflation data. Ten-year yields in the US and Germany fell -11.1bps and -7.1bps (+1.2bps and +1.7bps Friday). The divergence helped the euro gain +0.30% versus the dollar (+0.26% Friday). Credit spreads widened, with high yield spreads +13bps and +9bps wider in the US and Europe (-2.6bps and +1.8bps Friday). Meanwhile, volatility remains low with the VIX at 12.1, flat on the week.

Tyler Durden Mon, 11/18/2019 - 07:38
Published:11/18/2019 6:54:29 AM
[Markets] Stocks Blog: Tencent, AIA gain, while BeiGene drops on profit taking Welcome to a fresh week, traders --The excitement is building about the Alibaba secondary listing in Hong Kong next week. We'll keep you up on how it's impacting the market. (The South China Morning Post is owned by Alibaba.)We'll keep you up on on all the main news and moves in mainland and Hong Kong markets.Please help us improve our blog by taking this quick -- under 2 minutes! -- survey. Your feedback will really help us make the blog better for you!Also, if you would like the Live Stocks Blog emailed to you each morning, shoot Deb a message at deb.price@scmp.com.\--- Georgina Lee and Deb Price in Hong Kong Note: Information in this blog is on an "as is" basis and not a solicitation or offer to buy or sell any securities or otherwise; and is not investment/professional advice or services in this regard.  It is subject to our T&C.;  SCMP (as defined in T&C;) shall not be liable for any loss, damage and costs relating to any investments in securities or otherwise in this connection.  Morning guidance Here's what we are watching this morning:Friday US markets/ What futures foretell\--The S&P; 500 rose 0.8 per cent, the Nasdaq climbed 0.7 per cent and the Dow Jones Industrial Average rose 0.8 per cent. \-- Hong Kong futures are up 0.3 per cent, the A50 are up 0.06 per centIPO debuts: Beijing Compass Technology Development (300803 CH), Beijing Kingsoft Office Software (688111 CH)Economic statistics/Central Bank action: October foreign direct investment in China Stock Connect had a tough start but, at 5 years old, is deemed a great successRead full story here on the Stock Connect. Hong Kong records worst weekend home sales since June amid protestsHong Kong residential property sales on Sunday recorded their worst performance since the social unrest started in June after buyers stayed away amid intensifying protests.Two weeks earlier, on November 2 and 3, only 35 per cent of 435 units offered by five developers found buyers.Read full story here. Tencent, AAC Technologies gain in rising Hang Seng The Hang Seng rose 0.5 per cent to 26,454.53, despite a Sunday of intense clashes between protesters and police. Tencent (700 HK) rose 0.5 per cent to HK$321.60, after being weighed down last week when its third quarter revenue and profit missed estimates. The other two heavyweights on the benchmark gained.AIA (1299 HK), the giant insurer and financial service provider, rose 1.4 per cent to HK$78.10, while HSBC (5 HK)  climbed 0.3 per cent to HK$57.90.Apple supplier AAC Technologies (2018 HK) rose 0.7 per cent to HK$51.55.Meanwhile, BeiGene (6160HK), which got a big boost last week when it announced the US Food and Drug Administration had given it accelerated approval for its blood cancer drug, fell 1.8 per cent to HK$123.China benchmarks dip slightly lower after PBOC's weekend report expressing slowdown concernThe CSI 300, which tracks blue chips listed on Shanghai and Shenzhen, edged down less than 0.1 per cent after market opened, at 3,874.44.The Shanghai Composite Index also slipped down by the same fraction, at 2,889.55.China's central bank is expected to lower the loan prime rate (LPR) this week, the third time since the benchmark was introduced in August. LPR is a rate that captures the average of the 18 reporting banks' lending rate to the highest quality borrowers, and is used by banks in pricing new loans to households and businesses.On Saturday, the People's Bank of China said In its third quarter monetary policy report that it would "increase counter-cyclical adjustment" to ward off downward pressure on the economy, as GDP growth in the third quarter recorded the slowest rate in nearly three decades, at 6 per cent. The PBOC also renewed its concern about inflation risks, Bloomberg reported.The central bank has lowered the one-year LPR by 11 basis points through two cuts in August and September; while it left the 5-year LPR unchanged.\-- Georgina Lee Beijing Kingsoft Office Software surges on Star tech board trading debutBeijing Kingsoft Office Software (688111 CH) tripled in its debut on China's science and technology innovation board, the Nasdaq-style, tech-heavy market in Shanghai also dubbed the Star board.It rose to 139 yuan, up 203 per cent minutes after market opened, with a total 1.6 billion yuan turnover.The company, which was spun out from Hong Kong-listed Kingsoft Corp. (3888 HK), priced its IPO share offering at 45.86 yuan. In Hong Kong, Kingsoft (3888 HK) was up 1.3 per cent at HK$19.2.\-- Georgina Lee King Fook Holdings leads losses among jewellery and watch stocks Retailers continue to see their shares battered, as Sunday protests in Hong Kong erupted into fierce battles. Among jewellery and watch retailers , 23 stocks were down, four unchanged and only two posting gains, according to a gauge by Etnet.Chow Sang Sang (116) rose 0.1 to HK$8.95 and Chow Tai Fook (1929 HK) inched up by the same to HK$6.73.Luk Fook Holdings (590 HK) slipped 0.2 per cent to HK$20.45.King Fook Holdings (280 HK)  was the top loser in the jewellery and watches sector, falling 4.6 per cent to HK$0.31.Retailers have seen their foot traffic plunge as mainland Chinese tourists stay away from the city and locals go out less due to the traffic disruptions and fear caused by the demonstrations.Chinese securities watchdog pushes 'H' share reformChina Securities Regulatory Commission's announcement on Friday that it would remove a limit on the public float of mainland companies listed in Hong Kong -- the so called "full circulation" reform of H shares -- would enable domestic unlisted shares of these mainland companies to be coverted into H shares for listing and trading on the Hong Kong bourse.These shares include those held by domestic shareholders prior to the stock listing, and those held by foreign shareholders. It applies to qualified companies already listed or planning for an IPO in Hong Kong.According to investment bank research cited by mainland media China Business Network, the reform is expected to enable issuers of 160 H shares, which are shares issued by mainland-incorporated enterprises that are listed and traded in Hong Kong, to fully convert their unlisted shares.The Hang Seng China Enterprise Index, or H share index, was up 0.8 per cent at 10,503.9. The Hang Seng bluechip index was up about 1 per cent at 26,575.81.Foldable screen makers surge in China after Huawei finally debuts foldable phone Mate XAfter much anticipation and several delays, Huawei's foldable Mate X 5G phone went on sale last weekend, becoming the second smartphone featuring a foldable screen after Samsung Galaxy Fold.The phone is powered by Huawei's Kirin 980 processor, although costing a jaw dropping 16,999 yuan (US$2,427). Currently the phone is available only on its own e-commerce site, Vmall. It is unclear if the Chinese tech giant will sell it to other countries amid the scrutiny on Huawei by several foreign governments.Shares linked to makers of flexible OLED (organic light-emitting diode), which is used in foldable phones, and other related technology in the supply chain surged to the daily 10-per cent up limit.These include Guangdong Senssun Weighing Apparatus Group (002870 CH), at 25.32 yuan; Dongguan Eontec (300328 CH) , at 12.89 yuan; NBTM New Materials Group (600114 CH) at 6.95 yuan; Shenzhen TXD Technology (002845 CH) rose 7.5 per cent at 18.58 yuan.Here's a vieo about this emerging sector of foldable phones. Hong Kong Airport Authority offers no relief to protest-battered airlinesThe Airport Authority in Hong Kong has rejected pleas for relief measures from a group of airlines who wrote to the authority asking for waivers of airport fees and charges.Hong Kong's anti-government protest intensified over the weekend as rioters occupied university campuses and continued violent, arson-filled standoffs with the police into Monday. The protests, now in their sixth month, have depressed passenger traffic in what has been one of the busiest airports in Asia.In September alone, Hong Kong Airport passenger traffic fell by 710,000 to 4.85 million, compared to 5.56 million in the same month last year. There were 802,000 fewer travellers using the airport in October, some 13 per cent down compared with the same month last year.There were 74.5 million travellers who used HKIA last year. This year's figure is likely to fall by 2 million, according to the airport operator's estimates.Cathay Pacific (293 HK), the city's flagship airline, climbed 0.3 per cent at HK$9.85 in a rising market. China Eastern Airlines (670 HK) declined 1 per cent to HK$4; China Southern (1055 HK) fell 1 per cent at HK$4.95.Read Danny Lee's story here.  Beijing Compass Technology Development surges to first-day up limit in Shenzhen debutBeijing Compass Technology Development (300803 CH) shot up on its first rose to the first-day trading up limit at 44 per cent, at 9 yuan, on its debut on ChiNext board of the Shenzhen stock exchange.A total of 927,300 yuan turnover was recorded.Its offer price was at 6.25 yuan. The company develops investment software and solutions for securities, foreign exchange trading and analysis.\-- Georgina Lee Hang Seng gets boost as partial trade deal seems close, says Francis LunThe Hang Seng is having a solid morning, climbing 1.5 per cent to 26,627.97. "The US stock market was at a new high, and a trade deal between the US and China will be reached soon,"  Lun said of what is driving investor sentiment.The US and China had "constructive discussions" over the major concerns of two sides, after the representatives had a phone call on Saturday, Chinese state-owned Xinhua News reported, citing China's Ministry of Commerce."Plus, Alibaba is going public in Hong Kong, which is good news. So Hong Kong stocks are particularly good today."The world e-commerce giant Alibaba will be listed on Hong Kong's stock exchange on November 26.Property stocks are getting a boost today from the latest Centa-City Leading Index showing property prices rose 1.5 per cent last week,  which was the second week in a row, on the heels of interest rate cuts. "Because of the latest report, Hong Kong property prices not only did not fall but rose a little bit. What a miracle," said Francis Lun Sheung-nim, chief executive of GEO Securities.The property stocks such as Henderson Land Development (12 HK) rose 1.6 per cent to HK$37.40, Sun Hung Kai Properties (16 HK) climbed 2 per cent to HK$109.60, and New World Development (17 HK) rose 1.5 per cent to HK$10.58.Sun Hung Kai, Wharf REIC rallySun Hung Kai Properties (16 HK), which ended its previous three straight days of losses, has climbed 2.4 per cent to HK$110. Wharf REIC (1997 HK), a leading retail property landlord with shopping malls in key tourist and commercial districts hit hard by the ongoing protest, also rose, by 3.3 per cent to HK$43.4.On Sunday, residential property sales showed poor performance, as only four out of 144 units at Chinachem Group's Sol City development in protest hot spot Yuen Long were sold as of 6pm, according to agents. This came a full day of intense, violent stand-off between protesters and police at a university city campus in Tsim Sha Tsui.However, some analysts said so long as there is no end game in sight on how the protest will end, property developers with sizable shopping malls portfolios in Hong Kong will continue to be weighed down by the political unrest.Battle for share of China's liquor market to intensify, Jefferies reports Competition in China's liquor market will intensify, with super premium brands gaining share, according to a new Jefferies report citing a liquor expert who is a distributor in southern China. "The expert is bullish on super premium liquor brands (retail price higher than Rmb600/bottle). Helped by their strong branding, super premium brands will continue to raise their retail prices, move up product mix, and deliver positive volume growth. The category is currently at Rmb120bn sales size and the expert forecasts it to achieve 20-25% growth next year," Jefferies writes."The expert expects competition to intensify between mid-high end liquor (retail price at Rmb300-600/bottle). Particularly, national mid-high end brands will see intensified competition with regional liquor leaders. Total demand for the segment will continue to expand, helped by consumers' trading up from low end; however, due to higher base, total growth might slow down in near term. The category is currently at Rmb50bn sales size and the expert forecasts it to achieve 20-25% growth next year," the analysts write.Liquor and beer stocks in China are posting losses today, according to a gauge by Xuanubao, falling 0.7 per cent and 1.2 per cent respectively. Kweichow Moutai (600519 CH) slipped 0.2 per cent to HK$1,222.96.Sofa maker Man Wah Holdings surges to over 15-month high after Citi upgradeShares of the sofa and mattress product maker rose to an over 15-month high, after Citi raised its target price to HK$6.80, saying the stock continues to remain on its China mid-cap top pick list, Bloomberg reported.The upgrade was driven by expected earning recovery in the fiscal year of 2021, due to a successful ramp up of its Vietnam factory, analyst Eric Lau wrote in a note. The new target price points to a 30 per cent upside from its close on last Friday.Man Wah (1999 HK) has shot up 8.6 per cent to HK$5.69, its highest price since end of July 2018.\-- Georgina Lee This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved. Published:11/18/2019 3:52:55 AM
[Markets] Asia Markets: Asian markets mostly rise as traders cautiously await trade developments Asian shares were mixed Monday in a cautious mode after Wall Street closed out the week with milestones as the Dow Jones Industrial Average crossed 28,000 for the first time and the S&P 500 and Nasdaq hit record highs.
Published:11/17/2019 10:52:29 PM
[Markets] Morgan Stanley Capitulates: Upgrades Global Stocks To Neutral, No Longer Sees A Recession In 2020 Morgan Stanley Capitulates: Upgrades Global Stocks To Neutral, No Longer Sees A Recession In 2020

Just over 4 months ago, on July 8, Morgan Stanley took a defiant position against the bullish consensus, and in a note penned by the bank's chief cross-asset strategist, Andrew Sheets, he said that "we’re putting our money where our mouth is" and downgraded "both equities and credit" to underweight while going equal-weight government bonds and overweight cash.

Specifically, the bank said that in light of concerns that "bad data should be feared rather than cheered because it will bring more central bank easing" (it most certainly did, and just three months later the Fed launched QE4), and that "the market is too optimistic on 2019 earnings and is underestimating the pressure from inventories, labour costs and trade uncertainty" (here too the bank was right because Q3 earnings season is now effectively over with S&P EPS down more than 2% and Q4 EPS are also projected to also drop as an earnings recession accelerated), the "time has come to put our money where our mouth is. In light of these concerns and others, we are downgrading our allocation to global equities from equal-weight to underweight."

The most straightforward reason for this shift is simple – we project poor returns: Over the next 12 months, there is now just 1% average upside to Morgan Stanley’s price targets for the S&P 500, MSCI Europe, MSCI EM and Topix Japan (including dividends and equally weighted). If we ignore those targets and estimate returns for those same regions based on current valuations, adjusting for whether returns tend to be better or worse given current economic data, the upside is very similar (3%).

Morgan Stanley also underscored its bearish case by pointing out that its Business Conditions Index had just tumbled to the lowest level on record.

Putting it all together, Morgan Stanley then concluded that "there comes a point for every analyst where you need to change your forecast or change your view. We’re doing the latter."

It did... but not for long, because after fielding countless angry client calls with the S&P now above 3,100, and the Dow and Nasdaq also at all time highs, all the while advising said clients not to chase the rally, earlier today Andrew Sheets finally capitulated and said that just a few months after downgrading global stocks to a sell, Morgan Stanley has once again turned "neutral" on stocks. In other words, Morgan Stanley finds itself upgrading its view on risk assets just as the market hits all time highs.

And that's how you "change your forecast" after "changing your view" failed to work in a time when activist central banks simply refuse to even consider a modest drop in risk prices.

That said, Morgan Stanley still retains its bearish positioning on the US, and as the following summary of the bank's relative allocations show, when it comes to equities and credit, MS is still quite pessimistic for a positive outcome for US risk assets.

Below is the full note from Andrew Sheets, titled "Sequencing the Cycle" in which he explains why he and his peers capitulated to their former global bearish bias, although it remains unclear if their US-focused equity strategy colleague, Michael Wilson, will be explaining to gloating CNBC hosts why he was wrong sticking bearish on the S&P500 for most of 2019, as at least for now, the bank is certainly not optimistic on US stocks.

2019 saw global growth weaken substantially, but very strong markets. 2020, we think, will see better growth but muted headline returns. After almost 18 months of decelerating global economic activity, Morgan Stanley’s global economics team expects growth to bottom in 1Q20 and improve thereafter. Recent easing by central banks is supporting this recovery, but importantly, we don’t expect any further action by the Fed, ECB or BoJ beyond programmes already in place. In 2020, we’re on our own.

The improvement will be modest compared with past recoveries, and will be a mini-cycle recovery in the context of a late-cycle expansion, but it means that a recession next year would be avoided. Importantly, this recovery will also be uneven, with the greatest acceleration in corners of emerging markets against flat-lining growth in the US.

For markets, the benefits of better growth need to be balanced by what’s already priced in. Relative to past mid-cycle slowdowns, for example, US equity markets are significantly more expensive, US credit spreads are tighter and volatility is lower. In contrast, global equity valuations are in line with their average during past inflections of mid-cycle growth.

These valuations are one reason why we’re entering 2020 neutral on equities overall, given forecasts that call for mid-single-digit upside in global stocks. But our preference for non-US over US equities is greater than before, with our net ex-US versus US equity weight moving from +2% to +5%.

With this shift, we’re closing the underweight we’ve held on global equities since early July. At that time, we thought weaker growth would pressure valuations. Instead, despite a continued slowdown, the MSCI ACWI Global Equity Index has gained about 3%. With our economists now calling for a better outlook, we think it makes sense to bring our overall weight closer to neutral.

But another important theme is that varied market valuations overlap with the varied recovery that our economists expect. Growth should pick up in 2020, but unevenly. Getting the sequence right will be important.

First to recover, in our view, will be economies that saw the steepest declines in 2019 and were dampened by the slowdown in trade. Any stabilisation in trade will make a big difference here, while weaker current conditions will make incremental improvement easier to achieve.

This applies to both growth and earnings. To cite one example of the divergence we expect, we think that companies in Korea and Brazil could look early-cycle next year, with earnings growth north of 15%. US companies, in contrast, will see little or no earnings growth in 2020, on our estimates.

We think that sequencing the cycle should boost EM currencies and weaken USD. We think it will keep US yields range-bound near 2% while yields in the UK and Germany rise. We expect it to lift US high yield spreads modestly while spreads in Europe remain range-bound, as EM fixed income outperforms corporate credit. And in commodities, we don’t think the pick-up in growth will be enough to overcome the excess supply we see across a whole host of markets. We like copper, one pocket where we think supply is tight, while we’re more cautious on oil and other metals.

What are we watching? An unusual aspect of our 2020 story is its sensitivity to a single factor – trade. Our economic forecasts assume no further escalation in US-China tariffs. This is obviously an uncertain, evolving situation, and events could change in the hours between when I finish this note and it hits your inbox. An escalation in trade tensions would push out the 1Q20 growth recovery that our economists forecast and re-introduce the risk of non-linearity kicking in. Markets could face immediate pressure, given how high we believe expectations have risen that progress is imminent.

Tyler Durden Sun, 11/17/2019 - 14:00
Published:11/17/2019 1:17:59 PM
[Markets] U.S. stock market at record but farm bankruptcies at highest since 2011 While the U.S. stock market is soaring to new records, with the Dow Jones Industrial Average hitting 28,000 on Friday, farmers are having trouble paying their bills in the heart of America’s agricultural sector.
Published:11/17/2019 9:16:55 AM
[Markets] U.S., China Trade Negotiators Discuss Core Concerns of Phase One (Bloomberg) -- U.S. and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns of phase one of the trade deal, according to the official Xinhua News Agency.China’s Vice Premier Liu He, the country’s key negotiator in the trade talks with the U.S., spoke with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, the report said. The call was held at the request of the U.S. negotiators, and the two sides agreed to remain in close communication, Xinhua said.How Trump’s Trade War Went From Method to MadnessU.S. stocks rose to all-time highs and Treasuries edged lower Friday after an American official hinted that the U.S. and China are close to locking down a partial trade deal.The S&P 500 reached another record and gained for the sixth week in a row, the longest streak in two years, after White House economic adviser Larry Kudlow said late Thursday negotiations between the two countries were nearing the final stages. Both the Dow Jones Industrial Average, which past 28,000 for the first time, and the Nasdaq Composite also hit all-time highs.The dialog on Saturday followed a phone call between the trade negotiators earlier this month, where the two countries signaled they’re getting closer to agreeing on the first phase of a deal aimed at reducing tensions in a trade war that’s slowed the global economy. The three spoke by phone at the time and separately released statements describing the call as “constructive.”See the States Where Trump Trade War Is Hammering China ExportsTo contact the reporter on this story: Linus Chua in Los Angeles at lchua@bloomberg.netTo contact the editors responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net, Nicholas Reynolds, Shamim AdamFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P. Published:11/16/2019 8:15:53 PM
[Markets] U.S. stock market at record but farm bankruptcies at highest since 2011 While U.S. stock market is soaring to new records, with the Dow Jones Industrial Average hitting 28,000 on Friday, farmers are having trouble paying their bills in the heart of America’s agricultural sector. Published:11/16/2019 4:43:35 PM
[Markets] Goldman's Euphoria Indicator Just Hit An All-Time High: What Happens Next? Goldman's Euphoria Indicator Just Hit An All-Time High: What Happens Next?

With the S&P closing above 3,100 and the Dow sprinting higher in the last seconds of Friday trading to close above 28,000 for the first time ever, one can argue that the long awaited melt-up has finally arrived.

After a year of relentless retail and institutional outflows from equity funds yet which has seen a record buyback tide prop up the entire stock market (just last week BofA recorded its 6th busiest week on record for client buybacks, up 26% from the already record buyback pace in 2018 and making a mockery of the so-called buyback blackout period), equity flows are finally picking up as bond flows slow down. According to EPFR, flows into bond funds (+$4.2bn) slowed sharply this week from the very strong pace seen for most of this year ($10bn a week on average), while flows into equity funds (+$9.6bn) on the other hand remained strong for a third straight week, in contrast to the trend for almost a year (-$5bn a week since December) according to Deutsche Bank. Indeed, over the last three weeks, flows into equity funds ($33bn) overtook those into bonds ($23bn), for the first time since early December 2018 over comparable rolling three week periods.

Yet with most pieces in place to explain the melt up, there was one minor glitch in the matrix: even as US stocks soared in the past few weeks with just 2 down days the entire month of November, equity flows are rotating away from the US. Within equities, US (-$0.4bn) funds saw outflows this week which were more than offset by strong inflows into EM (+$3.2bn), Europe ($1.5bn) and funds with a global mandate (+$5.2bn). Within global funds in particular, Deutsche Bank noted that those which invest only outside the US saw very strong inflows ($3.1bn), their strongest since March of last year. Meanwhile, for European funds, inflows over the last four weeks have been the strongest since March of last year.

Actually, it's not just outflows from US stocks that doen't fit the narrative: recent US data has been unexpectedly disappointing, with the Citi US economic surprise index sliding back in the red after surging from deep negative in June, until it hit the most positive print in the past year at the end of September.

At the same time, various GDP Nowcasts and consensus estimates have tumbled, with the average Q4 GDP print now expected to come in at around 0.83%, down sharply from just last week's 1.25%.

Then there are US corporate earnings: according to Factset, with 92% of the companies in the S&P 500 reporting, the blended earnings decline for the index for the third quarter is -2.3%. Meanwhile, consensus EPS forecasts have tumbled in recent weeks, and Q4 EPS growth is now also in the red, suggesting US corporations are knee-deep in an earnings recession.

What is amusing, is Goldman strategist Alessio Rizzi summarizes these recent transformations, writing on Friday that "since the end of the summer, the baton has been passed from monetary policy to global growth, supporting a sharp re-rating of risky assets led by the underperformers in the first part of the year."

This is, in a word, laughable: not only has the baton not been passed to global growth, as US growth is once again backsliding, and Germany just escaped a recession by literally the smallest of possible margins growing at just 0.1% in Q3, the same dismal growth as Japan, but the latest Chinese data have been downright miserable, with GDP now expected to print below 6% and China's credit impulse just barely rebounding from cycle lows at a time when China's total credit injection was the lowest in years.

Perhaps what Rizzi meant to say is that the baton has been passed from monetary policy to NOT QE as investors has plowed into risk assets following the Fed's recent decision to buy $60 billion in T-Bills per month (which as both Bank of America last week, and Citi's Matt King on Friday now admit IS in fact, QE). Incidentally, anyone who wishes to understand what is really going on in the market is urged to read Matt King's latest "Has the monetary tsunami restarted?" (spoiler alert: yes).

Yet where the Goldman strategist is right is that as a result of the Fed's latest intervention, the bank's Risk Appetite Momentum indicator - also known as Goldman's "euphoria meter" - is now at all-time highs.

This is a problem, because while Goldman may have totally butchered the cause and effect of the recent NOT QE (but really QE)-driven meltup, where it does provide some actionable information is that record high levels of its Risk Appetite Momentum, those above 1, have historically signaled negative asymmetry for equity returns.

And while the sharp increase in risk appetite has likely been exacerbated by bearish positioning, the high RAI Momentum  suggests that investors have started to price in a bottoming of the growth slowdown, which thanks to the market's reflexivity, increases the risk of disappointments: after all, the catalyst for the Q4 2018 crash was the collapse in central bank liquidity and fears that the Fed would hike even more (obviously, all that ended in Q1 of 2019 after the market's mini bear market on Christmas Eve 2018).

There is another risk according to Rizzi - one where investors turn from overly bearish to overly bullish, or as he put it, as markets shift from TINA (there is no alternative) to FOMO (fear of missing out), "there is a risk of an overshoot vs. the data, especially as noise around growth is likely to remain high."

So far, early signs of FOMO are coming from the options market, where call options have been well bid. Indeed, after a record high at the end of September, implied volatility skew has declined sharply across assets, equity spot-vol correlation has become much less negative and call vs. put volume has risen materially.

That said, for now it appears that euphoria is largely confined to the near future with longer-term option pricing still pointing to a less constructive stance. To wit, "while 1m equity call skew has become more expensive, long-dated call skew still looks considerably cheaper."

In addition, equity put skew has only marginally declined and the volatility term structure is now very steep, as long-term volatility has materially lagged the decline in short-term vol. This suggests investors’ concerns over 2020 remain high, likely owing to the US political agenda - i.e., will Warren beat Trump in the 2020 presidential elections - and uncertainty around the growth upside.

Add to the above observed euphoria the fact pointed out at the very beginning of this article that investors are finally throwing in the towel on defensive positioning and rotating into risk assets, and one can correctly conclude that the latest melt up has arrived.

Goldman's Rizzi is not fully convinced just yet, noting that "overall positioning does not appear very bullish" but as he warns "with market prices moving sharply higher recently and our RAI Momentum indicator being at historical highs, the hurdle rate for further positive surprises that sustain the strong momentum seems to have increased."

As such, Goldman concludes that "a moderation in the pace of the ‘risk on’ move is now more likely, unless a more sizeable improvement in the macro and political outlook materializes", or, more accurately, unless the Fed doubles down on its NOT QE. Alternatively, it is quite possible that the blow-off top accelerates into year end without any justification - besides the Fed's latest massive liquidity injection which have boosted the Fed's balance sheet by nearly $300 billion in the past 2 months, a faster rate than that observed during QE3.

Incidentally, the last time we had a similar market melt-up was in late January 2018, just before vol sellers overextended themselves, resulting in the overnight annihilation of the entire inverse VIX ETN complex, and the market collapsed. Back then, however, the Fed and other central banks were actually on hiatus from explicitly supporting risk assets; this time, however, with the Fed and ECB once again engaging in full-blown debt monetization, a sudden loss of confidence in risk assets - and by extension central banks - could prove catastrophic, especially with a record number of investors shorting the VIX...

... potentially setting up the biggest VIX short squeeze in history.

Tyler Durden Sat, 11/16/2019 - 15:30
Published:11/16/2019 2:45:04 PM
[Markets] Dow closes above 28,000 — its first thousand-point milestone clearance in 90 trading days The Dow Jones Industrial Average marks history on Friday— carving out its first breach of a psychological milestone since mid July, as equity benchmarks mounted an assault on records on the back of hope for progress in U.S.-China trade negotiations. Publis