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[Markets] Bear Trap?

Authored by Sven Henrich via,

Are markets setting up for a major bear trap? Let’s explore the question. Look, I could show you a 100 charts that say the same thing that everybody already knows: Things are terrible. From crude crashing 7 weeks in a row, $FAANGS dropping a trillion bucks in market cap and individual stocks getting taken out back and shot. Crypto is a wasteland. Global growth is continuing to slow down hard (Germany just printed its lowest GDP growth in nearly 4 years) and US growth is heading back to a 2% regime. Bulls that were aggressively pushing for ever higher targets are sheepishly reducing them fast. One analyst dropped his 3,200 year end target on $SPX to 2,900, another dropped his 2018 Bitcoin target from $25K to $15K (it’s trading at $3,700 this weekend) and downgrades are permeating the daily news cycle. Long gone is the talk of global synchronized growth that dominated the headlines earlier in the year.

And currently the year is shaping up to be the worst ever in terms of total asset classes in negative territory, 90%:

In short: Bears have taken over everything and are dancing on the corpses of bulls that have mocked them for so long.

Heck they have even taken over the malls

Last week’s price action was the most miserable Thanksgiving week in recent memory.

In lieu of that I have a question:

Why haven’t we taken out the lows? I mean, given all this backdrop of global misery and wipe outs in asset classes, why is the $SPX still in range?

Indeed at this very moment that chart says higher lows. Now of course that can change in a hurry next week and we may enter that next risk zone we’ve been discussing in previous Weekly Market Briefs:

But why haven’t we seen new lows yet? What else do bears need?

I tell you what they need: A failure for the US and China to come to a trade war resolution, the Fed to remain hawkish into 2019, the Brexit deal to fail in the UK parliament (it was just approved by the EU) and the ECB to follow through on ending QE.

And here in lies the potential bear trap on triggers that could kick in the technical signals that are increasingly abundant suggesting a major rally may be in the works.

“We agree to” are the 3 magic words that would cause a buying bonanza if they are uttered in some form during the G20 meeting between President Xi and President Trump next weekend. Never mind the details, any real sign of progress (not the fake teaser headlines that markets no longer take seriously) and it’s off to the races.

A no Brexit deal would be bad for the UK. Arguably worse than the deal they have on the table right now. Will the UK reject a deal with no alternative in sight? An agreed deal would likely produce a relief rally in the UK and in Europe. Certainty is preferred over uncertainty.

And Draghi has to make a decision. Can he really afford to end QE if markets and growth keeps falling all around him?

Just looks at that $DAX, it’s horrible:

No, Draghi is staring at a major policy failure just a few months ahead of his retirement:

In lieu of a major global market rally emerging soon the Fed is increasingly penciled in for a dovish rate hike in December, meaning they raise rates, but then signal a slowdown or pause in rate hikes for 2019. What? You really think the Fed wants to be responsible for a stock market crash into Christmas? Hardly. Lest not forget Janet Yellen famously caved on her 4 rate hike schedule penciled in for 2016 when global markets got hammered in early 2016. That market action produced $5 trillion+ in global central bank intervention after all.

Which brings me to the mystery chart I’ve been teasing a bit on twitter. In the larger geopolitical and macro context I outlined above this chart may be the most important chart on the planet right now.

Here it is, the Global Dow Jones, an index that track 95% of global markets:

It’s an incredible chart actually. You can see how precise the price action has tracked the 2 rising wedges. In 2007 the global bull market ended when the wedge was broken to the downside. Since the 2009 lows a new, larger wedge has formed and it’s just as precise.

Fact is the world is again at key risk breaking its bull market trend. And we see it in charts everywhere. Right in front of all the potential triggers I mentioned above.

See a sustained break of the trend line and the global bull market is over. The stakes couldn’t be higher.

The current support trend line was formed right at the moment when global central banks embarked on their $5 trillion buying sprees between 2016 and 2017. The resulting asset inflation resulted in over 16 months of uninterrupted global market gains with the final blow-off top occurring on the heels of the liquidity bomb that US tax cuts represented. Note global markets temporarily tried to pierce the upper trend line on historic overbought readings but then failed to hold the trend line with the February correction.

And now we’re back to the lower trend line.

So where’s the bear trap? The bear trap would be a failure by bears to create a sustained break of the trend line.

Indeed, one can see a potential bullish pattern emerging here, that of a bull flag, a bullish pattern not unlike what we also saw in 2016 which was a bullish wedge then:

Get some or all of those triggers I mentioned above resolved and one can imagine all kinds of rally scenarios. Even new highs perhaps? Another run at the upper trend line? Or lower highs? Either way a positive resolution to some of the triggers outlined above and one can envision a larger rally emerging into year end and perhaps into Q1 2019.

And there are very specific technical signs that would support such a rally.

Let me show you a few to consider.

Equal weight, $XVG:

$XVG printed a new low last week and retested its 2007 and 2014/2015 highs. But something notable has happened. We can see a positive RSI divergence on these new lows. As you can see in the chart positive RSI divergences in $XVG have coincided with major lows including 2009 and the above mentioned 2016 lows. Coincidence?

But the trend is broken for $XVG and that is a concern for any notion of future new highs, but for now it suggests potential firepower for a sizable rally. Also note the RSP:$SPY ratio has ticked up last week.

Why? Because there are positive divergences in the internals.

Example: $USHL:

As miserable as last week was high/lows printed much better readings than during the October lows. That script looks similar to the 2015 and 2016 retest lows.

What about the carnage in tech? Check this out, here’s the $NDX monthly futures chart:

It has not broken its 2009 trend line. And even if it were to on a spike down basis note the rather pronounced support line that is lurking just underneath. Connecting 2007 to 2014/2015 highs & offering support in 2017 during Brexit. We’re a stone throw away from that trend line and hence any break of the 2009 trend line may prove to be temporary.

So you see nothing has broken yet and major support is just below.

And here’s another interesting chart pertaining to the Nasdaq, its internals are also showing a massive positive divergence as $NDX is printing a potential bullish wedge:

Very clean all this. Just saying. Bears watch out.

And speaking of tech, just how oversold is the sector? Here’s a little perspective that should raise some eyebrows:

$NDX MACD histogram is more oversold than even during 2009, it’s now at levels not seen since 2000. And even then these type of readings ended up producing massive counter rallies.

And look closely at the broader US market context. Here’s the $VTI, the all market ETF:

Also scraping along its 2009 trend line, but perhaps just as notable, we’re sitting right at the monthly 18MA. Don’t ask me why, but the monthly 18MA has self evidently been a major market pivot for years. Yes it has fallen below it several times, but many more times it has been key support.

What about the horrid breakdown action in individual stocks? Take $AAPL for example, totally broke its recent trend:

Ugly no doubt. But also note its weekly RSI, the last time it was this low was at the 2015 lows. Potential firepower for a counter rally. Think a positive China/US trade resolution would have an impact on the stock? Better believe it.

$AMZN? Curiously once again saved its trend line last week:

The Goldman Sachs horror show? It too looks to be very close to major fib support while being massively oversold:

These are mere examples, but they highlight an important point: Many of these stocks are vastly oversold and are, as markets, sitting near key support levels.

Which brings me back to the global picture. As miserable as the $DAX chart looks (as I mentioned at the outset), even here one has to acknowledge positive divergences and a potentially bullish structure emerging:

While crude has also entered a zone of key support from which a sizable rally could emerge:

Add sentiment to the equation…

…and a potential positive resolution to any of the triggers I mentioned above and you have the ingredients of a major bear trap.

Next week:

As in October markets are once again hanging by a thread just prior to month end. In late October we saw a massive rally emerging from key support to save the monthly trend lines. Will we see a repeat?

Now that buyers have lost 2700 last week hence immediate downside risk is a retest of October lows and a break into 2585-2595. In context of global markets this is a support zone that probably needs to be defended with vigor to avoid a major bull market trend break.

Remember the risk zone:

Is a dirty intra week drop to February lows possible? Absolutely. Would it mean the end of the 2009 trends? Depends where we close at month end. As we saw in October quick and fast bounce backs are clearly possible.

However also note the technical backdrop I outlined on twitter:

Bottomline: From my perch there is a solid case to be made for a bear trap in the works. The technicals are lining up for it, but it also requires the positive resolution of some macro triggers in the days ahead. Brexit, Fed, ECB and trade war. I can’t predict what the G20 meeting between the US and China will produce other than a major gap event in either direction on Monday December 3rd. I will suggest however that both sides have a vested interest in markets not collapsing further into December. Bears, as successful as they have been, have so far failed to produce new lows. And perhaps that should be a reason for them to not get too cocky at this precise moment in time, especially considering one additional factor:

Bonds have so far averted the feared breakdown and the yield scare has for now disappeared from the headlines.

And maybe, just maybe, the bond market is signaling something other than an economic slowdown, perhaps is it signaling a dovish rate hike to come. Bear trap?

If it is to be the technicals show signs for its potential.

*  *  *

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Published:11/25/2018 2:32:47 PM
[Markets] EU Chair Donald Tusk recommends Brexit deal approval: Dow Jones EU Chair Donald Tusk recommends Brexit deal approval: Dow Jones Published:11/24/2018 9:01:36 AM
[Markets] US STOCKS-Wall Street drops, S&P 500 confirms correction U.S. stocks closed lower in a shortened post-holiday trading session on Friday as the energy sector tumbled on continued weakness in oil prices, and the benchmark S&P 500 confirmed its second correction of 2018. The three major U.S. indexes all fell well over 3 percent for the week, with the Dow industrials and the Nasdaq posting their biggest weekly percentage declines since March. Published:11/23/2018 12:48:47 PM
[Markets] Crude, Credit Crash As Stocks Suffer Worst Black Friday Loss Since 2010

Give thanks? "You get nothing!!"

Dow's worst Black Friday performance since 2010 and the S&P's 3rd worst Thanksgiving Week loss since FDR!!


Chinese stocks tumbled after a supported start to the week - this is the worst week for China in six weeks...


European stocks were also down across the board...


Dow was the week's biggest loser but this was Nasdaq's worst week since March...ugly close...S&P has confirmed its correction, closing down 10% from its record closing high...


Futures show the weakness during yesterday's cash market holiday was quickly erased by the machines at today's cash open... and then dumped...

Nasdaq's mid-week bounce managed to get it back into the green barely for the year - everything else is red for 2018...


The early week bounce in FANG stocks faded...


Financials had an ugly week...


Credit had an ugly week with IG spreads blowing out to fresh cycle highs (even as VIX compressed)...


Treasury yields ended the week mixed with the short-end marginally higher and the rest of the curve lower in yield - despite the collapse in stocks...


Inflation breakevens tumbled to their lowest since Dec 2017, tracking oil lower...

It appears the broad derisiking across bonds and stocks on Tuesday decoupled the two asset classes on the week...


The Dollar rallied back up to last Friday's pre-plunge highs again...


Cable slid today as reality hit that the Brexit 'deal' still has plenty of hurdles ahead...


Crude was the week's biggest loser as the rest of the commodity space largely trod water...


This was Oil's worst week since Jan 2016...


We do note that oil spiked a little into the close amid some OPEC/Saudi jawboning...(but still ended down 6% on the day)

Saudi Arabia and OPEC are inching toward a compromise between pleasing the U.S. with policies that won’t lead to price spikes and throttling back the flow of its oil to rebalance oversupplied global markets. The solution the cartel is considering: A production cut that doesn’t look like a production cut. Under such a scenario, the Organization of the Petroleum Exporting Countries would announce plans to retain current output targets, first set in 2016. That move would imply a production pullback because Saudi Arabia is overproducing by nearly 1 million barrels a day, according to people familiar with the matter.

Gold managed gains against the yuan while treading water against the dollar...

Finally, we note that 'soft' survey data is starting to catch down to the 'hard' reality of real economic data...


Published:11/23/2018 12:26:01 PM
[Markets] Dow Closes Lower for the Fourth Straight Session, Stocks Rise Off Session Lows Stocks fell across the board Friday in an abbreviated post-Thanksgiving trading session, with the Dow Jones Industrial Average falling for the fourth consecutive session. The Nasdaq is pushing further into correction territory as markets add to their year-to-date losses. Published:11/23/2018 12:26:01 PM
[Markets] Stocks Move Lower, Dow Hits Lowest Point in 4 Weeks Stocks are falling sharply shortly after the opening bell with the Nasdaq falling for the fourth session in five and the Dow Jones Industrial Average declining by triple digits out of the gate. The Nasdaq is pushing further into correction territory as markets add to their year-to-date losses. Published:11/23/2018 10:53:17 AM
[Markets] Global Markets Slide In Thin Trading, Pound Soars On Post-Brexit Agreement

S&P futures slumped into the red, following a drop in European stocks while Asian shares traded mixed in a subdued day of trading thanks to Thanksgiving holiday; the big moves were in FX where the pound jumped, the euro strengthened and the dollar slumped after a draft deal on post-Brexit ties was tentatively agreed.

US cash markets may be closed, but futures are open, and overnight the Emini slumped to Wednesday's session lows before rebounding modestly.

Europe’s bourses dropped back into the red on Thursday as investor worries mounted about slowing global growth in the face of rising U.S. interest rates and trade tensions. The Stoxx Europe 600 Index dropped as much as 0.9%, giving up much of Wednesday’s gains as almost every sector fell, led by basic resources and banking shares. The biggest decliners include BAT -1.9%, Total -1.1%, HSBC -1%, AstraZeneca -1.1%, although trading volumes were lethargic.  Italy was under pressure in both stock and bond markets as sparring resumed over its budget plans. Some disappointing big-name earnings added to the gloom.

Europe’s tech sector lost another 1.2 percent, but it wasn’t the worst performer. Banks were 1.6 percent weaker and mining companies and other resources firms were down nearly 2 percent and approaching a one-month low, reflecting the bitter Sino-U.S. trade war, encouraging investors to take money off the table before U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, meet in Argentina next week.

The pound soared, rising sharply above 1.29 and gilts fell as a draft Brexit deal pointing to deep ties between the U.K. and European Union as well as a solution to the Irish border question was agreed at a “political level,” according to the EU. Enthusiasm was dented however after Reutrers reproted that Spain will vote against the current Brexit draft proposal because of a lack of clarity on Gibraltar.

Earlier, Asian indexes swung between gains and losses before turning higher, with Japanese stocks getting an end-of-session boost on a report about a possible government rebate. MSCI’s broadest index of Asia-Pacific shares outside Japan had ended little changed after recovering from an initial wobble. The index has managed to hold up so far in November after three straight monthly declines, but is on track for its worst annual performance since 2011. Japan’s Nikkei had finished almost 0.7 percent higher but Chinese shares closed 0.4 percent in the red.

“Investors are still wary about whether they’ll see further lows, given none of the issues that drove the recent correction have dissipated,” said Shane Oliver, Sydney-based head of investment strategy at AMP.

Trading volumes in the region were also depressed. Singapore became the latest to warn about the potential impact on Thursday. The city state is considered as a bellwether for international trade.

“Risks in the global economy are tilted to the downside,” said Loh Khum Yean, Singapore’s permanent secretary for trade and industry.

Elsewhere, Bitcoin steadied, emerging-market assets were broadly stable and gold nudged upward. Treasuries didn’t trade because of the U.S. holiday. In commodities, China-sensitive metals like copper fell and oil prices reversed early gains, although they were still above one-year lows touched earlier this week. U.S. crude futures were last down 8 cents at $54.55 a barrel after hitting a one-year low of $52.77 on Tuesday. Brent eased 15 cents to $63.33, off Tuesday’s low of $61.71.

The US is closed today for Thanksgiving holiday.

Top Overnight News from Bloomberg

  • E.U., U.K. see free-trade area and deep regulatory cooperation; state "determination" to replace backstop: Draft
  • U.K. and European negotiators are working through the night to hammer out the final part of the Brexit deal as Theresa May fights to keep a crunch summit on Sunday on track. After meeting EU Commission President Jean-Claude Juncker Wednesday, PM Theresa May announced that she will return to Brussels for last minute talks on Saturday, just a day before EU leaders are due to sign off on the deal. That wasn’t expected: Brexit update
  • Technology stocks rose Wednesday, posting a partial rebound from a bruising three-day decline, though analysts said further volatility and losses are likely
  • Federal Reserve Chairman Jerome Powell and his colleagues are likely to turn more wary about marching interest rates higher after delivering a widely anticipated quarter percentage-point increase in December. Fed may pause cycle of rate hikes as early as spring: MNI
  • The Republican chairman of the U.S. Senate committee overseeing trade rebuffed a call by a dozen GOP senators to vote on a revised a U.S.-Canada-Mexico trade agreement this year, a move that likely will doom their effort
  • U.S. consumers will be hit hard if President Donald Trump goes ahead with tariffs on the remaining imports from China, worth about $260 billion in 2017. That’s because China has an "exceptionally large" market share in goods that have so far escaped the tariffs, according to Deutsche Bank AG. They note that 93 percent of U.S. laptop imports came from China in 2017 while 80 percent of mobile phone imports came from China
  • Italy PM Conte confident spread will narrow; acting responsibly on budget; Italy’s Di Maio sees margins for dialogue with EU; infringement procedure would be unfair; Salvini/Di Maio say won’t change a comma on budget: Repubblica
  • BTP Italia total placement closed at EU2.16b: Treasury
  • WSJ: Apple to offer Japan carriers discount to up iPhone XR sales

DB's Jim Reid concludes the overnight wrap

Happy Thanksgiving to all our US readers. Apparently Americans will consume up to 4,500 calories each over the course of today, although I read that us Brits consume around 7,000 on Xmas Day so our friends stateside are lightweights. For those working in financial markets both these numbers might be eclipsed this year after the stresses of the last couple of weeks. However, ahead of the holiday, there were some healthier markets yesterday to raise a glass to. In addition to that, we ran the numbers yesterday and the Friday after Thanksgiving has seen a ratio of positive to negative days for the S&P 500 of just under 2 to 1. This long-term daily average is 1.13 to 1.

Anyway, back to the present, where the rout which plagued just about every risk asset on Tuesday reversed to some degree yesterday with the NASDAQ (+0.92%), S&P 500 (+0.31%) and NYSE FANG (+0.51%) all closing higher. These indexes pared their peak intraday gains (S&P 500 up just over 1% at highs) though amid thin afternoon liquidity ahead of today's US holiday. The DOW closed flat, while in Europe the STOXX 600 (+1.14%) and DAX (+1.61%) both rallied before the US dipped after Europe went home. HY spreads in the US and Europe were both around -7bps tighter, and WTI and Brent rallied +1.97% and +1.34% respectively. The climb for oil was fairly steady during the day helped partly by a drop in the latest API inventories data and also President Trump’s early morning tweet in which he thanked Saudi Arabia for lower oil prices. Inventories data out of the EIA later in the session didn’t really move the dial.

There were seemingly a few reasons for the turn in sentiment. One was the decent rally for BTPs, where two- and 10-year yields fell -23.3bps and -14.6bps respectively, for their best day in over a month. As expected, the European Commission rejected the latest Italian draft 2019 plan, with Commissioner Moscovici warning against Italy adopting free-rider behaviour in comments with the press. The EC confirmed that they are not yet opening the EDP but suggested that they see this as the path which is opening ahead. Moscovici confirmed yesterday that Italy will have two weeks to answer queries put forward by the EC. After that, the EC will have to make the decision whether or not to recommend opening an EDP to the Eurogroup. The hope for Italy might be that Moscovici sounded willing to keep a dialogue open, rather than shutting the door completely. Our economists rightly noted that the ball is now back with Italy. On that, Deputy PM Salvini initially said yesterday that the Government is open to a dialogue on spending revisions but wouldn’t stretch to discussing the budget deficit or pension reform. A potential sign of compromise appeared to be enough for the market though with the FTSE MIB also climbing +1.41% and an index of Italian banks up +2.35%, both snapping a five-day losing run.

Also attracting some interest yesterday was an MNI article quoting ‘senior Fed sources’ as suggesting that the Fed is considering a pause in hiking rates and may also consider ending its tightening cycle as soon as spring next year. The article went on to say that Fed officials appear to be converging around 3% for the neutral rate and that policymakers see inflation as peaking around the current 2% level before falling lower. A couple of comments are worth making on this. The first is that MNI isn’t seen as the most reliable source for Fed news, and the second is that this story broadly repeats commentary we have already heard from Clarida and Powell in recent days. So not particularly groundbreaking in our view. Treasuries didn’t move much on the article and 10y  yields ended flat, while two-year yields sold off +1.0bps by the close of play and the Dollar index edged down -0.11%.

Overnight Asian markets are mixed in thin trading due to today’s Thanksgiving holiday in the US and a holiday in Japan tomorrow. The Nikkei (+0.61%) and Hang Seng (+0.06%) are up while the Shanghai Comp (-0.55%) and Kospi (-0.39%) are down. Elsewhere, crude oil prices both WTI and Brent are down c. -0.35% this morning. On the data front, Japan’s October CPI printed in line with consensus at +1.4% yoy and core at +1.0% yoy while core-core CPI stood at +0.4% yoy.

Yesterday’s Brexit newsflow was fairly thin on the ground again, though Prime Minister May did meet with EU Commission President Juncker in Brussels. The two leaders made "good progress" according to a spokesman. More talks are planned for Saturday which is cutting it fine for Sunday’s summit, especially with some reports (BBC) suggesting that Friday is the key deadline to have things ready for the summit. Negotiators are working through the night to hammer out more on the agreement. Earlier in the session Gilt yields rose +1.3bps and the pound traded -0.09% weaker, as markets remain in a holding pattern ahead of the EU summit and the eventual UK Parliament vote, which is due sometime over next few weeks.

Meanwhile, the latest in the trade debate was the announcement by the WTO yesterday that they intend to launch a dispute investigation into the US allegations about China continuing a state-backed campaign of IP and technology theft. A decision is expected next year. In Germany Economy Minister Altmaier also announced that Germany planned to increase regulatory barriers to foreign investors by the end of this year, in effect making it harder for Chinese companies to launch takeovers of German companies. All this before the G20 meeting in just over a week now which will include a meeting between Trump and Xi Jinping on the sidelines. On that the FT reported yesterday that the draft communique made no explicit comment on fighting protectionism – language which has in essence been a mainstay of the statement since 2008.

The OECD released updated macroeconomic forecasts yesterday, and revised down its global growth projection for 2019 -0.4pp to 3.5% from the last May edition. The forecast for euro area growth was revised down -0.3pp to 1.8%, the US down -0.1pp to 2.7%, and China down -0.1pp to 6.3%. In their first projections for 2020, the OECD expects global growth to remain steady as faster growth in most EMs balances a further slowdown in developed markets and China.

It was a busy day for US economic data ahead of the Thanksgiving holiday, headlined by somewhat soft durable goods orders which fell -4.4% mom, the sharpest drop in over a year. Durables ex-transportation were soft as well, up +0.1% mom versus the expected +0.4%. Core capital goods orders were flat after a revised -0.5% mom drop in September. Our economists had highlighted their expectations for capex to slow over the medium term, so this data does not change their baseline forecasts. Separately, initial jobless claims ticked higher to 224,000 from 216,000 last week, which presents some downside risks to the  November nonfarm payrolls report due two weeks from Friday. Finally, the University of Michigan consumer sentiment index moderated slightly to 97.5, though 5-10 year inflation expectations ticked up to 2.6% from 2.4%, matching their highest level since March 2016.

As far as the day ahead is concerned, with it being a holiday in the US and markets subsequently closed, we’re extremely sparse on data releases with November confidence indicators in France and the November consumer confidence print for the Euro Area the only readings of note. That being said it’s a packed day for the ECB with Angeloni, Weidmann, Knot, Visco and Mersch all due to speak. The ECB’s October meeting minutes are also out today with Italian Finance Minister Tria due to face questions in the Upper House this afternoon.The BoE’s Saunders then speaks tonight.

Published:11/22/2018 7:12:56 AM
[Markets] The Dow Lost 1 Point Because the Gravy Went to the Nasdaq The Dow left rally mode as the Nasdaq Composite rose almost 1% Wednesday. The tech-heavy Nasdaq had it the worst among the major indexes at the start of the week. Published:11/21/2018 4:41:07 PM
[Markets] Get Out Now: SocGen Releases The Most Bearish 2019 Forecast Yet

Last November, when one bank after another was releasing its optimistic 2018 market forecast following a stretch of record low, single-digit VIX prints and an S&P500 that refused to even think of dropping, one bank bucked the bullish trend, predicting that the S&P would end 2018 at 2500, about 350 points below the average sellside consensus.

Almost exactly one year ago, we reported that SocGen's equity strategist Roland Kaloyan predicted - correctly- that with bond yields rising, there was effectively no upside left in stocks, which coupled with the prospect of a US economy recession in 2020 would "crimp returns in 2019" Furthermore, in light of what then was a record short in various volatility products, SocGen predicted that vol positioning could "strongly deteriorate the risk reward profile of equity markets."

The S&P 500 has reached our target for the end of this cycle (2,500pts) and is now entering expensive territory. Indeed, on all the metrics, US equities are trading at levels only seen during the late-90s bubble. Since Trump’s election, the US equity market has risen 24%, but only half of this came from earnings growth. The other half has been driven by P/E expansion. According to our calculations, the US equity market is already pricing in potential tax reform. The rise in bond yields and Fed repricing should be headwinds against further US equity rerating.

Kaloyan also warned that upside on the S&P 500 was limited as "the US equity market is already pricing in a rebound in growth and inflation. The rise in bond yields and Fed repricing should be a headwind against further US equity rerating."

One year later, with the S&P just 150 points above his year-end target from last November, and far below the rest of the sellside herd's optimistic consensus, his gloomy assessment was proven correct (there is still over a month left in the year for his bearish forecast to be hit). Furthermore, in a stroke of serendipity, Kaloyan also correctly predicted the February VIXtermination event:

Equity volatility, both realised and implied, has been edging ever lower for quite some time now. Being invested in a simple systematic short VIX future volatility has been strongly rewarding: +290% over the last two years. However, when the tide turns (i.e. VIX spikes), the drawdown can be significant. The quantity of short positioning on VIX open in the market (see right chart) would potentially amplify any spike of the VIX.

Fast forward to today when with the rest of Wall Street once again released price targets that are notably higher than where the S&P currently trades, Kaloyan unveiled SocGen's latest full year forecast, and - not surprisingly - he is just as bearish as he was last year. The report, predictably, begins with a modest victory lap: "This time last year, in our European Equity Strategy 2018 Outlook report, we presented a bearish view for equity markets in 2018. Since then, the MSCI World has lost 9% from its January high, and, while we have identified a handful of factors that could provide some relief to equities in 1H19, longer term, the bear is still here."

The spectre of a US recession in early/mid-2020 would impact equity markets in 2H19.

Looking at US markets in 2019, Kaloyan expects another challenging year for global equities, with "downside potential to global equity indices for the next 12 months, with poor performance expected to be concentrated in 2H as investors discount the next US recession" which the French bank expects will hit in mid-2020. The punchline:

Our end-2019 index targets call for an S&P 500 at 2,400pts, the EuroStoxx 50 at 2,800pts and the Nikkei 225 at 21,400pts.

In a nutshell, in SocGen's view, the challenge will be "to balance the risks of a prolonged economic cycle (resulting from continued central bank liquidity injections) against the opportunities offered by solid companies and undervalued (sometimes oversold) segments." Of the two options, the bank can't help but be more more bearishly inclined.

Here are some more details from SocGen's global projections starting with the US, where Kaloyan expects "a more restrictive monetary policy to push equity valuations lower, while political gridlock and trade tensions will likely be a source of volatility." That said, the equity strategist, has revised his S&P500 target for end-2019 somewhat upward (from 2,000 to 2,4000) as the bank's economics team has ‘postponed’ its US recession call by two quarters.

Factoring in a mild recession in the US in early/mid-2020, our valuation model indicates that the S&P 500 could dip to 2400pts by end-2019 and come out flat in 2020 overall. We would expect the market to bottom some time in 2020.

SocGen is somewhat more optimistic on the eurozone economy, where after a series of disappointing quarters, the end of trade tensions and/or a Brexit deal "could support eurozone equity valuations in early 2019." However, even here upside would likely "be limited as earnings momentum has now entered negative territory." Looking further ahead toward the second half of the year, an ECB rate hike in September would be a source of volatility and push the EUR and the cost of debt higher. In the UK, SocGen is surprisingly upbeat and its base case scenario is for a Brexit deal with the EU, yet even under this favorable scenario, it warns that the subsequent strengthening of the GBP would be a headwind for an FTSE100 index full of exporters.

The "challenging" theme continues in the last region, because whereas Kaloyan expects Asia equities to recover in 2020, "2019 could be another challenging year due to an extended growth slowdown in China, a bear market in tech hardware and a correcting US equity market." That said, a ceasefire in the US-China trade conflict is the upside risk.

The bank's global equity forecasts are summarized below:

Focusing on the US, like last year, Kaloyan believes that the year ahead will be one of risk for US stocks, among which:

1. Risk of political gridlock in the US. As SocGen preciously noted, the results of the US midterm elections have changed the political picture in the US as Congress is now split, wiith the House of Representatives now having a majority of Democrats, while the Senate remains controlled by Republicans. Why is this important:

this could have serious market and economic consequences, such as potentially more frequent government shutdowns, impeachment considerations and general uncertainty. At this late stage in an already lengthy expansion period, uncertainty could be more damaging. The growing US deficit does not leave much room in the event of an economic slowdown.


2. More restrictive US monetary policy. Here too, things are changing: US financial assets benefited from an ultra-accommodative monetary policy for a decade, with Fed funds below the core inflation rate, since 2008. That is now over.

Our scenario assumes three more rate hikes, lifting the Fed funds to 3% by June 2019, putting pressure on equities through three channels:

1) it would push higher the WACC (weighted average cost of capital) and  thus lower the valuation of equities (see below);

2) flow wise, investors would reallocate into cash in USD out of other assets (including equities);

3) the Fed funds rise is a typical sign of the end of the cycle (flattening/inversion of yield curve…).

3. US recession in early/mid-2020. The one place where SocGen comes closest to consensus, is its forecast that the US economy looks set to enjoy its last leg of expansion in 2019, making this cycle the longest in history (in June 2019). Meanwhile, the fiscal stimulus has postponed the date of the next US recession, which SocGen now expects in early/mid-2020:

As a consequence, markets should price in the recession a few months ahead of time. This suggests that cyclical concerns could be a major market driver in the 2H19, when GDP growth is already expected to decelerate (1.6% in 3Q19 and 1.1% in 4Q19). The jump in productivity in mid-2018 contained unit labour costs and raised margins, but looking forward, tight labour, rising wage costs and the difficulty of passing on these costs to consumers should narrow margins and reduce incentives for investment and hiring.


4. Avoid the Russell 2000: On a more granular level, while SocGen is not too crazy about either the S&P or the Dow, it hates the Russell, which "would be of the worst performers in the event of a US political gridlock, as US small caps would not benefit from the potentially weaker USD."

Furthermore, whereas mega cap valuations have been within historical parameters, US small caps are now trading at high valuation ratios (trailing P/E ratio of 30.2x vs 20.9x for US large caps) and have near record leverage ratios (net debt to EBITDA of 3.1x vs 1.5x for US large caps).

Thus, US small caps are more at risk from the rising cost of debt (higher rates or higher credit spread – or both) and asset rotation (illiquid segment).

5. S&P 500 to 2,400pts by end-2019. While Kaloyan sees the prospects for the S&P 500 as slightly better than for the Russell, it's not much: the assumption underlying his year-end 2019 target for the S&P 500 of 2,440 points is a decline in sales growth in 2019, and a mild contraction of 5.0% in 2020e.

This decline in activity is consistent with our economists’ forecast of 2.4% GDP growth in 2019e and 0.4% in 2020e, versus +2.9% this year. We then apply margin forecasts to our sales estimates to work out the earnings. Our economists’ team’s chart (see p.13) implies that, at the end of the cycle, profit margins are likely to narrow by c.200bp on average. Hence, we are looking for a margin contraction from 12.0% this year to 10.0% by end-2020.

Applying these sales growth and margin forecasts to current sales and earnings for the S&P results in flat EPS growth in 2019, and a 17% EPS contraction in 2020. Additionally, as a result of Fed action, Kaloyan expects some multiple contraction (chart p.4). Amusingly, the French strategist here notes that "we take into account in our forward P/E assumption the fact that the IBES consensus usually never forecasts an EPS contraction. Indeed, since 1990, the 12-month forward EPS growth has never been below 5% except during the worst of the 2008-09 crisis when it reached -5% (vs -30% looking
at trailing EPS)." As a result, SocGen expects the forward P/E to hit a low of less than 14x by mid-2020, just as the next recession begins according to the bank.

Away from the US, SocGen has 5 key calls on European equity markets: i) Liquidity to dry in the market; ii) Focus on robust earnings; iii) Look for opportunities in trade war casualties; iv): A Brexit deal still likely; v) Hedge against political noise.

Finally, when looking at individual sectors, SocGen writes that while its recession call is not for now, it is already gradually repositioning portfolios for the end of the cycle. SocGen's analysis highlights which sectors appear more at risk and which historically have proven to be more immune to the coming recession. The bank also factors in the impact on sector allocation of last quarter’s changes in the economic, rates and political backdrop. This leads SocGen to its our sector allocation as follows:

  • Consumer Staples upgraded from Underweight to Neutral
  • Consumer Discretionary switched from Overweight to Underweight
  • Information Technology cut from Overweight to Neutral
  • Overweight maintained on Healthcare, Oil & Gas, Financials and Basic Industries
  • Underweight maintained on Industry, Real Estate, Utilities and Telecoms

In short, another bearish prediction, and while this one seems a little more contained than SocGen's 2018 wildly contrarian forecast released exactly one year ago...

... this time, the bear is now all grown up.

Published:11/21/2018 4:11:18 PM
[Markets] Stocks Pop But Confidence Drops Ahead Of Black Friday Buying-Bonanza

This seemed to appropriately reflect the last few weeks of global market 'turmoil'...

China stocks trod water overnight...

European markets rallied though with Italy and Brexit hope...


US equities rallied on the day, peaking around the European close then dumping into the US close with Dow, S&P giving up most of the day's gains...

The on-and-off again sell-off in both crude and stocks since the beginning of October met some holiday relief amid a bounce in risk assets after MNI reported the Fed is considering ending a cycle of interest rate hikes as early as the spring. Optimism also rose for a positive meeting between President Trump and China’s President Xi after the administration decided to exclude White House trade adviser Peter Navarro from the meeting.

A slightly different angle shows that US equity futures ramped to yesterday's cash session highs and then faded...


As one would expect on the day before Thanksgiving, equity volumes were well below average...

And here's what the corporate bond volume as reported by Trace looks like compared to the average at time of day


Of course, the US equity gains were all driven by a short-squeeze, but that ended when Europe closed...



FANG stocks managed gains but it was an unimpressive bounce...


Bank stocks got hit hard into the close...


Stocks caught down to bonds into the close...


High yield bonds record losing streak is over...


But notably - after the initial opening dump, both HY and IG spread widened and there was no bid for IG credit even as VIX slumped...


Just as we saw bonds sell off with stocks selling off yesterday, today saw bonds bid as stocks rallied...



The Dollar limped back lower after tagging Friday's highs...


Offshore Yuan rallied back into the green for the week...



Most cryptos managed gains on the day but Bitcoin Cash continued to slump...


The dollar weakness lifted PMs and copper...


WTI Crude bounced off $54 after a surprise crude build, pumped and dumped, but ended the day green, offering more hope that the worst is over...


Despite gold's lackluster week in USD, it is surging against the Yuan...


Finally, we give thanks for Gluskin Sheff's David Rosenberg:

And then there's this...

And finally, if you needed something else to worry above, the fate of the world’s developed stock markets may be more dependent than ever on U.S. shares.

This year, the U.S. weight in the MSCI World Index has risen as much as 3.6 percentage points to 62.8 percent, according to data compiled by Bloomberg.


Happy Thanksgiving everyone.

Published:11/21/2018 3:06:20 PM
[Markets] All 20 stocks in the Dow transports, often a bellwether index, are up Wednesday All 20 stocks in the Dow transports, often a bellwether index, are up Wednesday Published:11/21/2018 1:36:21 PM
[Markets] Dow, S&P Rise for the First Time in 3 Sessions While Nasdaq Also Halts Decline U.S. markets are on the right track for the first time all week Wednesday, November 21, as the major indices are climbing in morning trading. The Dow and S&P are still negative for the year after a major selloff earlier this week that shaved off many of the market's gains. jumped 14.5% after the shoe retailer reported earnings of 95 cents per share, which was 3 cents better than analysts were expecting for the quarter. Published:11/21/2018 1:36:21 PM
[Markets] U.S. stock futures bounce after two-day selloff Apple Inc and other technology and internet giants, which lost a combined $1 trillion of their market value on Tuesday, posted modest gains in premarket trading ahead of the Thanksgiving holiday. The Nasdaq closed at its lowest in over seven months on Tuesday, while the S&P 500 and the blue-chip Dow lost more than 1 percent for the year after technology stocks continued to tumble and a bunch of disappointing retail earnings and forecasts soured the mood. The pressure on technology stocks appeared to have eased on Wednesday, with shares in Apple, Inc, Netflix Inc and Alphabet Inc gaining between 0.64 percent and 1.87 percent. Published:11/21/2018 7:42:08 AM
[Markets] Global Stocks Steady After Wall Street Rout as Thanksgiving Trading Gap Looms Global stocks steady, with modest declines in Asia offset by gains for European benchmarks, as investors attempt to restore order on the final trading day of the week. Oil prices rebound following a Tuesday sell-off which push U.S. crude prices to the lowest level in more than a year as the dollar drifts and private data shows a drawdown in domestic stockpiles. U.S. equity futures suggest a 100 point gain for the Dow after it slips into negative territory for the year last night ahead of earnings from Hewlett Packard and Deere & Co. Published:11/21/2018 7:06:29 AM
[Markets] Metals Stocks: Gold holds ground as stocks attempt rebound Gold futures edge higher, holding gains as stock-index futures point to an attempted rebound by Wall Street a day after a tech- and energy-led rout that saw the Dow and S&P 500 erase gains for 2018 and turn lower for the year.
Published:11/21/2018 7:06:28 AM
[Markets] Futures Jump, Dollar Slides After Report Fed May End Hikes As Early As Spring

After yesterday's historic rout in the market, there were signs of stabilization in overnight trading with most markets trading higher, with the key catalyst a report from MNI that the Fed may end its rate hikes as soon as this coming spring.

US stocks were set to open sharply firmer after two days of losses that wiped out the S&P500’s gains for the year and left the tech-heavy Nasdaq index teetering on the brink of falling into the red. Losses were concentrated in the technology sector, as investors dumped their holdings of FAANG shares and pushed the Nasdaq index to seven-month lows and energy shares too had dropped in line with a 6 percent oil price slump S&P 500.

“High-flying momentum stocks have come off in a fairly spectacular fashion. At one point Apple and Amazon accounted for 40 percent of U.S. equity gains and people were just recycling money into the winners,” said David Vickers, senior portfolio manager at Russell Investments. “That’s come off the boil and set the cat among the pigeons... We’ve seen a lot of reflexivity, when selling begets selling, the market starts to turn over, people take profits, it leads to another leg down and so on.”

That fed through to Asia on Wednesday, taking MSCI’s index of ex-Japan Asia-Pacific shares almost half a percent lower, but it clawed most of the losses to trade flat, with MSCI’s all-country benchmark was flat too, attempting to snap two days of falls.

Chinese stocks closed in the green and near session highs, rebounding from Tuesday's drop as Asia closed mixed, but it was Europe that showed the most promise with the Stoxx600 solidly in the green, led by Italy where BTPs rallied from the open, after a report that Deputy PM Salvini may be open to budget revisions; Salvini then denied the report, clarifying that he’s only open to tweaks and won’t compromise on the main issues.

Italians bond yields fell up to 16 basis points initially, putting 10-year yields on track for their biggest daily drop in almost a month but the market gave up some of its gains after the denials. Sentiment was then dented again, and the EUR snapped lower after Ansa reported that the European Union has rejected Italy’s 2019 budget - as expected - and that the Excessive Deficit Procedure would be warranted on Italy. Still, despite the expected escalation in the standoff between Italy and Europe, the Estoxx and DAX pushed higher but were off best levels with banks and telecoms leading gains as Italy's FTSE MIB outperformed peers with local banks +1.5%.

However, it was a report from wire service MNI just after 6am that caught the market's attention, when Market News International reported that the Federal Reserve is starting to consider at least a pause to its gradual monetary tightening and could end its cycle of interest rate hikes as early as the spring, citing senior people at the Fed they didn’t identify.

While a Dec. rate hike is all but assured, the debate will become more lively beginning at the central bank’s March meeting and certainly by June, MNI says. The paradox, of course, is that according to the Fed's own dot plot there will be at least 3 hikes in 2019, so for one or more Fed presidents to engage in such an ECB-esque trial balloon of defiance of Chairman Powell must mean that the disagreements within the FOMC over the future of monetary policy are truly boiling over.

While it is still very much unlikely that the Fed will halt its rate hikes in the spring absent a rout in stocks and bonds, the MNI trial balloon sent futures back to session highs...

... and slammed the Bloomberg dollar index back to session lows.

US Treasuries and the Eurodollar strip also pared losses and faded Wednesday’s bear steepening after the MNI report; that said, Fed rate hike expectations are steady on Wednesday morning with December 2018 pricing in 19bps, and the next 25bps increase expected in March 2019. The U.S. 10Y TSY yield is 1bp to 3.07% with December T-Note futures -20 ticks to 119-04+; U.S. 2/10s +1bp to 26bps; U.S. 5/30s steady at 43bps.

Today's modest gains immediately sparked positive commentary: "We view the sell-off as overdone and a bull-market correction, with valuations that have become more compelling,” Jason Draho, head of asset allocation, Americas, at UBS Global Wealth Management wrote in a note. "We recently increased our overweight to global equities on the view that the markets are already pricing in growth and trade risks."

Still, while the Fed trial balloon helped preserve upside momentum in risk assets, investor sentiment remains susceptible to minute to minute volatility that’s rocked markets since October as traders have to contend with President Trump tape bomb unpredictability and demands for lower rates as corporate credit spreads at two-year highs reflect investor angst about borrowing costs.

In FX, the euro got an early boost and Italian bonds rallied after the abovementioned La Stampa report that Italy’s Deputy Prime Minister Matteo Salvini may be open to budget revisions; it trimmed gains after his League party denied the report, and as the EU was said see Rome’s budget at serious non-compliance risk. The pound was little changed against the dollar, after earlier rising on the back of broader weakness in the greenback; Britain’s budget deficit widened in October as spending rose at the fastest pace in 11 years. Australian dollar rebounds from a one-week low hit very early in Asia as a recovery in oil prices combined with exporter demand to trigger short-covering ahead of U.S. Thanksgiving holiday.

In commodities, WTI also halted yesterday's dramatic rout near $54 a barrel after API showed that U.S. crude inventories unexpectedly fell last week against doubts over OPEC’s plans to cut output. Emerging-market shares and currencies were stable. Bitcoin advanced after a recent sell-off

Expected data include mortgage applications, durable goods orders, jobless claims and existing home sales. Deere and Metro are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.5% to 2,653.75
  • STOXX Europe 600 up 0.5% to 352.66
  • MXAP down 0.4% to 149.96
  • MXAPJ down 0.1% to 480.09
  • Nikkei down 0.4% to 21,507.54
  • Topix down 0.6% to 1,615.89
  • Hang Seng Index up 0.5% to 25,971.47
  • Shanghai Composite up 0.2% to 2,651.51
  • Sensex down 0.7% to 35,212.54
  • Australia S&P/ASX 200 down 0.5% to 5,642.77
  • Kospi down 0.3% to 2,076.55
  • German 10Y yield rose 1.6 bps to 0.366%
  • Euro up 0.1% to $1.1381
  • Italian 10Y yield rose 1.8 bps to 3.241%
  • Spanish 10Y yield fell 0.9 bps to 1.638%
  • Brent futures up 1.8% to $63.63/bbl
  • Gold spot up 0.2% to $1,224.29
  • U.S. Dollar Index down 0.1% to 96.77

Top Overnight News

  • German Chancellor Angela Merkel warned the U.K. it can’t set unilateral terms for leaving the European Union as Prime Minister Theresa May heads to Brussels to try to complete a contentious Brexit deal
  • The Brexit divorce deal can’t be improved, and EU governments have made that clear, said Northern Ireland Secretary Karen Bradley
  • Saudi Arabian oil production surged to a record near 11 million barrels a day this month after the kingdom received stronger-than-usual demand from clients preparing for a disruption in Iranian supplies, according to industry executives who track Saudi output
  • Oil at one point slumped more than 7 percent in London and New York on Tuesday. The selloff -- just like the previous Tuesday -- was exacerbated by banks selling futures to rebalance their positions as prices fell, said people active in the market who are familiar with the matter
  • OPEC’s bad dream only deepens next year, when Permian producers expect to iron out distribution snags that will add three pipelines and as much as 2 million barrels of oil a day
  • The U.S. on Tuesday accused China of continuing a state-backed campaign of intellectual property and technology theft even as the world’s two largest economies have descended into a tit-for-tat tariff war

Asian stocks mostly weakened as the global stock rout continued into the region following the losses in US, where the DJIA dropped over 500 points to turn negative YTD and in which energy names were pressured as oil slumped nearly 7%. ASX 200 (-0.5%) and Nikkei 225 (-0.3%) were led lower by spill-over selling seen across the commodity-related sectors, while Wesfarmers shares plummeted nearly 30% after the spin-off of its Coles unit which had its stock market debut today. Hang Seng (+0.5%) and Shanghai Comp. (+0.2%) opened with firm losses but then rebounded off their lows with price action choppy amid ongoing trade uncertainty and after criticism from USTR Lighthizer’s report that China has not altered its unfair practices and appears to have conducted further unreasonable actions in recent months. Finally, 10yr JGBs failed to benefit from the widespread risk averse tone with price action subdued amid a lack of BoJ presence in the bond market and after the weakness in T-notes as US investors closed positions heading in to Thanksgiving.

Top Asian News

  • The American Carnage Isn’t Tanking Stock Markets in Asia
  • China Refrains From Injecting Cash for Longest Time Since August
  • Beijing to Judge Every Resident Based on Behavior by End of 2020
  • China Said to Eye Steel Mega-Deal as Baowu Chief Joins Rival
  • Yuan Debt in the Bag for Philippines as Xi-Duterte Ties Grow

European equities are higher across the board (Eurostoxx 50 +0.8%) as the region stemmed the stock rout seen in Asia and Wall Street. Italy’s FTSE MIB (+0.6%) was initially outperforming with Italian banks higher amid initial reports from Italian press that Deputy PM Salvini could potentially be open to budget revisions, which were later dismissed by League sources ahead of the budget ultimately being rejected. In terms of sectors, financial names lost the top spot to telecom names, who are outperforming after French telecoms jumped following comments from Orange (+1.7%) CEO which renewed M&A gossip. Elsewhere, Indivior (-13.6%) fell to the foot of the Stoxx600 (+0.4%) after the Co. lost a US court ruling that had prevented Dr. Reddy’s from selling a generic version of a treatment for opioid addiction.

Top European News

  • Merkel Warns U.K. It Can’t Dictate Brexit Terms for EU Summit
  • Rudd Says Parliament Would Block No Deal: Brexit Update
  • Laundromat Whistle-Blower Testifies in Brussels: Danske Update
  • Nyrstar Wins Lifeline From Trafigura With $650 Million Deal
  • Airbus Names New CFO, COO to Replace Wave of Exiting Execs

In FX, the DXY index has maintained its recovery momentum into the midweek session, but is off best levels amidst a welcome reprieve in riskier assets and broad sentiment ahead of Thanksgiving. The DXY has drifted back from another uptick towards 97.000, though remains underpinned ahead of 96.500 and recent lows. The Greenback also retains an underlying bid as G10 and EM counterparts struggle to recoup losses beyond round number/psychological/technical resistance against the backdrop of heavy option expiries at strikes within close proximity to prevailing prices (and with major fundamental issues still prescient of course).

  • EUR/CAD - The single currency is holding up relatively well given more toing and froing on the Italian budget, but ultimately ongoing recalcitrant stance from Rome after reports about potential revisions were renounced in advance of the EU’s official rejection and potential if not probable EDP implementation (scheduled release time 11.00GMT, but appears to have been preannounced). However, 1.1400 is proving almost as obstinate and a decent 1 bn option expiry could well be keeping the headline pair in check. Meanwhile, the Loonie is off worst levels after sliding through 1.3300 and could be gleaning some encouragement from a partial recovery in oil prices in the run up to Canadian wholesale trade data.
  • GBP/CHF/JPY - All bucking the overall trend, albeit barely in terms of the Pound and Franc, as Cable pivots 1.2800 and Eur/Gbp straddles 0.8900 on Parliament approval aspirations as UK PM May heads to Brussels for more discussions on the Brexit draft and the coup to oust her seems to have fizzled out. Meanwhile, Usd/Chf has only tentatively bounced from near 0.9900 lows within a 0.9935-55 range vs Usd/Jpy back on the 113.00 handle vs a base around 112.30 at one stage on Tuesday when risk-off flows were rife, but bidding interest prevented further downside. Note, a raft of option expiries could be key into the NY cut, stretching from 111.90-112.00 to 114.00 and totalling some 11 bn.
  • EM - Rand in focus for several reasons, as Usd/Zar hovers near 14.0000 ahead of Thursday’s SARP policy meeting and following softer than expected SA inflation data, with a decent 1.1+ bn options expiring between 13.9000-14.0000 along with speculation about more strike action.

In commodities, WTI (+1.6%) and Brent (+1.4%) took a breather from yesterday’s selloff, where prices fell almost 7% with the decline attributed to supply concerns, negative risk sentiment and Trump’s protective approach to Saudi relations. Prices are underpinned by the latest API inventory data which printed a surprise drawdown in headline crude stockpiles. Traders will be keeping an eye on today’s DoE release for any hints of increased US shale production. Today will also see the release of the EIA natural gas storage data, which has been rescheduled due to the US Thanksgiving Holiday. Elsewhere, the metals complex is in positive territory with gold (+0.2%), silver (+0.7%) and copper (+0.5%) all supported by the pullback in the USD. Goldman Sachs said slump in oil reflects over supply concerns for 2019 and that technical position factors have exacerbated the volatility, while it also cited low liquidity heading into Thanksgiving as well as broader selling in commodities and cross-assets amid rising growth concerns.

In terms of the day ahead, we’re due to get a first look at October durable and capital goods orders data along with the latest weekly initial jobless claims data, October leading index, October existing home sales and final November University of Michigan consumer sentiment survey revisions. Away from that, Italy’s Finance Minister Tria is due face questions in the Lower House and as highlighted earlier, today is the day that the European Commission is due to publish opinions on the budget plans of Euro Area countries, including possibly Italy.

US Event Calendar

  • 8:30am: U.S. Durable Goods Orders, Oct. P, est. -2.6%, prior 0.7%; Durable Goods Orders Less Transportation, Oct. P, est. 0.4%, prior 0.0%
  • 8:30am: U.S. Initial Jobless Claims, Nov. 17, est. 215k, prior 216k; Continuing Claims, Nov. 10, est. 1650k, prior 1676k
  • 10am: U.S. U. of Mich. Sentiment, Nov. F, est. 98.3, prior 98.3

DB's Jim Reid concludes the overnight wrap

I suspect they’ll be a lot of market participants in the US relieved that they only have to make it through today to get to Thanksgiving. I suspect they’ll also be a lot of market participants outside of the US relieved that the US market won’t be open tomorrow and we’ll have a circuit breaker for now and a chance to take stock after a very difficult few days.

The sell-off baton has been passed from asset class to asset class of late and yesterday it was oil’s turn to pick it back up again with Brent and WTI crude shedding -6.69% and -6.84% respectively taking losses close to -30% in only around 7 weeks from its 4-year highs. A remarkable run. These moves dominated price action across other markets, with the energy sector (-3.29%) leading US equity declines and inflation breakevens trending lower. US 10-year TIPS-implied breakeven inflation rates are now down to 1.98%, taking their year-to-date change into negative territory for the first time. Somewhat worryingly, there are signs that the oil drop is a negative demand story, rather than a positive supply shock. Oil-importing countries, who would theoretically see an improvement in their terms-of-trade, did not see their currencies gain, e.g. the Turkish Lira the worst performer of the day, falling -1.37%.

There didn’t appear to be one particular event which triggered the oil move although our commodity strategy team did note that recent commentary is foreshadowing possible disappointments at the OPEC meeting on December 6th. They believe that Libya and Russia are unlikely to support a renewed push from Saudi Arabia for discipline and therefore fear an underwhelming meeting outcome. Anyway that weakness for oil did spread to the US HY energy sector which widened +13bps, meaning it is now 169bps wide of the October and YTD tights.

As for equities, well the NASDAQ closed down -1.70% but was as much as -2.81% lower at one stage, while the S&P 500 and DOW closed down -1.82% and -2.21% respectively – both marginally off their lows. The NYSE FANG index also recovered to finish -1.55% from its intraday low of -4.48%, though Apple did fall another -4.78% meaning it’s now -23.74 % off the October peaks and therefore in the definition of a bear market amid concerns over demand for products. That move is also equivalent to a loss of value of $265bn, or roughly the annual GDP of Bangladesh a country with 165 million people. Meanwhile, the VIX touched 23.81 intraday yesterday (highest since October 31st) before closing at 22.48. Apart from the oil sector, which led losses, consumer discretionary also fell -2.18% after profit outlooks for the likes of Target (-10.53%), TJX (-4.39%) and Kohl’s (-9.24%) all disappointed ahead of the busy holiday shopping period.

Back to credit, cash spreads for Euro IG and HY finished +4bps and +13bps wider yesterday while in the US, spreads outperformed a bit but were still +2bps and +7bps wider respectively. It’s worth noting that this is now the eighth day in a row that Euro HY spreads have widened, for a cumulative move of +72bps. In fairness, spreads moved wider eight days in a row back in September, but the total size of that widening was a rather mild +17bps. In May, they actually widened for 10 days in a row when BTP yields were soaring, however the size of that move was +59bps so the current run really stands out. In fact, the biggest eight-day move in recent years came during January 2016, when spreads blew out +79bps amid similar conditions to today: plummeting oil prices.

Considering the sizeable risk-off that we’re seeing at the moment we’re hardly witnessing the flock to safe haven assets that one might expect. Treasury yields were only down -0.7bps yesterday while Bunds rallied -2.2bps and the USD index gained +0.67%. Gold and the Japanese yen both actually sold off -0.17% and -0.14%, respectively, and both have traded in a fairly benign +/-3% range for November to date.

This morning in Asia, sentiment continues to be remain negative but markets have rallied off the opening lows where the likes of the Nikkei began trading down around -1.5%. As we type this has recovered to -0.32%. Elsewhere the same pattern has emerged with the Hang Seng (-0.10%), Shanghai Comp (-0.13%) and Kospi (-0.51%) all down but off their session lows. Oil has bounced a bit from yesterday and is up +1.75% as we go to print. S&P 500 futures (+0.37%) are also pointing towards a slight improvement in market mood.

Sentiment remains nervous though and not helped by the overnight release of a report on China from the US Trade Representative Robert Lighthizer’s office which accuses China of continuing a state-backed campaign of intellectual property and technology theft. The report said, “China fundamentally has not altered its acts, policies, and practices related to technology transfer, intellectual property, and innovation, and indeed appears to have taken further unreasonable actions in recent months.” This ramp up in rhetoric just 10 days ahead of the upcoming G20 meeting overshadowed earlier comments from the White House economic advisor Larry Kudlow about President Trump injecting “a note of optimism” into trade talks with China.

Back to more selling off markets from yesterday now. BTP yields spiked to an intraday high of 3.714% yesterday (+12bps) and the highest since last month before paring much of that to finish at 3.617%. That wild ride for BTPs comes prior to the European Commission today opining on the budget plans of the Euro Area nations. For Italy, under EU fiscal rules the European Commission had three weeks to issue an opinion on Italy from November 13th – when Italy left unchanged its 2019 draft budget plan. The suggestion however is that the Commission will opine on Italy at the same time as other Euro Area nations so we’re likely to hear today. Assuming the Commission pushes ahead with launching an EDP, the process involves the Commission informing the Eurogroup first. The next meeting of the Eurogroup is December 3rd so it’s possible that the process gets aggressively accelerated to meet that deadline.

Our economists have previously highlighted that the decision to launch an EDP remains a political one – the Commission proposes the action but the Eurogroup has the option to overrule. However, it could be difficult to reverse the decision of the Commission. The Eurogroup votes on a double majority of countries representing 65% of the population (the country under procedure does not vote). As long as Germany and France support an EDP, the remaining countries do not have enough weight in the qualified majority vote to overturn the decision. Anyway expect the BTP market to be focused on this today.

The Brexit front was relatively quiet again, though the DUP did abstain again on a procedural vote on the UK budget, forcing the Conservatives to accept several amendments from Labour in order to secure enough votes. The DUP are effectively on strike until they get things more their way on the Irish border thus making the running of government very challenging. Separately, BoE  Governor Carney and Chief Economist Haldane testified to Parliament’s Treasury Committee and said they welcome the negotiated Withdrawal Agreement. Haldane noted that uncertainty may be weighing on business investment and could negatively impact fourth quarter economic growth, while Carney said that the risk of a no-deal Brexit outcome is “uncomfortably high.” The BoE policymakers plan to send new Brexit analysis to the Committee next week on November 29. Elsewhere, UK PM May is all set to travel to meet the EC President Juncker this evening in an effort to make progress on an outline of the future trade deal the two sides want to strike. She is likely to ask for further concessions from the EU given the backlash she is facing at home from euroskeptic Tories. However, it seems unlikely that the EU will give further headroom to the UK PM ahead of the upcoming Sunday summit where the two are expected to sign off on the 585-page exit agreement as well as the future partnership paper.

On the data front yesterday, US housing starts and building permits mostly met expectations. New starts came in at 1.23 million, up 1.5% mom but down over the last 12 months, while building permits were at 1.126 million, down -0.6% mom and also down over the last year. In Europe, French unemployment stayed at 9.1%, marginally better than consensus expectations which had called for a rate of 9.2%. German PPI inflation printed at 3.3% yoy as expected.

In terms of the day ahead, this morning we’ll get October public finances data in the UK along with the OECD’s latest economic forecasts. Across the pond this afternoon we’re due to get a first look at October durable and capital goods orders data along with the latest weekly initial jobless claims data, October leading index, October existing home sales and final November University of Michigan consumer sentiment survey revisions. Away from that, Italy’s Finance Minister Tria is due face questions in the Lower House and as highlighted earlier, today is the day that the European Commission is due to publish opinions on the budget plans of Euro Area countries, including possibly Italy.

Published:11/21/2018 6:41:40 AM
[Markets] Deutsche Bank, Again?

Via Global Macro Monitor,

Whenever we see markets tanking as they have been for the past few days with the Dow down almost 1,000 points (3.7 percent) since Friday’s close, we think counterparty risk may be spooking traders and investors.   We suspect, and we could be wrong, there is a growing concern over Deutsche Bank’s (DB) stock making new all-time lows.

We see a lot of hits on our blog today on our past posts about Deutsche Bank.

Biggest Globally Systemically-Important Bank (GSIB)

Deutsche Bank, which has been labeled by the IMF as the biggest contributor to global systemic risk,  hit a new all-time low in Frankfurt this morning, closing at around €8.17,  down over 91 percent from its pre-GFC high and almost 50 percent year-to-date.  The latest hit comes from its involvement with Danske Bank, who is wrapped up in a money laundering scandal in Estonia.

Whenever a GSIB stock is making a new low,  it’s time to sit up, stand up and listen.

No Lehman

Deutsche is no Lehman Brothers. The Germans will never let its flagship fail and neither would world policymakers.

The bank is not dependent on wholesale funding from the markets and finances itself mainly through a large deposit base.  The DB chart below illustrates its 77 percent deposit-to-loan ratio.

Also see the IMF chart on the bank’s horrendous return-on-equity, which many believe is the reason why the stock is tanking and not over balance sheet concerns.

Nevertheless, DB has, the last time we looked, the world’s largest derivatives book, and as the stock goes lower the risk of spooking its counterparties moves higher.   The German government and EU regulators must be cognizant of these risks,  not dilly-dally,  and show firm resolve to the markets

The lower the stock goes the higher the probability the German government will be called upon for a capital injection.  Deutsche Bank will not be allowed to fail as the world will end as we know it.

German Sovereign CDS

DB’s credit default swaps have risen from 120.7 bps in September to 155.7 bps, but have not yet taken out the May 188 bps high, however.

Deutsche Bank is relatively big.  It’s total assets are equivalent to about 47 percent of German GDP, which compares to JP Morgan,  the largest U.S. bank,  and though larger than DB is asset size, is only around 12 percent of GDP.   The large bank to GDP size throughout Europe is a reflection the continent is way overbanked.

Buying German sovereign 5-year credit default swap protection at 13 basis points seems like a good, cheap, positive asymmetric bet on DB event risk to us.   If the Merkel government is called upon to bail out DB, the sovereign’s CDS rates move higher, in our opinion.   The cost of being wrong is a few basis points of carry over the next few months.

No peep from the talking heads today about DB, folks, so this definitely has the potential to hit the market by surprise. Keep it on your radar.

Published:11/21/2018 4:04:24 AM
[Markets] U.S. stock futures, oil prices up after market meltdown Tuesday U.S. stock futures rose early Wednesday, after a brutal session on Wall Street that pushed the big indexes into negative territory for 2018. Dow industrials futures rose 129 points, or 0.5%, to 24,568, while S&P 500 futures gained 17.1 points, or 0.7%, to 2,657.25 a day ahead of the Thanksgiving Day holiday. Nasdaq-100 futures jumped 62.5 points, or 1%, to 6,594. On Tuesday, the Dow finished down 550 points, while the S&P 500 slid 1.8% and the Nasdaq dropped 1.7%, as investors fretted over earnings and that big decline in tech and Internet shares. Oil prices, which lost nearly 7% Tuesday, also pointed to a bounce for Wednesday, with West Texas Intermediate crude futures up 1.8% to $54.30 a barrel and Brent crude up 1.1% to $63.24 a barrel. The ICE Dollar Index [S: dxy] was off 0.2%. There are "signs that the market is looking oversold, although dip buyers have been burnt a couple of times already this year and may not want to get hit a third time just yet," said Neil Wilson, chief market analyst at, in a note to clients. Published:11/21/2018 3:43:32 AM
[Markets] "Nothing Is Working": Stunned Investors Observe The Market Carnage In Shock

Usually the excuse "nothing is working" is used by finance professionals when begging clients not to pull their money, desperate to explain woeful performance and when there are no other excuses left. Only in 2018, that excuse is absolutely correct.

After another abysmal day, in which every single sector in the market closed in the red as stocks tumbled 2%, capping a dreadful two-month stretch since the S&P hit its all time highs exactly two months ago, which has seen both the S&P and the Dow turn red for the year with the Nasdaq just barely holding onto green, while oil crashed 6% slumping to a one year low, junk bonds matched a record streak of losses, the overall market just suffered one of its worst sessions in the past three years.

But what is most remarkable is the following chart from Bloomberg which shows the year-to-date return of the best performing asset between US and global equities, corporate bonds, Treasuries, gold and real cash, and according to which 2018 is shaping up as what may be the worst year on record for cross-asset investors. Indeed, nothing at all has worked this year!

The inability of any single asset class to escape the dismal black hole supergravity of devastating losses in a brutal post-BTFD catharsis that has mutated into an equal-opportunity rout, crushing returns across all assets, has left investors reeling, shellshocked and paralyzed, and dreading what may come tomorrow let alone next year when both the US economy and corporate earnings are expected to see their supercharged recent growth rates come crashing back down to earth.

“While there’s still no ‘panic in the streets,’ most traders are unconvinced that the selling will slow down anytime soon,” said Instinent's head of trading Larry Weiss. “The flight to quality is now a flight to cash. It’s tough to convince anyone that now is the time to put money to work.”

Meanwhile, amid radiosilence of hope for the bulls as the market breaches one support level after the next, the Federal Reserve shows no sign of easing back on its tightening crusade or delaying the interest rate hikes that have become the source of nightmares for holders of some $5 trillion in corporate bonds that were sold by S&P 500 companies in the past decade, and whose proceeds were largely squandered in the pursuit of stock buybacks and fleeting shareholders gains and higher management compensations.

Beneath the turbulent surface of the stormy market, even stronger undercurrents threaten to tear apart what's left of investor optimism. After a decade of outperformance by growth stocks, the sector has seen a historic flight as rotation into the unloved, largely forgotten value sector has emerged on a scale unseen in years.

Hedge funds, who hoped that "buy the dip" would work one last time and who rushed into the traditional "safety" of tech stocks at the end of October, were whipsawed, and turned net sellers this month, with the group accounting for the most selling among major industries according to Goldman Sachs. Meanwhile, as if sensing the coming storm, Goldman writes that hedge fund net exposures steadily declined throughout 2018, including during 2Q and 3Q while the broad equity market rallied, leaving most investors in the cold. Net long exposure calculated based on 13-F filings and publicly-available short interest data registered 49% at the start of 4Q, a decline from 56% at the start of 2018, and one of the lowest in years.

Meanwhile, as Bloomberg writes, while the buzzword for the first half was rotation, the latest losses are taking on a troubling unanimity:

Every sector in the S&P 500 fell on Tuesday, a day after every member of the 67-company S&P 500 Information Technology Index dropped. Disparate corners of the stock market are seeing reversals, from the tech high-flyers like Apple and Alphabet that led the way up to higher-leverage names that have been trailing for months.

“There isn’t an industry that doesn’t have something wrong with it,” Fort Pitt senior portfolio manager Kim Forrest told Bloomberg. “Every industry is getting sold. Every industry has a little black mark on it - at least one. So everyone is selling those stocks that are tainted with bad news - everything.”

But the biggest harbinger of even more sorrow for equities is not even in the stock market, but in bonds. After years of relentless gains in both the investment grade and junk bond space, corporate credit has finally cracked, with both yields and spreads blowing out to multi-year highs. Indeed, after hitting near record tights just over a month ago, investment-grade bonds are on track for their worst year in terms of total returns since 2008 as the Fed continues to raise rates, while high yield spreads have exploded higher.

"You always must respect what the credit markets are signaling,” said Prudential's chief market strategist, Quincy Krosby. "Very often it starts with the credit markets and works its way to the equity market. But this time, it’s suggestive of a credit market getting worried about the equity market, and more about the economy.”

What is perhaps scariest, is that at this moment the US economy is firing on all cylinders; this will change in 2019 and 2020 when Goldman forecasts US GDP will slide below 2.0% and grind to a crawl.

Minneapolis Fed President Neel Kashkari, one of the Fed's biggest doves who’s repeatedly called for a stop to raising interest rates, repeated his warning and said further tightening could trigger a recession.

“One of my concerns is that if we preemptively raise interest rates, and it’s not in fact necessary, we might be the cause of ending the expansion” and triggering the next recession, Kashkari said in a National Public Radio interview posted online Tuesday.

Which, of course, will not come as a surprise to regular readers who know very well that every single Fed tightening - like the one right now - has resulted in a crisis.

It won't be different this time.

Published:11/20/2018 9:03:06 PM
[Markets] Australian stocks fall on the back of overnight plunge on Wall Street The Dow Jones Industrial Average plunged more than 500 points on Wall Street overnight, erasing its gains for 2018. Published:11/20/2018 6:30:48 PM
[Markets] Dow falls 550 points as all 30 components end lower in broad-market rout Dow falls 550 points as all 30 components end lower in broad-market rout Published:11/20/2018 3:32:16 PM
[TC] The highest flying consumer tech stocks have lost $1 trillion Another day, another stock market setback for once high-flying technology companies, which have lost roughly $1 trillion in the latest stock market slide. Shares of the core group of consumer technology companies including Facebook, Amazon, Apple, Alphabet, and Netflix are falling again — contributing to the big indexes like the Dow Jones Industrial Average and the […] Published:11/20/2018 12:40:29 PM
[Markets] Stocks Turn Negative for the Year, Dow Drops Another 400 Points Tuesday's Market Minute The Dow Jones Industrial Average is falling triple digits for the second straight session. The Nasdaq is leading losses as the tech-heavy index pushes further into correction territory. Published:11/20/2018 11:58:38 AM
[Markets] Dow drops 500 points and wipes out 2018 gains The Dow Jones Industrial Average index fell 571 points on Tuesday, after shares in retailer Target dropped 10.8 per cent and tech stocks continued to decline in early trading. The Dow’s 2 per cent decline means it has wiped out all gains made in the year so far. Experts said the slide was linked to sustained global trade war fears and Brexit concerns, as well as the rout in global tech stocks over recent days. Published:11/20/2018 10:01:09 AM
[Markets] "Capitulation": Nomura Explains What Is Behind The Market's "Freak Out"

On Monday morning, when the market's moves were still relatively orderly, Nomura's Charlie McElligott made a prescient observation why momentum stocks were getting slaughtered, and why the "value to growth" rotation was about to leave hedge funds with even greater losses.

To those who listened and unwound, congrats, because on Tuesday, with the Dow down almost 600 points at its lows, McElligott writes that the cross-asset markets de-risking continues, which somewhat surprisingly is occurring in conjunction with a collapse in market expectations for 2019 Fed implied hikes, down to just 31.5bps.

This is a clear shift in market sentiment, because even as the market prices in a dovish Fed, stocks are getting crushed.

This "Best is Behind Us” / “Fed has tightened us into a slowdown” view is entrenching itself alongside the weekend escalation of Trade War Cold War between China and US, which is clearly now bleeding into the supply-chain and broad sentiment, the Nomura strategist writes today and notes that signs of capitulation are visible across the asset spectrum, as "VaR-down" behavior becomes apparent via new local- and multi-year lows/wides being made, with the credit blow out accelerating and HYG down for 8 days in a row (the record is 9).

VaR-down with liquidation of "longs" and 100-500bps of outperformance from shorts:

Meanwhile, contrary to what JPM suggested recently when it saw no further selling pressures in the quant space, yesterday’s US Equities Momentum factor unwind (with the market-neutral strategy -3.5% on session) was a 1st %ile event dating back to 1983, with the selloff of “Momentum Longs” (-4.5%) in particular was a 0%ile move, i.e., extremely rare.

What happened was that as hedge fund liquidations continue, whether due to redemption requests or otherwise, uber-crowded longs in the US Software industry were being liquidated according to McElligott, with GS basket of Software Cos trading 8x’s EV / Sales -10.0% on the day, an impossible -8.7SD move across all returns in its 2.5 yr history; Elsewhere, S&P Tech was -3.8%, Russell 2k Tech -4.6%; Finally, the Nomura strategist notes, or rather warns, that Nasdaq 100 30d volatility sits at 35, the highest level since late 2011, which just means more mechanical “VaR-down” is coming for these “longs”.

Going back to today's market, here are some additional observations from McElligott: 

  • Overnight we see US 10Y yields break their post-Labor Day range though 3.05% to the downside, while I also note that front Eurodollar too break to the upside through both 50- and 100- DMA’s over the past week, and are nearing a break of the 200- DMA for the first time in 13 months
  • Global Credit selloff becoming particularly acute as the “cycle psyche” turns, with US IG CDX back through pre-2016 election levels and EU HY (iTraxx Crossover) making new 2 year wides / EU SubFin 1.5 year wides
  • EU periphery sovies getting ugly again, in particular the BTP-Bund spread out to 327bps, the widest in 5.5 years
  • US inflation Breakevens show both 5Y- and 10Y- kind making now YTD lows
  • Cryptocurrency selloff moves to unprecedented levels with Bitcoin -30% MTD / Ethereum -33% MTD / Litecoin -35% MTD respectively, and greater than $700B+ of market value destroyed since the “mania” peaked in January, as the chief proxy of “QE-era speculative excess” is defenestrated into an existential crisis

* * *

So what is the root cause behind this seemingly relentless market freakout?

To McElligott, the answer is the theme where “tighter financial conditions” bleed across and reset (lower) risk-asset term premium—is picking-up steam, ESPECIALLY now that the Fed’s pivot to a “softer tone” perversely acts to “confirm” the market’s multi-month “tightening ourselves into a slowdown” worst fears.

Here, after markets were spooked by Powell's Octoebr 3 line that policy is "a long way from neutral", over the past week, multiple Fed speakers seemingly attempted to “walk-back” the hawkishness of that comment with a more moderate data-dependent tone, with Powell himself acknowledging last week that the Fed is “…well aware of” the three key challenges to growth in 2019—fading fiscal stimulus, slowing demand abroad and the lagged-impact of the prior policy normalization.

Two days later, the "tantrum-ing" market then further seized on Vice Chair Clarida’s Friday commentary where he “moved the goalposts” of Powell’s October “…long way from neutral” statement, instead saying “…I think being at neutral would make sense”—which to McElligott was "effectively a RATE CUT with regards to prior forward expectations" as we discussed yesterday.

But instead of being a “dovish relief story,” it instead did the opposite in the minds of investors who are seemingly committed to pulling-forward the “end of the cycle” trade.

Meanwhile, as tighter financial conditions / higher interest rates eventually slow the real economy (see yday’s NAHB sentiment collapse / “miss”), Charlie's thesis continues to expect timing of said slowdown coming after the March 2019 hike, "at which point I believed the market would “sniff” said slowdown and thus REMOVE HIKES from the front-end as the Fed would be forced to “pause”—in turn, steepening the curve."

Instead, some in the market are pulling-forward this “end of cycle” view into the NOW, which is being exacerbated by already ugly performance and year-end illiquidity / dealer balance sheet “tightness” leading to capitulatory behavior—with the concurrent volatility in-turn is nuking legacy QE-era “curve flattening” derivative trades, i.e. the consensual U.S. Equities “Growth over Value” positioning

And, as the Nomura strategist has said before, this Trasury curve bull steepening would act as the ultimate “end of cycle” risk-off signal, telling traders that we were at the end of Fed policy normalization—because growth trajectory is decelerating, fiscal stimulus impacts are rapidly diminishing, financial conditions are net / net “tighter” and that policy has approached the level where it is no-longer “stimulative”

Which brings us to McElligott's conclsion, in which he notes that "in the sense that I still believe that in this current state the Fed will hike two more times (Dec18 and Mar19) before the “gig is up,” I am surprised that the market is taking this current (and still somewhat modest Fed language shift reversal) as THE “Fed pause / slowdown” cue; but regardless of the timing-scenarios, the risk now is that the market de-risking only FURTHER acts to tighten financial conditions (especially in Credit) while bleeding sentiment further in a vicious cycle."

Finally, adding insult to injury is the mega Fed balance-sheet shrinkage tomorrow, when $27.1BN of combined Treasuries and MBS- mature, acting to further “tighten” financial conditions.

* * *

And, as a bonus, for any funds still desperate to position themselves, here is McElligott's take on how to position in Growth vs Value during this turbulent period:

Growth LONGS are “expensive stuff” that gets CRUSHED at the end of cycles because they will see the largest cuts in forward EPS—and we’re seeing said “revisions lower” within “Growth LONGS” in real-time

Only later then does “Value” get the additional kicker from “Value LONGS,” as after we hit slowdown / recession, the market begins to price-in the next Fed EASING cycle, and these primarily “economically sensitive” stocks see the highest re-weighting / benefit to the rate cuts through their cyclicality

This is not going to be a “linear” path; there are periods where both Growth- and Value- can work—however, I believe that relatively speaking, Value continues to outperform over the next 1Y window, continuing its enormous outperformance QTD:

  • Value: Dividend Yield +11.5% QTD; EBITDA / EV +11.0% QTD; Predicted E/P +7.8% QTD; E/P +7.8% QTD; Dividend Payout +6.5% QTD; B/P +5.6% QTD; Sales / Price +5.6% QTD; Cash Flow / EV +3.1% QTD
  • Growth: Predicted 1Y EPS Growth -9.8% QTD; Predicted LTG -8.4% QTD; Sales Growth -5.1% QTD; 5Y EPS Growth -2.4% QTD; PEG -2.2% QTD


Published:11/20/2018 10:01:09 AM
[Markets] The S&P 500 on track to close in correction territory amid Tuesday's rout The S&P 500 index on Tuesday was uncomfortably to a close in correction, defined as a decline of at least 10% from a recent peak. The S&P 500 was trading 2.1% lower at 2,634, putting the gauge about 10% from a recent high at 2,930.75 hit on Sept. 20, based on FactSet data. Tuesday's drop for the broad-market benchmark was sweeping, with all but one of its 11 sectors (utilities up 0.5%) trading in negative territory, and losses lead by declines of more than 3% in energy and information technology. Meanwhile, the Dow Jones Industrial Average was down 587 points, or 2.3%, and the Nasdaq Composite Index shedding 2.8% at 6,832. Published:11/20/2018 9:39:35 AM
[Markets] S&P 500, Nasdaq and Dow Jones Industrial Average have turned negative for 2018 S&P 500, Nasdaq and Dow Jones Industrial Average have turned negative for 2018 Published:11/20/2018 9:02:51 AM
[Markets] Dow tumbles 500 points and all main stock-market gauges wipe out 2018 gains as tech shares get rocked U.S. stocks on Tuesday sank at the open, with the Dow Jones Industrial Average , S&P 500 index and the Nasdaq Composite Index all erasing their gains for 2018, underscoring a withering rout for stocks since October that has thus far been underpinned by a steady retreat in technology and internet-related stocks. The Dow was down 500 points, or 2%, at 24,523, the S&P 500 index sank 1.8% at 2,642, and the tech-oriented Nasdaq Composite Index retreated a sharper 2.3% at 6,866, declining the sharpest among the main U.S. equity benchmarks. For the year, the Dow was down 0.7%, the S&P 500 showed a year-to-date loss of 1.1%, while the Nasdaq was down 0.4%. Tuesday's tumble comes after disappointment over quarterly results from Target Corp. . Meanwhile, Apple Inc.'s stock was on track to close in bear-market territory for the first time in years, defined as a drop of at least 20% from a recent peak. Published:11/20/2018 9:02:50 AM
[Markets] Dow futures down nearly 300 points; Nasdaq, too, heads for triple-digit decline Dow futures down nearly 300 points; Nasdaq, too, heads for triple-digit decline Published:11/20/2018 8:00:11 AM
[Markets] Apple target cut at Goldman amid concerns of 'deteriorating demand' Goldman Sachs analyst Rod Hall cut his price target on Apple Inc. shares to $182 from $209 late Monday amid the latest reports of iPhone production cuts coming from the Wall Street Journal. That report suggested "deteriorating demand relative to what the company had initially expected" for the new iPhones, according to Hall's take, and he sees "additional twists" to what was reported. "In addition to weakness in demand for Apple's products in China and other emerging markets it also looks like the balance of price and features in the iPhone XR may not have been well-received by users outside of the U.S.," wrote Hall, who lowered his Apple price target last week as well. He sees "material risk" to the company's March-quarter outlook if demand trends continue on this trajectory though notes that the two weeks before Christmas tend to be strong for iPhone purchase patterns, so dynamics may shift then. Hall has a neutral rating on the shares, which are down more than 3% premarket and on pace to open Tuesday's session in bear-market territory. The stock has risen 9.3% in the past 12 months, as of Monday's close, compared with a 6.8% gain for the Dow Jones Industrial Average . Published:11/20/2018 8:00:11 AM
[Markets] Medtronic reports Q2 profit, revenue beats Medtronic PLC reported second-quarter profit and revenue beats early Tuesday, but also said it has taken hits from foreign exchange rates and projected China tariffs. Company shares slumped 0.2% in premarket trade. Earnings for the latest quarter declined to $1.115 billion, or 82 cents per share, from $2.017 billion, or $1.48 per share in the year-earlier period. Adjusted earnings-per-share were $1.22, above the FactSet consensus of $1.15. Revenue rose to $7.481 billion from $7.050 billion, above the FactSet consensus of $7.348 billion. The company said that if exchange rates hold for the rest of the fiscal year, fiscal 2019 revenue would be negatively affected by roughly $420 million to $520 million. Medtronic also said that "operational outperformance" in the first half of fiscal year 2019 had allowed the company to absorb expenses like foreign exchange impacts and the projected impacts of China tariffs. It continues to expect fiscal year 2019 adjusted EPS of $5.10 to $5.15, compared with the FactSet consensus of $5.12. Medtronic shares have lifted 0.4% over the last three months, compared with a 5.8% decline in the S&P 500 and a 2.9% decline in the Dow Jones Industrial Average . Published:11/20/2018 6:29:01 AM
[Markets] "A Sea Of Red": Global Stocks Plunge With Tech Shares In Freefall

While there was some nuance in yesterday's pre-open trading, with Asia at least putting up a valiant defense to what would soon become another US rout, this morning the market theme is far simpler: a global sea of red.

Stocks fell across the globe as worries over softening demand for the iPhone prompted a tech stock selloff across the world, while the arrest of car boss Carlos Ghosn pulled Nissan and Renault sharply lower. Even China's recent rally fizzled and the Shanghai composite closed down 2.1% near session lows, signalling that the global slump led by tech shares would deepen Tuesday, adding a new layer of pessimism to markets already anxious over trade. Treasuries advanced and the dollar edged higher.

S&P 500 futures traded near session lows, down 0.6% and tracking a fall in European and Asian shares after renewed weakness in the tech sector pushed Nasdaq futures sharply lower for a second day after Monday's 3% plunge and crippled any hopes for dip buying. News around Apple triggered the latest bout of stock market selling, after the Wall Street Journal reported the consumer tech giant is cutting production for its new iPhones.

Europe's Stoxx 600 Index dropped a fifth day as its technology sector fell 1.3% to the lowest level since February 2017, taking the decline from mid-June peak to 21% and entering a bear market. Not surprisingly, the tech sector was the worst performer on the European benchmark on Tuesday, following Apple’s decline to near bear-market territory and U.S. tech stocks plunge during recent sell-off. The selloff was compounded by an auto sector drop led by Nissan and Renault after Ghosn, chairman of both carmakers, was arrested in Japan for alleged financial misconduct. The European auto sector was not far behind, dropping 1.6 percent, and the broad European STOXX 600 index was down 0.9 percent to a four-week low.

“Most of Europe had a red session yesterday and that has been compounded by the news on Apple and tech stocks overnight, The overall climate is risk off,” said Investec economist Philip Shaw. “Beyond stocks, the Italian bonds spread (over German bonds) is at its widest in about a month now, and Brexit continues to rumble on - uncertainty is very much hurting risk sentiment,” he added.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 percent, with Samsung Electronics falling 2 percent. In Japan, Sony Corp shed 3.1 percent. Japan’s Nikkei slipped 1.1 percent, with shares of Nissan Motor Co tumbling more than 5% after Ghosn’s arrest and on news he will be fired from the board this week.

Meanwhile, as noted yesterday, the CDS index of US investment grade issuers blew out to the widest level since the Trump election, signaling renewed nerves about the asset class.

Exactly two months after the S&P hit all time highs, stocks have been caught in a vicious decline and continue to struggle for support as some of the technology companies that helped drive the S&P 500 to a record high earlier this year tumbled amid a slowdown in consumer sales and fears over regulation, many of them entering a bear market.

At the same time, a more gloomy macro outlook is emerging, with Goldman chief equity strategist David kostin overnight recommending investors hold more cash even as it reiterated its base case of S&P 3000 in 2019.

Ray Dalio disagreed, and said that investors should expect low returns for a long time after enjoying years of low interest rates from central-bank stimulus.

“The easy days of long, global bull markets where you can invest in a tracker for five basis points -- I say this as an active fund manager -- and watch the thing go up, I think those days are gone,” Gerry Grimstone, chairman of Barclays Bank PLC and Standard Life Aberdeen PLC, said in an interview on Bloomberg Television. “It’s going to be a move back to value investing, and back to the Warren Buffett-style of investment.”

In the latest Brexit news, UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers, while reports added PM May has received agreement from the EU to drop the backstop plan if both sides can agree on alternative arrangements to keep the border open. Meanwhile, Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May, the FT reported. In related news, Brexit rebels reportedly admitted attempts to oust PM May has stalled as Eurosceptic MPs turned on each other. The Telegraph also reported that the confidence vote now appears to be on hold until after Parliament votes in December on Mrs May's Brexit deal.

Sky News reported that the UK government are to publish new analysis before the MPs’ meaningful vote on the Withdrawal Agreement comparing the “costs and benefits” of Brexit. The impact of three scenarios will be measured; no Brexit, no deal, and leaving with the government's draft deal and a free trade agreement.

In rates, Treasuries rose, driving the 10-year yield down to its lowest level since late September, ahead of Thanksgiving Thursday.  Italian government bond yields jumped to one-month high on Tuesday and Italian banking stocks dropped to a two-year low, hurt by risk aversion and concerns over the Italian budget. Euro zone money markets no longer fully price in even a 10 bps rate rise from the European Central Bank in 2019, indicating growing investor concern about the economic outlook in the currency bloc.

In FX, the Bloomberg Dollar Spot Index whipsawed in early London trading even as it stayed near a more than one-week low on concern cooling global growth will slow the pace of Fed rate hikes, keeping Treasury yields under pressure. At the same time, the pound stabilized as Theresa May appealed to business leaders to help deliver her Brexit deal, and evidence mounted that a plot to oust her as U.K. Prime Minister is faltering.

The euro slid as Italian bonds dropped, pushing the yield spread to Germany to the widest in a month; the currency had opened the London session higher, supported by corporate buying in EUR/GBP. The yen rallied to a month-to-date high as Asian stocks followed a U.S. equity slide while the New Zealand dollar got a boost from a jump in milk production; the Aussie was on the back foot even after the RBA said Australia’s unemployment rate could fall further in the near term. India’s rupee rallied a sixth day after the central bank signaled a compromise with the government in their dispute over reserves.

Bitcoin extended its drop below $4,500 for the first time since October 2017.

WTI crude oil futures hovered around $57 a barrel after oil prices lost steam as fears about slower global demand and a surge in U.S. production outweighed expected supply cuts by the Organization of the Petroleum Exporting Countries. Brent crude slipped 0.9 percent to $66.21 per barrel.

In other overnight news, BoJ Governor Kuroda said there is currently no need to ease further, while he added that there was a need for bold monetary policy in 2013 and now we need to persistently continue with policy. Furthermore, Kuroda suggested that the chance of reaching the 2% inflation target during FY2020 is low. Japanese PM Abe says the next initial budget is to have measures to address sales tax.

India's Finance Ministry sources expect that the RBI will stand pat on rates at its meeting next month.

RBA Governor Lowe states that steady policy is to be maintained for 'a while yet' and it is likely that rates will increase at some point if the economy progresses as expected.

Expected data include housing starts and building permits. Best Buy, Campbell Soup, Lowe’s, Medtronic, Target, TJX, and Gap are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.8% to 2,676.00
  • STOXX Europe 600 down 0.5% to 353.25
  • MXAP down 1% to 150.89
  • MXAPJ down 1.2% to 481.70
  • Nikkei down 1.1% to 21,583.12
  • Topix down 0.7% to 1,625.67
  • Hang Seng Index down 2% to 25,840.34
  • Shanghai Composite down 2.1% to 2,645.85
  • Sensex down 0.8% to 35,498.94
  • Australia S&P/ASX 200 down 0.4% to 5,671.79
  • Kospi down 0.9% to 2,082.58
  • German 10Y yield fell 1.4 bps to 0.359%
  • Euro down 0.2% to $1.1433
  • Italian 10Y yield rose 10.4 bps to 3.223%
  • Spanish 10Y yield rose 0.3 bps to 1.653%
  • Brent futures down 0.8% to $66.23/bbl
  • Gold spot little changed at $1,223.14
  • U.S. Dollar Index up 0.1% to 96.29

Top Overnight News

  • Bank of England governor Carney appears before lawmakers on Tuesday. He’ll be joined by fellow interest-rate setters Jon Cunliffe, Andy Haldane and Michael Saunders. Treasury Committee Chair Nicky Morgan has already asked the BOE to assess any agreement
  • While Salvini is threatening to hijack the EU agenda as the dispute over Italy’s 2019 budget heats up, his closest adviser is trying to steer the populist coalition away from a head-on clash with Brussels, according to senior government and League officials who asked not to be named discussing confidential matters
  • Credit markets are set for the worst year since the global financial crisis as investors abandon hope of a late-2018 rally
  • Turmoil engulfed cryptocurrency markets again on Tuesday, with every major coin extending a rout that’s rocking confidence in the nascent asset class. Bitcoin, which started the year at more than $14,000, has fallen below $4,500. Rivals including Ether, Litecoin and XRP joined the slide, though they pared losses that reached as much as 17 percent
  • Evidence is mounting that the plot to oust U.K. Prime Minister Theresa May is faltering. One rebel leader said in private that more than 50 Tories had claimed they would submit letter but they hadn’t all followed through
  • Germany and France have warned the EU to do more to prevent the U.K. from being able to claim victory in Brexit talks, according to EU diplomats. Spain’s Foreign Minister said the EU shouldn’t accept a text on a Brexit agreement that Spain isn’t happy with
  • U.K. Labour Party leader Jeremy Corbyn said he wants to keep a second Brexit referendum open as an option
  • Australia’s unemployment rate may fall further in the near term based on leading indicators of labor demand, the central bank said in minutes of its November meeting
  • Bank of Japan Governor Haruhiko Kuroda says he welcomes a diversity of opinion on the effectiveness of negative rates. He also said he believes continuing current policy is best approach for achieving the central bank’s inflation target

Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off as Apple shares dropped nearly 4% on reports it had reduced production orders and with all FAANG stocks now in bear market territory. As such, the tech sector underperformed in the ASX 200 (-0.4%) and Nikkei 225 (-1.1%) was also pressured with Mitsubishi Motors and Nissan among the worst hit after their Chairman Ghosn was arrested on financial misconduct allegations. Shanghai Comp. (-2.1%) and Hang Seng (-2.0%) were heavily pressured after the PBoC continued to snub liquidity operations and as China’s blue-chip tech names conformed to the global rout in the sector, while earnings added to the glum as China’s 2nd largest e-commerce firm posted its weakest revenue growth since turning public. Finally, 10yr JGBs were weaker amid profit taking after futures recently hit their highest in around a year and following mixed results at today’s 20yr auction.

Top Asian News

  • BlackRock Doesn’t Expect Significant Growth Slowdown in China
  • China Stocks Lead Global Losses as Tech Rout Hits Fragile Market
  • Stock Traders in Asia Keep Finding New Reasons to Hit ’Sell’
  • World’s Largest Ikea to Open in Manila as Company Bets on Asia

Major European indices are largely in the red, with the SMI outperforming (+0.1%) which is being bolstered by Novartis (+1.0%) following their announcement of a joint digital treatment with Pear Therapeutics for substance abuse disorder. The DAX (-0.7%) is lagging its peers, weighed on by Wirecard (-5.0%) following a disappointing change to guidance forecasting as well as weak sentiment across IT names after the FAANG stocks entered bear market territory on Wall St. In particular, the Stoxx 600 Technology sector (-1.9%), dropped to its lowest level since Feb 2017. Meanwhile, Deutsche Bank (-2.5%) are in the red due to reports that the Co processed payments for Danske Bank in Estonia.

Top European News

  • Draghi’s Man in Rome Shows Populists Alert to Budget Backlash
  • BASF Targets $2.3 Billion Profit Boost From Corporate Revamp
  • Danske Fights Back as Hush Money Claims Raise New Questions
  • The One Thing Supercharging Europe Earnings in 2018 Is Crashing
  • As Things Stand, Spain Will Vote Against Brexit Deal: Sanchez

In FX, the DXY index remains technically prone to further downside pressure having closed below another Fib support level yesterday and testing the next bearish chart area around 96.050-10 ahead of 96.000 even. However, a more concerted bout of risk-off trade/positioning saved the DXY and broad Dollar from steeper declines as the tech-induced sell-off in stocks intensified, and jitters over Brexit alongside the Italian budget returned to the fore.

NZD/AUD - The Kiwi is bucking the overall trend and outperforming in contrast to this time on Monday, with Nzd/Usd rebounding firmly to 0.6850+ levels and Aud/Nzd retreating through 1.0650 to just south of 1.0600 following overnight data showing a hefty 6.5% y/y rise in NZ milk collections for October. Conversely, the Aud/Usd has slipped back under 0.7300 again, and close to 0.7250 in wake of RBA minutes underscoring no rush to hike rates and subsequent affirmation of wait-and-see guidance from Governor Lowe. In fact, he asserts that the jobless rate could decline to 4.5% vs 5% at present without inducing wage inflation, while also underlining concerns about the supply of credit.

JPY/CHF - Both benefiting from their more intrinsic allure during periods of pronounced risk aversion and investor angst, as Usd/Jpy probes a bit deeper below 112.50 and a key Fib at 112.46 that could be pivotal on a closing basis with potential to expose daily chart support circa 112.16 ahead of 112.00. Meanwhile, the Franc has inched closer to 0.9900 and over 1.1350 vs the Eur that remains burdened with the aforementioned Italian fiscal concerns.

GBP/EUR - Almost a case of déjà vu for Sterling and the single currency as early attempts to the upside vs the Greenback saw Cable and Eur/Usd revisit recent peaks around 1.2880 and 1.1470 respectively, but a combination of chart resistance and bearish fundamentals forced both back down to circa 1.2825 and 1.1425. In terms of precise technical/psychological levels, 1.2897 and 1.1445 represent Fib retracements, ahead of 1.2900 and 1.1500, while the Pound has remained relatively unchanged and unresponsive to largely on the fence pending Brexit rhetoric from the BoE in testimony to the TSC on November’s QIR.

In commodities, gold has stayed within a USD 5/oz range and traded relatively flat throughout the session moving with the steady dollar ahead of US Thanksgiving. Similarly, copper traded lacklustre breaking a 5-day rally because of a subdued risk sentiment stemming from ongoing US-China trade tensions; with Shanghai rebar adversely affected from these factors. Brent (-0.1%) and WTI (+0.2%) are following a relatively quiet overnight session, while recent upticks in the complex resulted in WTI reclaiming the USD 57/bbl and Brent edging closer to USD 67/bbl. This follows comments from IEA Chief Birol that Iranian oil exports declined by almost 1mln BPD from summer peaks. Looking ahead, traders will be keeping the weekly API crude inventory data which is expected to print a build of 8.79mln barrels.

On today's light data calendar, in the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.

US Event Calendar

  • 8:30am: Housing Starts, est. 1.23m, prior 1.2m; MoM, est. 1.79%, prior -5.3%
  • 8:30am: Building Permits, est. 1.26m, prior 1.24m; MoM, est. -0.79%, prior -0.6%

DB's Jim Reid concludes the overnight wrap

With the sell-off of the last 24 hours we have now traded through the last of our YE 2018 top level credit spread forecasts as US HY widened 6bps to +424bps (YE 2018 forecast was 420). We still think US HY is the most expensive part of the EUR & US credit universe but as discussed above, last night we’ve become more optimistic on all credit in the near-term after what has been the worst week of the year. Credit massively under-performed equities last week but equities caught up on the downside yesterday.  The sell-off was underpinned by the FANG names selling off, an accounting scandal emerging at Nissan, oil swinging around and the US housing market spooked by weak data.

Just on the market moves first, the NASDAQ and NYFANG indexes slumped -3.03% and -4.28% yesterday, registering their fourth and third worst days of the year, respectively. Facebook and Apple fell -5.72% and -3.96% respectively, as the sector remains pressured amid a slew of negative PR and the spectre of stricter government regulation. Over the weekend, Apple CEO Tim Cook said in an interview that “the free market is not working” and that new regulation is “inevitable”. This negatively impacted highly-valued social media companies. Twitter and Snapchat traded down -5.02% and -6.78% respectively. The tech sector was further pressured after the WSJ reported that Apple had cut production orders in recent weeks for the new model iPhones, with chipmakers broadly trading lower and Philadelphia semiconductor index shedding -3.86%. The S&P 500 and DOW also slumped -1.66% and -1.56% respectively while in Europe the STOXX 600 turned an early gain of +0.71% into a loss of -0.73%. In credit, cash markets were 2bps and 11bps wider for Euro IG and HY and 2bps and 6bps in the US. CDX IG and HY were, however, 3bps and 11bps wider, respectively. Elsewhere, WTI oil first tested breaking through $55/bbl yesterday, after Russia stopped short of committing to supply cuts, before recovering to close +0.52% at $56.76.

Bond markets were relatively quiet, with Treasuries and Bunds ending -0.4bps and +0.6bps, respectively, albeit masking bigger intraday moves. BTP yields rose +10.6bps to 3.597%, within 10 basis points of their recent closing peak, as rhetoric between Italian officials and their European peers continued to intensify. Finance Ministers from Austria and the Netherlands separately spoke publicly about their concerns, and expressed their hope that the European Commission will loyally enforce the fiscal rules. Italian Finance Minister Tria tried to calm conditions by framing the disagreement as relatively minor, though he also accused the Commission of being biased against expansionary policies, which he argued are needed to avert a macro slowdown.

Back to credit, as we highlighted yesterday, the recent weakness in the asset class has become a talking point for broader markets and while our view is now that value is starting to emerge, there are an increasing number of idiosyncratic stories plaguing the market. There were a couple more examples yesterday with the aforementioned story about Nissan removing its chairman after being arrested for violations of financial law. This caused Renault’s CDS to widen +25.0bps (equity down -8.43%), while Vallourec bonds dropped 15pts after falling 11pts on Friday as concerns mount about the company’s rising leverage in the wake of recent results. Like we’ve see in equity markets, it does feel like credits are now getting punished with sharp moves in the wake of  negative headlines Certainly something to watch, but as we said above, credit is now much more attractively priced than it has been for some time.

From steel tubing to Downing Street, where we’ve actually had a rare temporary lull for Brexit headlines over the last 24 hours, although behind the scenes it does look we’re getting closer to the threshold for a confidence vote in PM May with the Times yesterday reporting that “senior Brexiteers” had told reporters that they had “firm pledges” from over 50 MPs to submit letters. As a reminder, 48 are needed to trigger the process. Looking further out, yesterday DB’s Oliver Harvey published a report arguing that there is still a path towards an orderly Brexit based on the existing Withdrawal Agreement should May survive a confidence vote. This path is provided by the political declaration on the future economic relationship. The latter has yet to be negotiated, and as the EU27 and UK recognise in the joint statement, the existing temporary customs arrangement (TCA) already provides a basis for a future economic relationship. Oli argues that the UK should push for the political declaration on the future relationship to explicitly commit the UK to a form of Brexit that might be described as “Norway plus.” The temporary customs arrangement would become permanent, but under the governance framework of UK membership of the EEA and EFT. The UK should tie the political declaration on the future relationship to the good faith clause in the existing Withdrawal Agreement, meaning that if negotiations were not pursued on these lines after the transition period had begun, the UK could withhold payments from the EU27. This would help to allay concerns from across the political divide that the UK would be “trapped” in a sub optimal customs union with the EU27.

Meanwhile, to complicate matters, Bloomberg has reported that the EU is mulling over issuing a series of separate statements on Brexit on Sunday, in addition to the Withdrawal Agreement and the Political Declaration. This comes after pressure from some EU countries not to appease any additional UK demands. Elsewhere, the SUN has reported that the PM May has drawn up a secret plan to scrap the Irish backstop arrangement in an attempt to win over angry Tory Brexiteers after a meeting with them yesterday. However, if a mutually agreeable solution couldn’t be found over the last couple of years, it seems tough to imagine one was finally found yesterday afternoon. We’ll see.

Further adding to the complexity of where Brexit heads, last night the DUP abstained on the UK finance bill, which implements the budget. This stops short of their prior threat to actively vote against the legislation, but is still a surprise and signals that further political turbulence between PM May and the DUP is likely. The bill only just scraped through. Sterling finished +0.14% yesterday and this morning is trading flattish (+0.02%) in early trade.

Sentiment more broadly in Asia is following Wall Street’s lead with almost all markets trading in a sea of red. The Nikkei (-1.25%, with Nissan Motors down as much as -5.41% and Mitsubishi Motors -6.71%), Hang Seng (-1.84%), Shanghai Comp (-1.63%) and Kospi (-0.96%) are all down along with most other markets. Elsewhere, futures on S&P 500 (-0.29%) are extending losses as we type.

Back to yesterday, where as we mentioned at the top, weak US homebuilder sentiment survey data played its part in the moves for markets. The November NAHB housing market index tumbled to 60 from 68 in October after expectations had been for just a 1pt drop. That’s the lowest reading since August 2016 and biggest one-month drop since February 2014. The details weren’t much better and falls into line with the expectation of a softer outlook for housing. As you’ll see in the day ahead we’ve got more housing data in the US today so worth keeping an eye on even if the October data for starts could be distorted by Hurricane Michael.

As far as the day ahead is concerned, we’re fairly light on data today with Q3 employment stats in France, October PPI in Germany and November CBI total orders data in the UK the only releases of note. In the US, there should be some interest in the October housing starts and building permits data, especially following Fed Chair Powell’s recent comments acknowledging a slowdown in the housing market and yesterday’s homebuilder data. Away from that, the BoE’s Carney is due to appear before the Parliament’s Treasury Committee to discuss the Inflation Report, while the ECB’s Nouy and Bundesbank’s Weidmann are both scheduled to speak at separate events.

Published:11/20/2018 6:29:01 AM
[Markets] Global Stocks Slide as Apple Sours Tech; Dollar Drifts Ahead of US Housing Data Apple shares continue to slump, with German-listed units falling to the lowest level since July, amid multiple reports of tepid iPhone demand, dragging supply-chain stocks and broader tech shares lower in markets around the world. Oil prices slide as U.S. production rates, slowing global demand, offset talk of Saudi-lead output cuts from OPEC next month in Vienna. U.S. equity futures retreat in-line with global stocks, with the Dow called 100 points lower and the Nasdaq set for a 30-point opening bell decline. Published:11/20/2018 3:27:54 AM
[Markets] Australia stocks lower following Wall Street selloff Stocks in Australia slipped in early trade. Overnight on Wall Street, the Dow Jones Industrial Average plunged almost 400 percent amid a wider market sell-off stateside. Nissan chairman Carlos Ghosn was arrested on Monday over allegations of financial misconduct. Published:11/19/2018 6:25:20 PM
[Markets] The Dow Dove 396 Points Because the Carving Started Early Apple and tech stocks caught the worst of it in the market rout. The Dow Jones Industrial Average tumbled 1.6% to 25,017.44, while the Nasdaq plunged 3.0%, to 7028.48. Published:11/19/2018 4:56:23 PM
[Markets] RIP FANG

The message from many investors today to their favorite stocks...


Most indices extended last week's outlier exuberance in Chinese stocks, except tech/small cap-dominated CHINEXT  dropped...


European stocks saw selling from shortly after the opening bounce to all end lower led by DAX... (as automakers got hit across the board after Carlos "Gone")


It was all looking so hopeful at around 3amET as the overnight weakness in futures had been ramped into the European open, but as soon as AAPL headlines hit... along with every other previous leader - US equities cratered at the open and barely looked back...


On the day, Nasdaq was worst across all the cash indices (Nasdaq Composite now at its lowest close since April)

NOTE - there was no dramatic volume selling programs on the day

Dow futs had a 600 point range intraday... (this is the first Dow cash close below 200DMA since Oct 31st)


Only Trannies remain green for November...


For 2018, S&P is now up less than 1% and Nasdaq Composite up only 2.2%...Small Caps and Trannies are negative YTD

Viewed another way: the Nasdaq 100 is still up 4 percent this year. But so good has its performance been in the last decade that a gain of that size qualifies as the second-worst annual return since the bull market began. The index has now had three separate 10 percent corrections in 2018, something that hasn’t happened since the financial crisis.

FANG Stocks at their lowest since February...

For some context - that is a $610 billion drop in market cap between those four names.

Cap-weighted FANG stocks are down 26.5% from their highs, deep in bear market, and all the underlying names are also now in a bear: FB -39.6%, AMZN -25.8%, NFLX -35.9%, GOOGL -20.2%


Value stocks are soaring relative to Growth stocks...


AAPL at new cycle lows below the 200DMA...down 20.2% (in a bear market)...


VIX jumped back above 20 and the term structure re-inverted...


High Yield credit continues to blow out across ETFs, cash, and CDS...


And investment grade credit risk is now at its widest since Trump's election in Nov 2016 (but still underpriced relative to VIX)...


Suggesting there's a lot more pain to come for stocks...


Treasury yields fell broadly on the day (after being higher overnight)...


And notably bull-steepened... (back near the Nov peak, steepest since June)

Although we note that it seems like 55bps for 2s30s is a cap for now.


10Y Inflation Breakevens plunged to their lowest since Jan 3rd, catching down to crude's collapse...


And for the first time in decades, a 12-month Treasury bill has a higher yield than one-year Chinese debt...


The Dollar fell for the 4th day in 5, extending losses below the key 97 level...


And offshore yuan dropped back below its Onshore Fix...


Cryptos continued their crashing trend today with Bitcoin back below $5,000 briefly...


Commodities ended marginally higher on the day...


Gold rallied and held above its 50- and 100-DMA (Silver tested its 50DMA but couldn't break it)...


WTI Crude futures managed a modest bounce


Finally, we note that Fed rate-hike odds - and trajectory - are tumbling with only 31.5bps of tightening now expected next year and 2020 and 2021 both expected to see rate-cuts...

As markets have entirely decoupled from The Fed...

Published:11/19/2018 3:24:10 PM
[Markets] Dow ends down nearly 400 points as tech losses batter stock market Dow ends down nearly 400 points as tech losses batter stock market Published:11/19/2018 3:24:10 PM
[Markets] US STOCKS-Wall St hit by Apple and Internet shares, trade worries The Nasdaq slumped nearly 3 percent and the Dow and S&P fell more than 1 percent on Monday as investors pulled out of Apple and internet shares, while conflicting signals over the state of play between the United States and China on their trade dispute added to caution. Shares of Apple Inc fell 3.5 percent after the Wall Street Journal reported the company had cut production orders in recent weeks for all three iPhone models launched in September. Published:11/19/2018 2:23:41 PM
[Markets] Dow industrials down nearly 500 points in early afternoon trading Dow industrials down nearly 500 points in early afternoon trading Published:11/19/2018 1:22:56 PM
[Markets] Dow Dumps 500 Points - Back Below Key Technical Support

While Nasdaq and all its 'no brainer' stock leaders are getting all the headlines, The Dow has now crashed 500 points, breaking back below its 200-day moving-average...


As selling hasn't stopped since the cash open... (Nasdaq futs worse)

As AAPL breaks to new cycle lows...

Published:11/19/2018 1:22:56 PM
[Markets] More losses from big tech companies pull stocks lower, knocking 500 points off the Dow Jones Industrial Average More losses from big tech companies pull stocks lower, knocking 500 points off the Dow Jones Industrial Average. Published:11/19/2018 1:22:56 PM
[Markets] Dow falls almost 500 points as tech losses batter stock market The main equity benchmarks saw losses accelerate in morning trade after a report showed home builder’s confidence plummeted in November. U.S. financial markets will be closed Thursday for the Thanksgiving Day holiday. The Dow Jones Industrial Average (DJIA) tumbled 474 points, or 1.9%, to 24,942, the S&P 500 index (SPX) retreated 50 points, or 1.8%, at 2,686, and the Nasdaq Composite Index (COMP) fell 211 points at 7,035, a decline of 2.9%. Published:11/19/2018 12:53:46 PM
[Markets] Morgan Stanley Calls It: "We Are In A Bear Market"

On Friday, with the Dow surging on what proved to be failed hopes that the trade war with China is coming to an end, JPMorgan head quant Marko Kolanovic quadrupled down on his now weekly call urging clients to buy the dip, this time saying that "equity market sentiment is held back by two key risks: the Fed hiking beyond the neutral rate and escalation of global trade war."

To justify his relentless optimism, Kolanovic referred to "Trump’s statement that he may not need to impose more China tariffs and that the “China list is pretty complete, four or five things left off” (from the original list of 142 requests, i.e., 96% of items have been addressed)"and added that "naively interpreting the likelihood of a deal by the number of items addressed would indicate a significantly increased probability of a trade deal." Of course, following this weekend's collapse in Sino-US diplomacy at the APEC summit, which for the first time in history ended without a joint communique, we know that this is not the case.

The JPM quant also pointed to the recent shift in sentiment by the Fed's chair and vice chair, and referring to the statement by Richard Clarida, suggested that "the Fed may stop at the neutral rate (rather than continue hiking beyond the neutral rate), which might be interpreted as an effective rate cut." Then again, as Nomura's Charlie McElligott explained this morning, the "bull steepening" in the curve indicates that far from a bullish resolution, the Fed's dovish relent is actually bearish "because growth is decelerating, fiscal stimulus impacts are rapidly diminishing, financial conditions are net / net “tighter” and policy nearing the level where it is no-longer “stimulative."

In any case, for the above two reasons, and along with record levels of Q4 buyback activity, Kolanovic concluded that "the pain trade, and therefore most likely outcome, will be the market going higher into year-end."

Well, maybe not...  because one look at the market which is down almost 2%, with the Dow plunging 450 points and the S&P back under 2,700 would indicate otherwise.

* * *

Meanwhile, taking the other side of the bet is Morgan Stanley's bearish chief equity strategist, Michael Wilson, whose year end price target on the S&P is 2,750, the lowest of all Wall Street strategists whose average prediction is that the S&P will close above the record high of 2,930.75 hit in September and who warns again that "If it Looks like a Bear and Trades Like a Bear, Stop Trading it Like a Bull", and then just in case he wasn't clear, explains "We are in a Bear market."

To make his point, Wilson notes something we first brought attention to back on October 24, namely that in 2018 "buying the dip" has been a negative return strategy for the first time in 13 years.

Here's Wilson:

Not only does the price action this year suggest we are in the midst of a bear market--more than 40 percent of the stocks in the S&P 500 are down at least 20 percent--but it also trades like a bear market. According to analysis from our QDS colleagues, buying the dip has not worked in 2018 for the first time since 2002. Such market behavior is rare and in the past has coincided with official bear markets (20 percent declines), recessions, or both.

Exhibit 1: Old Habits are Hard to Break. Buy-the-Dip Strategy Not Working This Year for the First Time since 2002

To demonstrate this point, Morgan Stanley looked at rolling five-day declines in the S&P 500 Index this year and found that on average, the sixth day also generated a loss: of 0.05 percent. And while the drop is small, as Bloomberg notes, it’s a big departure from the past 16 years, when dips gave way to gains. And sure enough, it happened again today with the S&P falling 1.6 percent as of noon ET after a decline last week.

More ominously, Wilson notes that what's notable about Exhibit 1 is the fact that the only years the Buy the Dip hasn't worked was during bear markets, or the beginning of one (1982, 1990, 2000, 2002). In the cases of 1982, 1990, and 2002 it was also accompanied by a recession. In the case of 2000, it was the year preceding a bear market and recession and the topping of the TMT bubble.

In other words, while 2018 is clearly not a year of recession, the market is speaking loudly that bad news is coming. Our view is that the market is sniffing out an earnings recession and a sharp deceleration in economic growth--something we have written about extensively.

To be sure, there are exceptions: did buying dip work in 2008-09, however Wilson has a specific explanation for this: "in 2008-09, the Fed was easing aggressively and began its QE program along with TARP. That's a lot of stimulus that probably offset the very real concerns about the economy and corporate earnings." Furthermore, Wilson adds, while the S&P 500 was down in both 2008 and 2009, buying the market on weakness was still a profitable strategy because the rallies were just as vicious given the incredible uncertainty and unprecedented volatility which also made it almost impossible to execute.

However, this year has been different because as shown in the chart below, monetary stimulus is being removed in a much more deliberate way than we have seen since 2004 and fiscal stimulus has peaked.


So unlike JPMorgan, the bottom line for Morgan Stanley is that until we see buying the dip rewarded or earnings for next year reduced to a level that is achievable, "we recommend trading like it's a bear market rather than a bull."

Still, despite Wilson's bearishness, there is a point of convergence between the bank's bearish outlook and Kolanovic's bullishness:  the Morgan Stanley strategist estimates that 90% of the valuation damage from the "rolling bear market" is done now that the S&P 500’s forecast price-earnings ratio has contracted 18% from its December peak, suggesting that one final flush may be all that's needed to clear out the selling overhang. Additionally, he writes, "the good news is that bottom up 2019 EPS forecasts are finally coming down, albeit slowly. We think this will be a long arduous process as companies are slow to acknowledge margin pressure, top line weakness, or both. So far, the biggest cuts have come from Growth stocks."

Still, he urged investors to stay away from stocks that have fetched higher multiples.

“We thinks the risk from here is much more at the stock level and will likely be concentrated in the higher multiple stocks that do not deserve a valuation premium but have simply benefitted from a crowding effect. Nvidia's price action last week is a good example of that remaining risk."

Come to think of it, Nvidia's price action today is also a good example of that, which begs the question: with the bearish thesis once again winning, will Marko Kolanovic qunituple down on his bullish call, or will he finally throw in the towel and join the bearish side?

Published:11/19/2018 11:52:32 AM
[Markets] Did Oil Drag Wall Street Last Week? On November 9–16, US equity indexes ended in the red. Last week, the Dow Jones Industrial Average (DIA), the S&P 500 (SPY), and the S&P Mid-Cap 400 (IVOO) fell 2.2%, 1.6%, and 0.9%, respectively. Energy stocks form ~5.2%, 5.9%, and 5.1%, respectively, of these equity indexes. Published:11/19/2018 11:52:32 AM
[Markets] Dow down 370 points as Monday slide steepens; big losers: Boeing, Apple, Visa Dow down 370 points as Monday slide steepens; big losers: Boeing, Apple, Visa Published:11/19/2018 11:26:25 AM
[Markets] Why I am Thankful for the Stock Market, Even This Year This has been a tough year for the stock market, massively tougher than last.   Right now the Dow Jones (DIA) is clinging to a 2% gain, with the S&P 500 (SPY) about the same, and the Nasdaq (QQQ) still up 3%.  But this has been a tough year that many thought would be easy.  We started with a huge tax cut (mainly to corporations), but then quickly focused on tariffs, elections, and a potential slowdown next year.   Volatility is up, profits may be peaking (really just growth is peaking), and we are limping into Macy’s Thanksgiving Day Parade.  (At least they are having a good year with (M) up 30%).  So why am I thankful?  Let me count the ways. Published:11/19/2018 10:25:57 AM
[Markets] Dow falls to intraday low to start Thanksgiving week; Boeing delivers biggest blow to blue chips The Dow Jones Industrial Average was sinking early Monday, pressured by a decline in shares of Boeing Co. to start the holiday-shortened week. Boeing shares were exacting a roughly 90-point toll from the blue-chip gauge, which was trading at sessions lows, down 230 points, or 0.9%, at 25,189. The S&P 500 index declined 0.9% at 2,711, while the Nasdaq Composite Index lost 1.8% at 7,116, with a drop in shares of Apple Inc. weighing on the broader market. The Wall Street Journal over the weekend reported that production slowdown as the iPhone maker were hurting its suppliers. Published:11/19/2018 9:52:05 AM
[Markets] U.S. stocks begin shortened Thanksgiving week in the red U.S stocks opened the shortened week lower across the board on Monday. The Dow Jones Industrial Average opened down 80 points, the S&P 500 began the session down 0.2% and the tech-heavy Nasdaq Composite Index was down 0.6% at the opening bell. Investors continue to track trade tensions between the U.S. China and the ongoing plight of the U.K.'s departure from the European Union. In individual stocks, Nissan Motor Co. was in focus after Chairman Carlos Ghosn was arrested in Tokyo on Monday and Nissan said it intended to oust him from his post on the back of "significant acts" of financial misconduct. Published:11/19/2018 8:51:21 AM
[Markets] Aries Pharma drug approved for travelers' diarrhea, first new antibiotic for it in more than 10 years Cosmo Pharmaceuticals N.V.'s Aries Pharmaceuticals, Inc. said early Monday that its Aemcolo medication has been approved in the U.S. for traveler's diarrhea, making it the first antibiotic approved for the condition in more than a decade, according to the company. The product, a formulation of the antibiotic rifamycin that is delivered to the colon for traveler's diarrhea caused by E. coli, will be available in pharmacies in the first quarter of next year. You can probably guess what the symptoms of traveler's diarrhea are; the condition isn't usually serious when it happens to healthy adults but "can certainly make for an unpleasant trip," according to the Centers for Disease Control and Prevention. Cosmo Pharmaceuticals shares were up 4% on Monday; shares have dropped nearly 6% over the last three months, compared with a 4% drop in the S&P 500 and a 1% decline in the Dow Jones Industrial Average . Published:11/19/2018 7:57:39 AM
[Markets] Merck KGaA and Pfizer say drug failed to meet primary endpoints in late-stage ovarian cancer trial Merck KGaA and Pfizer Inc. said early Monday that the cancer immunotherapy avelumab did not meet the primary endpoints of a phase 3 ovarian cancer trial. The trial, JAVELIN Ovarian 200, tested avelumab both alone and in combination with chemotherapy. It specifically focused on individuals with platinum-resistant or -refractory ovarian cancer, or cancers that did not respond to prior chemotherapy treatment, "a population known to have disease that is challenging to treat; as such, this group of patients in typically not included in Phase 3 ovarian cancer trials," Dr. Chris Boshoff, Pfizer's senior vice president and head of immuno-Oncology, early development and translational oncology, said. "The results speak to the significant challenges these women face." Another Merck and Pfizer trial of avelumab, in a type of lung cancer, also did not meet its primary endpoint earlier this year. The drug is being tested in several other types of cancer, with roughly 17 total clinical trials ongoing, according to Pfizer's drug pipeline. Both U.S.-listed Merck KGaA and Pfizer shares were inactive in Monday premarket trade. Merck KGaA shares have surged 8.8% over the last three months and Pfizer shares have risen 3.4%, compared with a nearly 4% drop in the S&P 500 and a 1% decline in the Dow Jones Industrial Average . Published:11/19/2018 6:53:53 AM
[Markets] Futures Slide After US-China APEC Clash, Apple Production Cuts

After a dramatic end to the APEC summit in Papua New Guniea which concluded in disarray, without agreement on a joint communique for the first time in its history amid the escalating rivalry between the United States and China, U.S. index futures initially traded sharply lower as investors digested signs that America-China trade tensions are set to persist, however they staged a modest rebound around the time Europe opened, and have traded mixed since amid subdued volumes as a holiday-shortened week begins in the US.

Last Friday, US stocks jumped after President Trump said that he might not impose more tariffs on Chinese goods after Beijing sent a list of measures it was willing to take to resolve trade tensions.  However, tensions between the two superpowers were clearly on display at the APEC meeting over the weekend where Vice President Mike Pence said in a blunt speech that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways.

“The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,” said NAB’s head of FX strategy, Ray Attrill. “The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.”

US Futures were also pressured following a report by the WSJ that Apple has cut iPhone production, creating turmoil for suppliers and sending AAPL stock 1.6% lower and pressuring Nasdaq futures.

Yet while early sentiment was downbeat following the APEC fiasco, US futures staged a rebound as shares in both Europe and Asia rose while Treasuries declined, the dollar faded an initial move higher as traders focused on the Fed’s new-found concerns over the global economy, and the pound advanced amid speculation that the worst may be over for Theresa May, since the potential for a vote of no confidence in May may be losing traction: the Sun reported that 42 lawmakers have sent letters of no confidence to Graham Brady, 6 more are needed to trigger a leadership challenge

Asia took a while to warm up but made a strong finish, with the Shanghai Composite closing 0.9% and Japan's Nikkei 0.7% higher, helping Europe start the week off strong too as a 1 percent jump in mining, tech and bank stocks helped traders shrug off last week’s Brexit woes. At the same time, stocks fell in Australia and New Zealand, where the Aussie and kiwi currencies dropped after U.S. Vice President Mike Pence attacked China at the weekend APEC summit.

Telecommunications and construction shares pushed Europe's Stoxx 600 Index higher, along with stocks in Italy, where Deputy Premier Luigi Di Maio said the government is ready for dialog with the European Commission over the country’s budget, which however seems just more semantics as Italy refused to concede to European budget demands.

Meanwhile, in addition to confusion over trade, the outlook for U.S. interest rates was also uncertain. While Federal Reserve policymakers are still signaling rate increases ahead, they also sounded more concerned about a potential global slowdown, leading markets to suspect the tightening cycle may not have much further to run and Morgan Stanley to write that "We Sense A Shift In Tone From The Fed."

Goldman Sachs also chimed in, saying it expected the pace of U.S. economic growth to slow toward the global average next year.  The bank now sees a broad dollar decline next year, and revised its long-standing bearish view on the Japanese yen and tipped Latin American currencies, the Swedish krona, the Canadian, Australian and New Zealand dollars and the Israeli shekel to rise.

“We see several changes to the global economic backdrop which, combined with a few negative medium-run factors, point to more downside than upside to the broad dollar in 2019,” Goldman economists said in an outlook report. Goldman's bearish tilt will focus attention on an appearance by New York Fed President John Williams later on Monday to see if he echoes the same theme. As Reuters notes, investors have already cut odds of further hikes, with a December move now priced at 73%, down from over 90%. Futures imply rates around 2.74% for the end of next year, compared to 2.93% early this month.

As a result, yields on 10-year Treasurys declined to 3.08 percent, from a recent top of 3.25 percent while the currency market saw the dollar fade early gains while the pound rebounded from sharp losses last week as Theresa May prepared to appeal to business leaders to help deliver her Brexit deal as the premier fights almost insurmountable Parliamentary opposition.

May said on Sunday that toppling her would risk delaying Brexit as she faces the possibility of a leadership challenge from within her own party. With both pro-EU and pro-Brexit lawmakers unhappy with the draft agreement, it is not clear that she will be able to win the backing of parliament, increasing the risk that Britain will leave the EU without a deal.

Elsewhere, the Australian and New Zealand dollars held on to their declines after Mike Pence's attack on China this weekend fueled concern Sino-U.S. trade tensions will worsen; the yen neared a month-to-date high on the risk-aversion, onshore yuan weakened for the first time in five days.

Treasuries slipped while European bonds were mixed, with core notes slipping and peripherals rising led by Italy. In the U.S., trading activity may be thinned before the Thanksgiving holiday later this week.

In commodity markets, gold found support from the drop in the dollar and held at $1,1220.19. Oil prices suffered their sixth straight week of losses last week, but climbed toward $57 a barrel in New York on Monday. Bitcoin dropped further below $6,000, at one point touching a one-year intraday low.


Market Snapshot

  • S&P 500 futures down 0.2% to 2,738.50
  • STOXX Europe 600 up 0.5% to 359.37
  • MXAP up 0.4% to 152.43
  • MXAPJ up 0.2% to 488.43
  • Nikkei up 0.7% to 21,821.16
  • Topix up 0.5% to 1,637.61
  • Hang Seng Index up 0.7% to 26,372.00
  • Shanghai Composite up 0.9% to 2,703.51
  • Sensex up 0.9% to 35,758.30
  • Australia S&P/ASX 200 down 0.6% to 5,693.66
  • Kospi up 0.4% to 2,100.56
  • German 10Y yield rose 2.4 bps to 0.391%
  • Euro up 0.04% to $1.1419
  • Italian 10Y yield unchanged at 3.119%
  • Spanish 10Y yield fell 0.4 bps to 1.632%
  • Brent futures up 0.4% to $67.05/bbl
  • Gold spot down 0.3% to $1,219.37
  • U.S. Dollar Index down 0.1% to 96.41

Top Overnight News from Bloomberg:

  • Theresa May will appeal to business leaders to help deliver her Brexit deal, as she fights almost insurmountable opposition in Parliament and a possible leadership challenge. You do the math: Can May get her Brexit deal through Parliament?
  • Vice President Mike Pence sharpened U.S. attacks on China during a week of summits that ended Sunday, most notably with a call for nations to avoid loans that would leave them indebted to Beijing
  • An Asia- Pacific summit ended in tumult after the U.S. and China failed to agree on language in a final statement, the latest sign that a trade war between the world’s biggest economies won’t end anytime soon
  • The European Central Bank shouldn’t rush to spell out how long it plans to reinvest proceeds from bonds maturing under its asset-purchases program, said French policy maker Francois Villeroy de Galhau
  • President Donald Trump said he wouldn’t stop acting Attorney General Matthew Whitaker if he curtails special counsel Robert Mueller’s investigation into possible collusion by Trump campaign officials with Russian interference in the 2016 presidential election
  • U.K. house asking prices fell from a year earlier for the first time since 2011, led by declines in London and among the most expensive properties.
  • President Donald Trump said Saudi Crown Prince Mohammed bin Salman has denied to him perhaps five times any role in the killing of journalist Jamal Khashoggi, and the U.S. may never know whether he was involved in the murder
  • Trump’s famously opaque business will face a bracing new reality next year when House Democrats hit it with a flurry of subpoenas for the first time
  • The European Central Bank shouldn’t rush to spell out how long it plans to reinvest proceeds from bonds maturing under its asset-purchases program, said French policy maker Francois Villeroy de Galhau
  • The European Union is hammering out the first bloc-wide rules to prevent foreign investments from threatening national security, as Chinese acquisitions foster political unease
  • Hedge funds’ wagers against West Texas Intermediate and Brent crude soared for a seventh straight week, the longest global short-selling streak in data going back to 2011

Asian equity markets began the week somewhat cautious on lingering trade concerns and after disunity at the APEC summit over the weekend which failed to agree on a joint communique for the first time in history due to US-China tensions.  ASX 200 (-0.6%) and Nikkei 225 (+0.6%) traded mixed in which nearly all of Australia’s sectors were in the red aside from miners, while Nikkei 225 was positive as participants digested mixed trade data which showed a jump in imports. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp (+0.9%) were choppy amid trade-related uncertainty following the verbal jabs between US and China in which Chinese President Xi warned that countries which embraced protectionism were doomed to fail and US Vice President Pence later commented the US could more than double the tariffs imposed on Chinese goods. Finally, 10yr JGBs futures rose to match the YTD high as they tracked the recent upside in T-notes and with the BoJ also present in the market for JPY 800bln of JGBs in the belly to the short-end of the curve. APEC summit ended without an agreement on a joint communique for the first time in its history after China refused to sign amid US-China tensions, while there had been comments from Chinese President Xi Jinping that countries which embraced protectionism were "doomed to failure" and US Vice President Pence later commented that he was prepared to "more than double" the tariffs imposed on Chinese goods.

Top Asian News

  • China’s Ping An Buys Stake in German Fintech Incubator Finleap
  • Japan Bank Shares Fall Most in Month After U.S. Yields Drop
  • Asian Markets Come out of Their Torpor as Stock Gains Accelerate
  • An Accountant Stirs Debate as India Central Bank Board Meets

Major European indices are in the green, with the outperforming FTSE MIB (+1.1%) bolstered by news that Luigi Gubitosi has been appointed as the new CEO of Telecom Italia (+4.3%). The SMI (-0.2%) gave up initial gains and is lagging its peers, weighed on Swatch (-4.0%) and Richemont (-1.4%) following unfavourable price outlook for both by Bank of America Merill Lynch. Sectors are mostly all in the green, with outperformance in telecom names, while energy names are lower given pullback in oil prices in recent trade and consumer discretionary names are weighed on by Renault (-7.0%), with the company shares extending losses following reports that Nissan’s boss has been arrested in Japan regarding allegations of financial violations. Renault shares are hit given the Renault-Nissan-Mitsubishi alliance. Elsewhere, BPost (-5.7%) shares are hit following a downgrade at HSBC, while Tele2 (+1.8%), are near the top of the Stoxx 600 after being upgraded at Berenberg.

Top European News

  • Villeroy Sees No Need to Define Reinvestments Length in December
  • U.K. Housing Woes Deepen With First Asking-Price Drop Since 2011
  • EU Set to Tighten Rules on Foreign Investment to Fend Off China
  • New Telecom Italia Boss Deepens Activist Shareholder’s Clout

In FX, the Greenback has regained some composure following its downturn at the end of last week amidst soft US data and cautious if not concerned or outright dovish Fed rhetoric (Clarida conscious about contagion from slower global growth, Kaplan envisaging headwinds from rising debt and Harker opposed to a December rate hike), but the DXY remains capped below a key Fib level (96.590) and the Dollar overall is mixed vs major counterparts.

  • NZD/AUD/CAD - All on the back foot against their US peer and underperforming other G10 currencies, with the Kiwi retreating below 0.6850 and undermined by cross flows as Aud/Nzd rebounds further from recent lows towards 1.0700 and Aud/Usd holds above 0.7300 in wake of last week’s strong Aussie jobs data.
  • GBP - The Pound has derived some comfort, or is simply just relieved that the Tory uprising and challenge to UK PM May has not reached the minimum level required to trigger a no confidence vote and adding another potential spanner in the Brexit works. However, the situation remains far from stable and certain given that Parliament still has to vote on the Withdrawal Agreement and the room for further renegotiation with the EU looks limited at best ahead of Sunday’s Summit and more meetings planned in the run up to try and sound out whether there is scope to tweak elements of the draft. Cable has tested and marginally breached last Friday’s peak at 1.2877, but far from convincingly amidst supply ahead of 1.2900, and with the 21 DMA also representing formidable tech resistance just above the big figure (1.2918-20). Meanwhile, Eur/Gbp has not pulled back too far below 0.8900, as the single currency holds firm in its own right.
  • EM - The Rand has made an encouraging start to the week, with a break through 14.0000 vs the Usd exposing recent peaks and momentum to re-test 13.8700 ahead of 13.6000 (50% Fib).

In commodities, Brent (+0.5%) and WTI (+0.1%) are in positive territory, albeit off highs, following market expectations that Saudi Arabia will steer OPEC and Russia to cut oil supply. Meanwhile, Russian Energy Minister Novak said the country is planning to sign an output agreement with OPEC at their December 6th meeting in Vienna. Overnight gains in the complex were driven by reports that Saudi is said to want oil prices around USD 80.00/bbl. Elsewhere, Iranian President Rouhani emerged on state TV and stated that the US has failed to reduce Iran’s oil exports to zero and Iran will continue to sell their crude. Conversely, Gold (-0.2%) prices fell this morning, with traders citing profit taking from last week’s gains, while Palladium is nearing parity with gold as an all-time high of USD 1185.4/oz was hit on Friday. Separately, copper is lower following tension between the US and China at the APEC summit which ended without an agreement on a joint communique for the first time in its history.

It's a fairly quiet start to the week on Monday with the only data of note being the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed's Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union.

US Event Calendar

  • 10am: NAHB Housing Market Index, est. 67, prior 68
  • 10:45am: Fed’s Williams Speaks in Moderated Q&A in the Bronx

DB's Jim Reid concludes the overnight wrap

Brexit was left in a bit of phoney war this weekend. We’re no closer to a leadership contest for Mrs May but it could still happen at any point. The Sun -citing their “extensive investigation” - has concluded that 42 lawmakers have sent letters of no-confidence in the PM (48 needed). Overall though more Conservative MPs are disliking the deal - and will vote against it - than will ask for a leadership battle in our opinion. The consensus that is forming amongst the Conservative MPs who dislike the Withdrawal Agreement is that it can be improved upon. This time next week we will have just had the Sunday EU summit to sign off their side of the deal but its not clear how meaningful tweaks could be made before this and before the agreement goes before UK Parliament in the next 2-3 weeks. The only thing that could be fleshed out is more on the future relationship between the UK and Europe as Mrs May travels to Brussels this week to try to progress on this. That might appease some MPs but likely not enough to  help the vote pass. As such my personal view is that May stays on as leader, the EU offer no concession, the vote doesn’t get through Parliament and then the fun and games start. The UK may go back to Europe and ask for specific concessions at this point or we may end up with a path towards a hard Brexit or a second referendum. Quite binary options. For the EU maybe the gamble is to offer nothing and assume the UK Parliament eventually offers a second referendum and voters eventually decide to stay. This increases the risk of a cliff-edge hard Brexit but also one where no Brexit happens at all. This story has a lot of legs left in it.

There was lots in the press this weekend about Brexit but interestingly for me as a credit strategist by day, there was also a fair bit of negative press about credit with some of the more sensational articles suggesting that credit could soon blow up financial markets due to (amongst other things) the weight of US BBBs about to swamp the HY market, record levels of Cov-lite issuance and due to record high US corporate leverage. For us there needs to some perspective. We have been on the underweight side of credit all year, more weighted to a US underweight of late but that’s been more of a valuation play than over too much concerns about immediate credit quality. The US economy remains strong and credit deterioration is likely to remain idiosyncratic until it rolls over. At that point we will have big problems though and last week’s activity made us more confident liquidity will be bad when the cycle turns as we moved a fairly large amount on nervousness as much as anything else. GE, PG&E, plunging oil and the factors discussed above provided a jolt but we don’t think this is enough for now to impact the economy so credit will probably stabilise. However once there is actual broad economic weakness, this last week will be a dress rehearsal for the problems ahead and there will be little two-way activity with spreads gapping wider. However that’s for further down the cycle. For now credit’s main problem
has been it hadn’t responded enough to the pick up in vol. The good news is that this is starting to catch-up and correct. Last week, EU non-fin. IG spread widened by 13bps and HY by 45bps while those on US IG by 14bps and HY by 49bps. Big moves relative to a small down week in equities.

Looking ahead to the highlights for this week, I’d imagine if you’re in the US this will revolve around family, friends and perhaps Turkey as you sit down for Thanksgiving on Thursday. Outside of that we get the flash PMIs around the globe on Friday which in a period of nervousness about the global growth outlook will be scrutinised in thin post holiday trading. Black Friday will also mark the start of Xmas shopping season for retailers. Also worth noting is the European Commission's opinions on the budget plans of the Euro Area countries on Wednesday. While the EC formally has three weeks to provide an opinion on Italy's new fiscal plan following their budget resubmission last week, it's possible that they will issue this for Italy alongside this and thus kick starting the EDP process.

This morning in Asia, markets have kicked off the week on a positive note with the Nikkei (+0.48%), Hang Seng (+0.40%) and Shanghai Comp (+0.22%) all up along with most Asian markets. Elsewhere, futures on S&P 500 (-0.33%) are pointing towards a weaker start. In terms of overnight data releases, the UK Rightmove house prices index fell -0.2% yoy (-1.7% mom), first dip since 2011, led by declines in London (-2.4% yoy). Japan’s October adjusted trade balance stood at –JPY 302.7bn (vs. –JPY 48.3bn) as growth in imports (+19.9% yoy vs. +14.1% yoy expected) outpaced the growth in exports (+8.2% yoy vs. +8.9% yoy expected).

In other news, the US Vice President Pence delivered some sharp rhetoric on China over the weekend where he called upon countries to avoid taking debt from China as that would leave them indebted to China. He also added that the US wasn’t in a rush to end the trade war and would “not change course until China changes its ways.” Elsewhere, the APEC summit ended in disarray on Sunday after the US and China failed to agree on a joint statement, reflecting tensions due to the ongoing trade war. This is the first time since the summit began in 1993 that no joint statement was issued.

Looking back briefly now to last week before we focus on the full day-byday week ahead. Friday was an eventful day for market-moving rhetoric from policymakers, highlighted by Fed Vice Chair Clarida and President Trump. First, the dollar shed -0.52% after Clarida discussed the global economy and said there “is some evidence it’s slowing.” Two-year treasury yields rallied -3.8bps (-11.0bps on the week) and the market removed 6bps of Fed hikes through the end of next year (priced out a total of 16bps on the week). This came despite Clarida’s other remarks, which emphasised the strong US economy and his support for moving policy to a “neutral” level, consistent with the FOMC’s projections. Later in the session, Chicago Fed President Evans said that he too wants to move policy to neutral, and then another 50bps or so beyond that level.

Later on Friday, President Trump injected optimism on the trade policy front by telling reporters that China wants to make a deal and that he may not institute further tariffs. China has apparently offered a list of potential concessions, which could prove to be the basis of a trade deal at the 30 November G20 summit. Even though unnamed White House sources subsequently tried to soften expectations, the market rallied with the S&P 500 up +0.22% (-1.31% on the week). The DOW and Russell 2000 closed -2.22% and -1.42% on the week, though they both rallied on the President’s comments as well (+0.22% and +0.49% on Friday, respectively). After Pence’s weekend comments we should probably discount some of the above optimism.

Other markets were already closed when President Trump’s comments boosted sentiment. The STOXX 600 closed the week -2.20% (-0.20% on Friday), while UK equities outperformed marginally, with the FTSE 100 shedding only -1.29% on the week (-0.34% Friday). This reflected the weaker pound, which retreated -1.13% versus the dollar (+0.41% Friday) and -1.83% versus the euro (its worst such week since July 2017, and -0.38% on Friday). Asian equities were mixed, with the Shanghai Composite advancing +3.09% (+0.41% Friday) on trade optimism and the Nikkei down -2.56% (-0.57% Friday). German Bunds rallied -4.0bps last week, while peripheral spreads widened slightly with Italy leading the way. BTPs sold off +8.8bps (flat on Friday) as the government  continued to escalate its confrontation with the European Commission.

It's a fairly quiet start to the week on Monday with the only data of note being September construction output data for the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed's Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union.

Published:11/19/2018 6:22:06 AM
[Markets] Pence, Xi Showdown Crushes Hopes For Trade War De-escalation

For two consecutive days US stocks surged on renewed hopes that trade tensions between the US and China may be thawing ahead of the upcoming G-20 meeting between presidents Trump and Xi, when first an FT suggested that USTR Lighthizer had said no further tariff raises would be forthcoming (the report has since been denied), and subsequently when Trump himself told reporters on Friday he may not impose more tariffs after China sent the United States a list of measures it was willing to take to resolve trade tensions.

Unfortunately for markets, and bulls such as JPM's Marko Kolanovic who saw last week's traces of trade de-escalation as a reason to quadruple-down on his recommendation to buy stocks, any hopes of an imminent trade war end or even ceasefire came crashing down overnight when Vice President Mike Pence traded sharp barbs with Chinese leader Xi Jinping in back-to-back speeches at the Asia Pacific Economic Co-operation (APEC) summit in Papua New Guinea, which confirmed yet again that neither country is willing to compromise in the escalating trade war.

Xi received applause Saturday when he told the Asia-Pacific Economic Cooperation summit in Papua New Guinea that implementing tariffs and breaking up supply chains was “short-sighted” and “doomed to failure.” According to Bloomberg, Xi called for a stronger World Trade Organization and defended his signature Belt-and-Road Initiative, saying it’s “not a trap as some people have labeled it.”

Speaking moments later, vice president Pence - who in recent weeks has been pushing an aggressive anti-China agenda - threw down the gauntlet to China on trade and security in the region, saying the US will not back down from its trade dispute with China, and might even double its tariffs, unless Beijing bows to U.S. demands: “we have taken decisive action to address our imbalance with China,” adding that "we put tariffs on $250 billion in Chinese goods, and we could more than double that number."

“We’re in a very strong position,’’ Pence said when asked whether there was a deadline to end the trade war. “The American people know that we have to do something to reset this relationship with China economically. So, I don’t think there’s a timetable.”

Pence told delegates the U.S. offers countries in the region “a better option’’ for economic and diplomatic relations than Beijing’s heavy-handed approach.

In a pun on words on China's "One Belt, One Road" initiative, Pence warned against taking Chinese loans, saying the U.S. “doesn’t drown our partners in a sea of debt” nor offer “a constricting belt or a one-way road."

Technically he is right: the World Bank does that, and then the US-led IMF comes in to "bail them out" at terms that are preferential only to the creditors (see Greece, or any other nation "saved" by the IMF).

“China has taken advantage of the United States for many years. Those days are over,” he told delegates gathered on a cruise liner docked in Port Moresby’s Fairfax Harbour.

He also took aim at China’s territorial ambitions in the Pacific and, particularly, Xi’s Belt and Road Initiative to expand land and sea links between Asia, Africa and Europe with billions of dollars in infrastructure investment. “We don’t offer constricting belts or a one-way road,” said Pence.

And then came the punchline: "The United States, though, will not change course until China changes its ways." Later, Pence told reporters he was “very hopeful” the U.S. and China could reach a deal, but “things have to change” for that to happen.

Tensions between the two nations are likely to deteriorate even more after the US took aim at China's territorial ambitions. While not referring directly to Chinese claims over various disputed waters in the region, Pence said the United States would work to help protect maritime rights and said that the US seeks to establish a military base in Papua New Guinea, aka China's back yard.

“We will continue to fly and sail where ever international law allows and our interests demand. Harassment will only strengthen our resolve.”

Meanwhile, Xi gave no indication of giving in on any U.S. demands, including an end to technology transfer, support for state-run enterprises, and giving up on its Made in China 2025 plan to lead the world in key industries. He said intellectual property rights are important to protect innovation but they shouldn’t widen the digital gap between countries.

In a further provocation to the Trump Admin, Xi also made a veiled reference to a new grouping known as “the Quad” that aims to counter China’s influence in the Asia-Pacific. Consisting of the U.S., Japan, India and Australia, the group met in Singapore for the third time this week to discuss ways to cooperate. "Attempts to form exclusive blocs or impose one’s will on others should be rejected,” Xi said. “History has shown that confrontation, whether in the form of a cold war, a hot war or a trade war, will produce no winners."

Finally, Xi said talks would only work if both sides treated each other with respect: “If countries can only treat each other equally and understand each other,” he said, “there will be no issues that can’t be settled by negotiation.”

The only problem is that there has been virtually no mutual response, no compromises and no true negotiation.

Pence’s Saturday warning contrasted with remarks made by Trump on Friday, which were interpreted by the market as a tentative olive branch to China and a step to defuse tensions.  Trump, who did not attend the APEC meeting and is due to meet Chinese President Xi Jinping at a G-20 summit in Argentina - told reporters Friday that the Chinese response to U.S. trade demands was largely complete but was missing four or five big issues. Those comments helped U.S. stocks erase losses, and sent the Dow Jones surging 200 points higher.

The bottom line: since there was no hint of a compromise from either Pence or Xi - in fact, quite the opposite as both sides retrench - any hopes for a thaw in relations were summarily crushed. And, as Reuters warns, Pence's stark warnings will "be unwelcome news to financial markets which had hoped for a thaw in the Sino-U.S. dispute and perhaps even some sort of deal at a G20 meeting later this month in Argentina."

Published:11/17/2018 9:07:54 AM
[Markets] Stocks - Dow Fails to Avert Weekly Loss Despite Triple-Digit Rally - The Dow closed lower for the week, despite a rally Friday that came even as the White House reportedly walked backed President Donald Trump's upbeat comments on trade. Published:11/16/2018 6:01:13 PM
[Markets] US Market Indexes Continue Gains Friday, Nasdaq Falls Dow Jones closes at 25,413.22 with a gain of 0.49% Published:11/16/2018 4:28:42 PM
[Markets] Dow, S&P 500 climb Friday, but Nasdaq lags as semiconductor shares falter Dow, S&P 500 climb Friday, but Nasdaq lags as semiconductor shares falter Published:11/16/2018 3:28:54 PM
[Markets] "The Pain Trade Is Higher" - Kolanovic Quadruples Down On Bullish

Say what you will about JPMorgan's quant "Gandalf" Marko Kolanovic, he sure is persistent in his bullishness.

Having declared an all clear for stock three times in a row (first on October 12, following the systematic puke, then one week later on Oct. 19, and finally one again on Oct. 30 when stocks hit their recent lows), and for good measure, once more after the midterm elections when he said that a split congress was the best outcome for markets just before stocks tumbled once more and wiped out the entire post midterm gain in one session (just when Gartman said to short stocks), the JPM Quant is back again, quadrupling-down on his bullish outlook, with what is his fourth note in one month urging JPM clients to buy stocks because - in his view - two key market risks, trade war and aggressive Fed tightening, have effectively dissipated.

In his latest note released moments ago, Kolanovic writes that in line with his previous research, "we think that equity market sentiment is held back by two key risks: the Fed hiking beyond the neutral rate and escalation of global trade war."

But perhaps no more, because as he explains, or rather infers, "today there are significant positive developments on both of these market risks. Fed vice chairman Richard Clarida indicated that the Fed may stop at the neutral rate (rather than continue hiking beyond the neutral rate), which might be interpreted as an effective “rate cut."

Maybe, but whereas Clarida's statement sparked a rally in 10Y yields and a dramatic plunge in the dollar which slumped to 1 week lows, stocks barely reacted. They did, however, respond to the second catalyst mentioned by the JPM quant, namely Trump's rehash of the same optimistic outlook vis-a-vis the China trade war that the US president trots out at every opportunity to deliver a soundbite, and stocks bought it, sending the Dow Jones over 200 points higher at one point, before fading much of the gain.

As Kolanovic notes, the second development that cements his bullish posture, is "Trump’s statement that he may not need to impose more China tariffs and that the “China list is pretty complete, four or five things left off” (from the original list of 142 requests, i.e., 96% of items have been addressed)."

According to the JPM quant, "naively interpreting the likelihood of a deal by the number of items addressed would indicate a significantly increased probability of a trade deal."

Meanwhile, going back to his favorite topic, market technicals and fund positioning, Kolanovic says that "equity positioning of systematic strategies (volatility targeting, CTA/Risk Parity) as well as net exposure of Hedge Funds remain very low (0-10th percentile)", implying that any residual selling pressure to sell from quants is non-existent.

To the JPM strategist, "this, along with record levels of Q4 buyback activity, suggests the pain trade, and therefore most likely outcome, will be the market going higher into year-end."

Will Kolanovic's latest attempt to bottom-tick the market be successful, or will human and algo traders again fade his bullish reco, instead crowning Gartman the winner in this bizarre tactical standoff, we'll know in exactly 45 days. That said, coming on the same day when Bloomberg has an article titled "‘Get Me Out’: Investors Sour on Market Strewn by Tape Bombs" and which carries quotes such as the following:

  • "Everywhere you look, something’s blowing up"
  • "Just about anything can create panic, create contagion, and it doesn’t have to be something that makes sense."
  • "People are saying, ‘Get me out across the board.' Everyone is anxious. I am anxious. You buy a good company and hope for the best and pray it doesn’t get destroyed."
  • "When this thing finally finds a bottom, panic will be everywhere."

... we may now be beyond the point where technicals, or Trump's daily trade optimism, or even the Fed's controversial dovishness matters, and instead traders will look to sell every rally now that buy the dip...

... no longer works, and behavioral triggers are far more important for stocks than fundamentals, technicals or even the best central bank intentions.

Published:11/16/2018 2:26:58 PM
[Markets] Market Snapshot: Dow stages fleeting rally on Trump trade comments; Nasdaq falls as Nvidia’s stock weighs U.S. stock indexes trade mixed Friday, after comments from President Trump, suggesting that trade disputes with China could be resolved, caused the Dow and S&P to swing positive
Published:11/16/2018 12:56:58 PM
[Markets] Dow jumps to gain of 170 points as Trump says 'doesn't want to put China in a bad position' The Dow Jones Industrial Average swung to a firm gain on Friday, amid reports that President Donald Trump was making upbeat remarks about the prospects of favorable developments between the U.S. and China on trade. During a pool spray at the White House, Trump said that "the U.S. many not have to impose further tariffs on China," and that he doesn't want put "China in a bad position," according to reports from CNBC and others. The Dow rose 170 points, or 0.77, at 25,454, the S&P 500 index climbed 0.4% at 2,740. The comments don't signal that a deal is at hand but the market is reading that a hard-line stance against Beijing may not play out, which has been viewed as a worst-case scenario for stock investors. Trump and Chinese President Xi Jinping are due to meet at the end of the month on the sidelines if the G-20 meeting. The Nasdaq Composite Index remained 0.3% lower at 7,245, weighed by tanking shares of chip maker Nvidia Corp. . However, the dollar didn't react to Trump's comments, holding down 0.5% at 96.47, as measured by the ICE U.S. Dollar Index . Published:11/16/2018 11:56:01 AM
[Markets] Wall Street opens lower as Nvidia hammers tech stocks U.S. stocks opened lower on Friday, as technology companies suffered sharp losses following disappointing forecasts from chip companies Nvidia and Applied Materials. The Dow Jones Industrial Average fell ... Published:11/16/2018 9:01:51 AM
[Markets] Dow reverses course, joins other stock indexes in positive territory Dow reverses course, joins other stock indexes in positive territory Published:11/15/2018 1:44:59 PM
[Markets] Dow set for modest gain as it attempts to avoid longest skid in 3 months The Dow on Wednesday attempts to avoid its longest string of losses since mid-August, attempting to shake off weakness sparked by volatile oil trading. Published:11/14/2018 8:44:09 AM
[Markets] Market Snapshot: Dow set for modest gain as it attempts to avoid longest skid in 3 months The Dow on Wednesday attempts to avoid its longest string of losses since mid-August, attempting to shake off weakness sparked by volatile oil trading.
Published:11/14/2018 8:12:34 AM
[Markets] The Dow’s Not Staging Much of a Comeback Wednesday Morning Even a draft agreement of a Brexit plan hasn’t been able to lift stocks following yesterday’s decline in the Dow. Published:11/14/2018 6:13:44 AM
[Markets] US Stocks Defy Global Pullback as Oil Rebounds on OPEC Intervention Hint Global stocks retreat as of the world's biggest economies shrink in the wake of world trade disputes and oil prices extend their longest losing streak on record. U.K. Prime Minister Theresa May has agreed the text of a deal that will take Britain out of the EU, but needs to first convince opposition lawmakers and rebels in her own party if she is to avoid a government collapse and fresh national elections. U.S. equity futures slide as investors pullback from risk markets in the wake of macro economic weakness and political uncertainty, with the Dow called modestly lower ahead of third quarter earnings from Macy's and Cisco. Published:11/14/2018 5:13:54 AM
[Markets] When the Dow closed above 1,000 for the first time in 197... Just days after the re-election of Richard Nixon, with positive news coming out of the Vietnam War, The Dow Jones Industrial Average closed north of 1,000 for the first time on November 14, 1972. Watch NBC's coverage. Published:11/14/2018 4:11:59 AM
[Markets] Stocks Retreat as Risk Appetite Fades on Weakening Growth; Oil Extends Slump Global stocks retreat as two of the world's biggest economies shrink in the wake of world trade disputes and oil prices extend their longest losing streak on record. U.K. Prime Minister Theresa May has agreed the text of a deal that will take Britain out of the EU, but needs to first convince opposition lawmakers and rebels in her own party if she is to avoid a government collapse and fresh national elections. U.S. equity futures slide as investors pullback from risk markets in the wake of macro economic weakness and political uncertainty, with the Dow called modestly lower ahead of third quarter earnings from Macy's and Cisco. Published:11/14/2018 2:44:58 AM
[Markets] Asia stocks shaken by plunge in crude oil, growth worries Asian shares edged lower as investors fretted about slowing global growth with crude oil prices sinking on worries about weakening world demand and oversupply. The concerns about global growth pushed MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> down 0.07 percent. The Dow (.DJI) and S&P 500 (.SPX) ended slightly lower on Tuesday as lower oil prices took a toll on energy shares, offsetting a small gain in technology stocks and renewed hopes for progress in U.S.-China trade talks. Published:11/13/2018 7:45:29 PM
[Markets] Dow Drops 101 Points After Oil Crashes. Or Is It the Other Way Around? The Dow Jones Industrial Average’s gain today, that is. Is oil’s tumble to blame, or is it the other way around? Consider: The S&P 500 fell 0.2% to 2,722.18, while the Dow Jones Industrial Average has dropped 100.69 points, or 0.4%, to 25,286.49. Published:11/13/2018 3:39:07 PM
[Markets] Crude Carnage Kills Equity Dead-Cat-Bounce, Bond Yields Tumble

Chatter of a commodity fund liquidation did nothing to help what everyone hoped would be an excited dip-buying opportunity in stocks today...


China stocks extended Monday's buying panic with CHINEXT now up over 5% in two days...


European stocks were higher on the day (though markets closed a long time before the Italian budget headlines hit)...


Quite a significant China outperformance in the last week...


With everyone primed for a bounce (pre-market futures signaled it after China's exuberance and trade headlines), it didn't happen...


Trannies managed to get back to even on the week briefly before fading fast after Europe closed...


The liquidation in crude certainly did not help stocks...


Small Caps suffered a 'death cross' today... (the last death cross was Sept 2015, which did not end well for the bulls)...


The Dow managed to cling on above its 200DMA, but all the other major US indices are below that key technical level...


AAPL tumbled back below its 200DMA...


GE stock had its best day in 9 years today... but GE bonds did not...


FANG Stocks bounced off the opening drop but ended unch...


Having taken the day off to remember Veterans yesterday, bond traders were back and they were buying... The belly of the curve outperformed...


10Y Yield tumbled to two-week lows...non-stop slide since The Fed


Inflation Breakevens collapsed further, catching down to WTI...


The dollar drifted lower on the day...breaking a 3-day winning streak


Cable popped and dropped as hopes for a Brexit deal once again crashed on the shores of reality...


Offshore Yuan squeezed higher on the day after tagging 6.97 and headlines of big banks dumping dollars (under orders of PBOC)...


Spot the odd one out in commodity-land...

As UBS points out:

"There are also speculations that the move lower could have been caused by redemption ahead of the year-end cut off of the 15th November and that a large hedge fund had about 50k lots to liquidate. Considering that the sell off resumes as I write, it might have just be the product of someone's imagination."

WTI Crude collapsed for the 12th day in a row - another new record - crashing on Saudi production data (biggest daily drop since Jan 2015)...

Brent is down 24% from October highs...


In case $54.75 (lows today) is too rich still for your blood - how about some Western Canada Select Crude - which traded at a $15 handle today...


And notably WTI priced in silver has tumbled at key resistance...


And Silver at its cheapest to gold since 1993...


In case you're thinking of buying the dip in WTI? It has never, ever, been more oversold...

And oil vol has exploded...


And finally, in case you missed it last night, Japan has managed to break another record for extreme monetary policy malarkey - with the BoJ balance sheet now bigger than the country's GDP...

Published:11/13/2018 3:12:15 PM
[Markets] Dow ends lower for third straight session as oil futures extend rout Dow ends lower for third straight session as oil futures extend rout Published:11/13/2018 3:12:15 PM
[Markets] S&P 500, Nasdaq drift higher as tech shares rise; Dow grounded by Boeing U.S. stocks are mostly higher, one day after the Dow and the technology-laden Nasdaq suffered triple-digit losses. Published:11/13/2018 1:09:39 PM
[Markets] Market Snapshot: S&P 500, Nasdaq drift higher as tech shares rise; Dow grounded by Boeing U.S. stocks are mostly higher, one day after the Dow and the technology-laden Nasdaq suffered triple-digit losses.
Published:11/13/2018 12:37:22 PM
[Markets] Stocks - Wall Street Rises as Trade Tensions Ease – Wall Street rose on Tuesday, as trade tensions between the U.S. and China eased.The S&P 500 rose 14 points, or 0.54%, to 2,740.89 as of 9:37 AM ET (14:37 GMT), while the Dow increased 60 points, or 0.24%, to 25,447.43 and the tech-heavy Nasdaq Composite was up 64 points, or 0.90% to 7,265.51.Trade war tensions eased on news that China’s trade negotiator could head to Washington ahead of a meeting of the two countries' leaders later this month. ... Published:11/13/2018 10:42:32 AM
[Markets] Dow down 160 points after Tuesday morning’s rebound bid runs out of steam Dow down 160 points after Tuesday morning’s rebound bid runs out of steam Published:11/13/2018 10:09:17 AM
[Markets] President Trump Could Make Oil’s Fall Worse On November 12, US crude oil December futures fell 0.4% and settled at $59.93 per barrel—the lowest closing level for active US crude oil futures since February 13. The Energy Select Sector SPDR ETF (XLE) fell 2.1% on November 12. The S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) fell 2% and 2.3%, respectively. The fall in the broader market might have dragged energy stocks. Published:11/13/2018 9:37:21 AM
[Markets] Apple's stock falls after Goldman cuts price target, iPhone unit estimates Shares of Apple Inc. dropped 1.4% in premarket trade Tuesday, after Goldman Sachs slashed its price target by 13% and cut iPhone unit estimates in the wake of a profit and sales warning from supplier Lumentum Holdings Inc. . Analyst Rod Hall lowered his price target to $209 from $240, and reiterated the neutral rating he's had on Apple since Feb. 6. He cut his fiscal 2019 revenue outlook by 3.5% to $269.94 billion, which compares with the FactSet consensus of $280.5 billion; he lowered his earnings estimate to $13.00 from $13.44, while the FactSet consensus is $13.45; and reduced his total iPhone units estimate by 6%, as declines in iPhone XR/XS Max/XS unit estimates offsets increases in lower-priced iPhone units. Apple's stock had tumbled 5.0% to a 3 1/2-month low on Monday, after Lumentum cut is earnings and revenue outlook after it recently received a request from "one of our largest" customers to "materially reduce shipments" of laser diodes for 3D sensing, and Lumentum has disclosed in the past that Apple was its largest customer. Sanderson said he's concerned Lumentum's warning suggests demand for new iPhone modes is deteriorating. "We note this could easily right itself given the bulk of demand comes in late December but we feel more prudent sell through forecasts are warranted due to the timing and magnitude of this warning," Sanderson wrote in a note to clients. Apple's stock has shed 16% since its Oct. 3 record close of $232.07 through Monday, while the Dow Jones Industrial Average has lost 5.4% over the same time. Published:11/13/2018 8:40:05 AM
[Markets] Walmart's Flipkart CEO resigns amid allegations of 'serious personal misconduct' Walmart Inc.'s Flipkart Group, an India-based e-commerce company, disclosed Tuesday Chief Executive Binny Bansal has resigned, effective immediately. The resignation comes after an independent investigation into allegations of "serious personal misconduct." The company said Bansal "strongly denies" the allegations. "While the investigation did not find evidence to corroborate the complainant's assertions against Binny, it did reveal other lapses of judgement, particularly a lack of transparency, related to how Binny responded to the situation," Walmart and Flipkart said in a statement. "Because of this, we have accepted his decision to resign." Walmart had agreed in May to buy Softbank Group Corp.'s stake in Flipkart for $16 billion. Walmart's stock fell 0.6% in premarket trade. It has soared 16% over the past three months through Monday while the Dow Jones Industrial Average has gained 0.8%. Published:11/13/2018 6:06:57 AM
[Markets] Dow futures up over 100 points after Monday's sharp pullback U.S. stock futures indicated a bounce for Wall Street equities on Tuesday, a day after a rout that sent the Dow Jones Industrial Average lower by 600 points. Dow futures rose 116 points, or 0.5%, to 25,498, while S&P 500 futures gained 14.2 points, or 0.5%, to 2,742. Nasdaq-100 futures gained 49.75 points, or 0.7%, to 6,884.50. On Monday, along with sharp losses for the Dow, the S&P and Nasdaq Composite fell 2% and 2.8%, respectively. The pullback came as crude prices tumbled, losses which continued on Tuesday. Published:11/13/2018 2:38:03 AM
[Markets] Midterm Elections: A Disaster Denied, And What Is Coming

Authored by Jeremiah Johnson (nom de plume of a retired Green Beret of the United States Army Special Forces ) via,

Before the 2016 Presidential Election, and both before and after the inauguration, I wrote specifically about how important the midterm election would be, and the results if the President should lose even one House of Congress.  That happened: the Republicans just lost the House of Representatives. Now that the Democrats control it, not one piece of legislation will pass that is on the President’s agenda. In the supreme act of denial, the Republican party claims the “Blue Wave” was not successful; the President even declared a “victory” with the midterms.

Nothing could be further from the truth, on either count.

The Democrats intend to mount a non-stopping offensive against the President. First, they are going to demand that Mueller go on the attack again. They are already demanding the President’s tax returns. On Thursday, 11-8-18, thousands of people marched in Times Square in New York City in protest of Jeff Sessions’ departure from the White House…although Sessions was the one who tendered a letter of resignation. The mob of protesters carried mass-produced “No one is above the law” placards and signs.

Not one of those Marxists carried those signs when former Secretary of State Hillary Clinton resigned after Benghazi, where a U.S. Consular Outpost of the United States was destroyed, and the U.S. Ambassador and four of his staff murdered.

“Happy Veterans’ Day” is coming up, with the cliché eternal: “Thank you for your service.”

Nobody really cares about it, except the vets. Those who have to work receive time and a half for their pay, and Hallmark makes about another $50 million or so on the cards and gifts…about $10 million of that for the Government to “re-ingest” with the taxes….another day on the endless cycle:

The cycle of spending of disposable income, an indispensable part of the economy and all of the governmental employees on paid federal holiday, solemnly dispensed of at the expense of (to paraphrase Metallica) the government’s “disposable heroes.”

Where were the protests in the streets after Benghazi? Everybody was hidden, because at the time we were under Obama. When Donald Trump was elected President, a “hiatus” was granted from the nonstop march toward socialism/communism that reached a zenith as never before. Now that hiatus is shrinking, as the Communists and Marxists begin new offensives under their playbook “Rules for Radicals,” offensives targeting every area of the society.

Their plan should be obvious: to keep the President “backpedaling” and the economy faltering, in order to set the stage for the 2020 election. All of this I have written about before, and it came to pass with the Midterm elections. If they keep the President on the defense and keep pushing the “social issues,” it will render his administration ineffective…not delivering the change back toward the right that the voters wanted to see in 2016.

The Wall Street Journal published a piece on November 9 entitled Democrats plan to pursue most aggressive gun-control legislation in decades.” They have been receiving plenty of help on this one, with the Synagogue shooting in Pittsburgh, and the recent murders by a former Marine last week. Here they come again! All of the legislators…with armed protectors paid for by you, mind you…clamoring for the guns. Here’s a piece of it for you:

Democrats say they will pass the most aggressive gun-control legislation in decades when they become the House majority in January, plans they renewed this week in the aftermath of a mass killing in a California bar. Their efforts will be spurred by an incoming class of pro-gun-control lawmakers who scored big in Tuesday’s midterm elections, although any measure would likely meet stiff resistance in the GOP-controlled Senate. Democrats ousted at least 15 House Republicans with “A” National Rifle Association ratings, while the candidates elected to replace them all scored an “F” NRA rating. “This new majority is not going to be afraid of our shadow,” said Mike Thompson, a California Democrat who is chairman of the House Gun Violence Prevention Task Force. “We know that we’ve been elected to do a job, and we’re going to do it.”

Now of course the argument to this rationale will be that the Senate is needed before a law passes. Yes, we all watched “Schoolhouse Rock” and learned about the three-party system of checks and balances. The problem?  Nothing was accomplished when the Republicans held both houses of Congress, and the Reds and Blues counter one another, and more:

The Democrats’ strategy is not to pass any laws: it is to stir up public controversy, win support of the “Zero” generation, and either force actions through the “tyranny of the majority,” or make it so horrible an arena that it detracts from or prevents any positive efforts and actions from the administration…setting the stage for the 2020 election.

Ocasio-Cortez just entered the House of Representatives at the “sage/sagacious” age of 29, and she is a self-described “democratic socialist” who favors single-payer healthcare, gun control, abolishing border controls, and declared that she would support the impeachment of the President. She was also part of Bernie Sanders’ campaign movement in 2016.

Lenin espoused some “gems” that should be considered. Here is one that falls in line with the “newly discovered wonderful possibility of socialism” the Zero-generation and twenty-somethings have fallen in love with hook, line, and sinker:

“The goal of socialism is communism.”

New York just placed a “democratic socialist” in Washington... a declared socialist, among all of the hidden Marxists camouflaged under the “progressive” or “democratic” monikers.

Gun control, coming at us once again, and once more, a quote from Lenin for you:

“Disarmament is the ideal of socialism. There will be no wars in socialist society; consequently, disarmament will be achieved. But whoever expects that socialism will be achieved without a social revolution and the dictatorship of the proletariat is not a socialist. Dictatorship is state power based directly on violence. And in the twentieth century – as in the age of civilization generally – violence means neither a fist nor a club, but troops. To put “disarmament” in the program is tantamount to making the general declaration: “We are opposed to the use of arms.” There is as little Marxism in this as there would be if we were to say: “We are opposed to violence!” – Lenin, “The Disarmament Slogan,” from October of 1916

The next two years should be interesting, to say the least. Keep in mind: the President is not throwing in the towel, however, he has one more year to turn the tide...before he has to campaign. There is still another way, though: I mentioned it in the last article that I wrote. Bush Jr. used this technique successfully when he was trailing Kerry in the polls. Margaret Thatcher used this technique when she was about to be shown the door, and turned it around, remaining in office.

The “technique” is a war, whether a “quickie” (such as the Falklands War…Malvinas, if you prefer), or a protracted one (Iraq “II” where victory was declared within months of started, and it was achieved…with the decades and a half of Military Industrial Complex contracts…and the transition of the United States into a Surveillance and Police State).

The technique is a war, and if you keep abreast of what is going on, you will see that Russia and China are gearing up for a war, the nations are “decoupling” themselves incrementally from the dying fiat-backed Petrodollar, and North Korea is once again raising itself as a nuclear threat (on its own, or encouraged by one or more nations). A war could either suspend elections, or propel the incumbent into a victory based on the populace’s perception of what they need. Remember this last quote from Lenin, and let it sink in good:

“A standing army and police are the chief instruments of state power.” – Lenin, State and Revolution, 1917

The ultimate truth: the elections are akin to the Stock Market, the Dow-Jones Industrial Average. It doesn’t matter how many shares are bought or sold, as long as there are fluctuations and flux. The winners are the brokers, who pocket their commissions on every trade…a sell or a buy. The same exists here. The blue donkeys versus the red elephants. The “tribalism” of men, and their needs of a social order…a cohesive social grouping that reflects what they believe in…is exploited to its maximum advantage. All the while, the paradigm shifts almost imperceptibly, until before you know it….twenty years have elapsed, and you are not looking at the same country anymore.

The “art” is to make the people think they will be getting what they want…dupe them into believing it is something good, when it’s not. It took the blood of heroes to form and defend this nation.  The downfall is precipitated by traitors from within…bleeding the nation white by circumventing existing laws and replacing them with the greatest injustice and threat to personal liberty of all. What is that greatest threat? A foreign enemy? A spontaneous collapse of everything?

No. The greatest threat is the acceptance of the people of the illusion of “social justice,” that really translates into something for nothing by taking from those who have earned, and giving it to those who live within the entitlement cesspool of their own sloth. Such a mentality pervades our society today. In order to save the United States, we have to return to our fundamental values and become an ass-kicking, straight-shooting people who fear God and care for their families, neighbors, and nation once more. If we do this, we may emerge from the coming night as a nation once more. Ready your NVGs, and steel your hearts for the challenge before it arrives…now…at the twilight’s last gleaming.

May Veterans’ Day bring remembrance to your mind, may your heart find peace, and may any who serve in your family be safe and sound.

Published:11/12/2018 11:05:42 PM
[Markets] Dow Crumbles Amid Tech Weakness; Merger Monday Gets Early Start -- ICYMI Concern about a mounting trade war with China also weighed on stocks. The Dow Jones Industrial Average fell 602 points, the S&P 500 declined 2%, and the tech-heavy Nasdaq slid 2.8%. , were the Dow's leading laggards in addition to Apple. Published:11/12/2018 7:03:58 PM
[Markets] Australian shares fall after Dow tumbles overnight Stocks in Australia traded lower in the morning. Overnight on Wall Street, the major stock indexes saw a sell-off, with the Dow Jones Industrial Average plunging by more than 600 points. Stocks in Australia were lower in the morning on the back of the Dow Jones Industrial Average falling by more than 600 points overnight. Published:11/12/2018 6:07:49 PM
[Markets] Stocks - Dow Sheds 600 Points as Apple Slump Triggers Tech Wreck - The Dow tumbled Monday as tech stocks continued to bleed, led by a selloff in Apple on fresh signs of weak iPhone demand. Published:11/12/2018 5:33:50 PM
[Markets] Auto Stocks Slide On Reports US Car-Import Probe Is Advancing

Minutes before the close of a brutal trading day that saw the Dow dump more than 600 points, Bloomberg published a report that simultaneously stoked the worst fears of German carmakers and US investors who are desperately searching for a positive trade-related headline to reignite the rally. The headline sent shares of Ford and GM lower into the close. 

The White House is circulating a draft report by the US Commerce Department about whether to impose Section 232 tariffs on automobile imports. The report, which is the latest sign that Trump's investigation into auto tariffs is moving forward, should offer an update on the status of the probe.

Trump ordered the investigation back in May under the same Trade Expansion Act provision that he used to justify the tariffs on steel and aluminum - though Commerce has until February to finish the probe.


Trump is planning to meet with his trade advisors and Commerce staff on Tuesday to discuss the report and car-import tariffs more generally, though it's unclear whether Trump will act soon on the tariffs, according to Bloomberg (Trump will likely abstain from more trade-related antagonisms until at least after his meeting with Chinese President Xi Jinping at the G-20 summit later this year).


News of the activity on the trade front seems ill timed, considering that European Commission trade chief Cecilia Malmstrom is about to leave for Washington to meet with US Trade Representative Robert Lighthizer for "exploratory" talks about a future free-trade agreement. Formal talks are expected to follow in January.

Still, automakers have good reason to be nervous. Despite the pleas of GM and Ford, who have said tariffs could seriously impact profitability and lead to thousands of job cuts, Trump has threatened 25% tariffs on imported cars while expressing frustrations with the US's European and Japanese trading partners. Governments and companies from Europe and Asia warned that the tariffs would disrupt the global automotive industry and hurt US growth during hearings in July.

Furthermore, Trump has exhibited more signs of his growing impatience, particularly regarding what he sees as an unfair trade relationship with Japan. At a press conference last week, he told a Japanese reporter to "say hello to Shinzo", referring to Prime Minister Shinzo Abe, adding that "I’m sure he’s happy about tariffs on his cars."

"I tell him all the time that Japan does not treat the United States fairly on trade. They send in millions of cars at a very low tax. They don’t take our cars. And if they do, they have a massive tax on their cars," Trump added.

Furthermore, European Commission President Jean-Claude Juncker said Monday that Europe's avoidance of US car import tariffs might not last past the end of the year.

All of this is happening at a time when the downward spiral in US car sales continued in October after an already abysmal September.


And as if the situation in the US wasn't bad enough, Chinese car sales were also a disaster last month, meaning that global automakers, who rejoiced at China's promises for market liberalization, might need to find a new savior. But with the midterms now behind us, Trump is probably less concerned about the impact his trade policies might have on the market, given that the political pressure has been - at least temporarily - relieved.

Published:11/12/2018 5:03:40 PM
[Markets] Nomura: This Was "Death By Papercuts" Mixed With Hedge Fund Redemption Panic

One day after the midterm elections, when the Dow soared by over 500 points on abysmal volume, the formerly bearish narrative immediately turned to how wonderful gridlock is for stocks, with Wall Street suddenly certain that based on historical patterns - according to which the market has levitated into year-end every single time after midterms - this year would be no different.

So much for certainty: as of today, all the post-Midterm gains are gone...

... and the market has resumed its downtrend, down 6% since October, compared to a 10% drop for the Nasdaq as tech stocks got liquidated en masse as sentiment has once again sharply turned against anything that has to do with growth.

Alongside the seemingly random liquidation in the tech sector, investor fears are rising, manifested not only in slumping prices but also in the surge of the 30-day vol in the Nasdaq 100 which according to Bloomberg has tripled in five weeks, rising to the highest since 2011. As a result, day-to-day swings are now averaging 1.7%, half a percentage point more than in February, as prices for options protection in tech have exceed the rest of the market by the most in seven years, using the difference in implied vol between the Nasdaq and the S&P 500.

But while there were many immediate reasons for today's 600 points plunge in the Dow, including the surge in the dollar to fresh 2018 highs, the guidance cut and a warning from a key Apple supplier confirming that iPhone demand is tumbling, fears over rising rates, political turmoil in Italy and uncertainty over Brexit, slowing profit growth and rising negative earnings pre-announcements, the unspoken catalyst behind today's mass dump most likely has to do with the previously discussed November 15 mass redemption day faced by hedge funds, one which we said portends a November 15 bloodbath as underperforming hedge funds brace themselves for an avalanche of redemption requests. And all this happened as bond markets were on vacation, further accentuating the already illiquid equity moves.

Confirming this, Nomura's Charlie McElligott wrote after the close that what was already a sloppy situation within the U.S. Equities-space "got even messier, as the (negative) performance-driven de-risk / “de-gross” of the past month has escalated." Specifically, today saw a "somewhat idiosyncratic" set of circumstances "pile-on" into the already-stressed environment surrounding the imminent HF “redemptions notice” date, accentuated by the following "death by papercuts" factors in stocks:

  • The 5% implosion of Apple and its supply-chain following LITE’s guidance-slash on "meaningfully reduced shipments" from one of its largest customers (-30.3%), implicating Apple and reduced demand for iPhones. The news crushed the entire supplier space (AMS SW -22.4%; CRUS -13.8%; KN -10.2%; AMD -9.4%; SYNA -8.2%; IFX GR -7.1%; AVGO -6.4%; STM IM -6.4%; QRVO -6.3%) as the three-year “hiding place” in the Apple phenomenon breaks-down.
  • The ongoing destruction in "Growth"-heavy long portfolios (“Cash / Assets LONGS” are -3.8% on the day, “R&D / Sales LONGS” -2.9%), as well as large gains in “Value” market-neutral strategies, where despite actually somewhat lower “Value LONGS” on the day, the Growth companies which make up “Value SHORTS” in the market-neutral factor strategies are being crushed—e.g. “EBITDA / EV SHORTS” are -4.1% today, “Predicted E/P SHORTS” -2.4%
  • Another unwind of popular hedge fund positions has to do with the de-betaing of portfolios in a hurry: "beta longs" are -3.1% on the day, and -15.8% QTD, the result of unwinding “long high beta, short low beta” bets, which has rationally corresponded with the Equities L/S hedge fund performance swoon, as it captures that many funds were long-er the market than they realized

Factors showing the pressure on popular "growth" longs are captured by the upside for "Value" Market Neutrals (as shorts are squeezed) and the selloff in "beta" and "vol":

Equities HF L/S index ticking with real-time "beta" factor market neutral-i.e., funds' market exposure was even higher than realized:

Meanwhile, as we noted in our EOD wrap, the market has dropped enough to where dealer gamma imbalance is back as a downward market force, with further stock declines forcing further liquidations in a self-reinforcing loop.

Additionally, according to Nomura there is another important mechanical phenomenon, where an important “rally date” falls out of the 1m sample set (by today’s close) from the bank's systematic trend model, which means -$32.8B of S&P futures for sale on a close and sending the overall allocation in S&P from “100% Max Long” back down to just "65% Long."

In practical terms, this is the case for 1) Nasdaq, with this date falling-out dictating a deleveraging from “100% Max Long” down to “65% Long” and creating -$21.6B of selling in NQ1 and 2) Russell 2k, where the close below 1545 sees the “65% Long” decline to “30 Long” and create -$17.4B for sale in Russell minis.

Meanwhile, in addition to the stunning 8% drop in Goldman shares, largely the result of rising concerns over the bank's (and Lloyd Blankfein's) exposure to 1MDB, McElligott also highlights his long-time "funding stress" proxy whipping-boy General Electric is back under the gun (-6.3%) after the CEO flopped in his TV debut.

The final insult to injury within U.S. stocks was the S&P Energy sector sliding -2.2% as Crude couldn't hold positive and was smashed -2.5% lower despite the OPEC supply cut jawboning this weekend, with President Trump tweeting at the Saudis along with the US Dollar breakout further challenging oil.

It wasn't all gloom: the Nomura cross-asset strategist notes that, hilariously, the "Buyback" factor was one of the best performers today +0.9% / +1.7 SD’s (1Y relative), indicating that the corporate bid is one of the few supporting phenomena in the market. However, not even buybacks were strong enough to prop up the market from today's bloodbath.

Putting the above together, McElligott cautions that even with a brief selling pause provided post the passing of the November 15 hedge fund redemption date, this "death by papercuts" market is further sapping willingness to deploy risk despite a "cleaner" positioning footprint and the return of the "buyback bid."

These "papercuts" only add to the already damaged psyche of investors, who are clearly in the grips of the "glass half-empty" view that the Fed is on the “policy error” route and will "tighten us into a slowdown."

Published:11/12/2018 4:37:41 PM
[Markets] NewsWatch: Stocks close sharply lower as Dow tumbles 600 points in wake of oil-market woes Stocks close sharply lower Monday, with the Dow Jones Industrial Average tumbling 600 points as crude oil prices extended their retreat.
Published:11/12/2018 4:15:19 PM
[Markets] Dow falls 600 points, Nasdaq 200 as stocks suffer major technology-induced loss Dow falls 600 points, Nasdaq 200 as stocks suffer major technology-induced loss Published:11/12/2018 3:43:09 PM
[Markets] Stocks close sharply lower as Dow tumbles 600 points in wake of oil-market woes Stocks close sharply lower Monday, with the Dow Jones Industrial Average tumbling 600 points as crude oil prices extended their retreat. Published:11/12/2018 3:43:09 PM
[Markets] Dow sinks 625 points at low as the stock market contends with a fresh threat: a rising dollar The Dow Jones Industrial Average midday Monday was trading near session lows, amid a firming U.S. dollar. Last week, investor sentiment was buffeted by a rapid decline in crude-oil prices , which fell into bear-market territory, defined as a drop from a recent peak of at least 20%. And while that decline has stabilized somewhat, with the Organization of the Petroleum Exporting Countries considering cuts to production to address rising crude-oil inventories, a new problem appears to be knocking stocks around. Some market participants were attributing a rise in the dollar to a roughly 1 1/2-year high as one of the key factors producing fresh headwinds for the broader market. A popular gauge of the buck, the ICE U.S. Dollar Index was trading up 0.5% at 97.43, representing its highest level since June of 2017, according to FactSet data. A stronger dollar can hurt sales of multinational companies, making goods relatively more expensive to customers purchasing abroad. Meanwhile, the bond market was closed in observance of Veterans Day. Most recently, the Dow was down 625 points, or 2.4%, at 25,352. Meanwhile, the S&P 500 index was off 2% at 2,726, while the Nasdaq Composite Index retreated by 2.8% at 7,202. To be sure, a decline in shares of Apple Inc. after a series of negative reports on its holiday shipping also was weighing on technology and internet-related stocks and the broader market. A sharp decline in shares of Goldman Sachs Group Inc. also was delivering a hefty blow to the Dow and the broader market. Published:11/12/2018 3:02:59 PM
[Markets] With 5 minutes left in the stock-trading day, the Dow is down 600 points With 5 minutes left in the stock-trading day, the Dow is down 600 points Published:11/12/2018 3:02:59 PM
[Markets] In One Chart: The White House probably won’t be tweeting this Trump-vs.-Obama chart The Trump administration has long pointed to the bull market as a clear validation of the president’s #MAGA policies. Trump himself celebrates each passing Dow milestone with tweets of self-appreciation like this one earlier this year. But what happens when things start to go wrong, like they have been lately?
Published:11/12/2018 3:02:59 PM
[Markets] Dollar Jumps, Stocks Dump As Crude Carnage Continues

RIP Stan Lee...

China had an extremely exuberant session overnight with CHINEXT (China's small cap/tech index) exploding almost 3.5% higher...

But don't get too excited about CHINEXT...


Ugly day in Europe with DAX leading the way lower even as Italy and Brexit anxiety is back in the headlines...

European banks were ugly as Carige was bailed out...


US equity futures extended Friday's late-bounce gains in the overnight session but started to fade quickly ahead of the cash open and extended those losses as AAPL, GS, and trade headlines sparked notable selling...


With no bond market for the algos to pivot off, stocks dropped, stabilized after the European close, then dumped into the last few minutes - Nasdaq was worst on the day

Weakness in stock indices started off driven by Tech but was dragged lower into the close by Oil...


The Dow broke back below its 100DMA and the rest of the majors all broke back below their 200DMA (after the machines ramped to close them on Friday)...


Stocks were dropped on lower than average volumes (around 20% below avg - though higher than during last week's rally), and liquidity remains terrible...


And as we warned yesterday, with gamma imbalanced, selling is begetting selling...

VIX is back above 20 as it has erased its post-Midterms uncertainty drop... (and VIX term structure is inverted once again)


Stocks have erased post-Midterms gains...


AAPL was hit hard on demand headlines from a supplier (LITE), testing down to its 200DMA (AAPL knocked 60 points off the Dow)


Goldman was battered... biggest 2-day drop since April 2010. (GS knocked over 100 points alone off the Dow)


GE was a bloodbath...despite the CEO's best efforts...dropping to a $7 handle for the first time since its crash lows in March 2009...




California Utilities were burned...


Energy stocks rolled over - starting to catch down to the ugliness in the oil complex...


The cash bond market was closed for Veterans Day but Treasury futures imply a 3bps compression in 10Y yields on the day...


The Dollar was up for the 3rd day in a row to the highest since May 2017 (this 3-day jump is the biggest since April_


Offshore Yuan weakened for the 5th day in the 6, almost erasing last week's short-squeeze surge... (hints at another squeeze coming soon from fwd points action)


Cable was ugly as Brexit headlines dominated the flow once again...


Cryptos mixed with Bitcoin unch, Bitcoin Cash down and Ripple up...


Dollar gains sent commodities lower across the board...


Oil rebounded modestly on the day on Saudi production cut headlines but as Trump tweeted against OPEC cuts and WTI crashed back into the red to a $58 handle for the first time since Feb... (11th day in a row - another record losing streak)


Gold in Yuan has erased 50% of its recent re-valuation (Yuan strengthening)...


Finally we remind some who question why would anyone sell the "no brainer" stocks like Apple and Goldman? Simple - they are forced to as redemption deadlines loom.

Published:11/12/2018 3:02:59 PM
[Markets] Goldman Sachs stock falls further, toward worst one-day drop in 7 years Shares of Goldman Sachs Group Inc. extended their selloff Monday, to fall 7.3% in afternoon trade to put it on track for the lowest close since Nov. 16, 2016. The stock was also headed for the biggest one-day decline since it fell 7.4% on Nov. 9, 2011. The selloff comes after the shares shed 3.9% on Friday, after Bloomberg reported that former Goldman Chief Executive Lloyd Blankfein was the unidentified high-ranking executive referenced in U.S. court documents who attended a 2009 meeting with former Malaysian Prime Minister Najib Razak involved in the 1MDB scandal. The stock's two-day plunge of 10.9% would be the worst since it plummeted 11.4% over the two-sessions ending April 19, 2010. The stock has now shed 10.1% over the past three sessions while the SPDR Financial Select Sector ETF has lost 4.6% and the Dow Jones Industrial Average has gained 0.7%. Published:11/12/2018 1:02:16 PM
[Markets] Tech stocks lead broad sell-off in US stocks; oil rebounds A steep drop in technology companies sent U.S. stocks sharply lower Monday, knocking off more than 400 points from the Dow Jones Industrial Average. Banks and consumer-focused companies and media and communications ... Published:11/12/2018 11:32:04 AM
[Markets] Dow Slides as Apple and Goldman Sachs Drop Sharply, Nasdaq Craters Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average declined sharply on Monday after finishing last week with a gain of 2.8%. Apple Inc. fell 4.5% on Monday after a key supplier issued a profit warning, increasing investor concerns that iPhone demand may be waning. Published:11/12/2018 11:02:20 AM
[Markets] Decline of 5% makes Goldman Sachs the Dow's bigger loser Monday Decline of 5% makes Goldman Sachs the Dow's bigger loser Monday Published:11/12/2018 10:32:14 AM
[Markets] Dow sinks 400 points in early trade as the stock market contends with a fresh threat: a rising dollar The Dow Jones Industrial Average early Monday was trading near session lows, amid a firming U.S. dollar. Last week, investor sentiment was buffeted by a rapid decline in crude-oil prices , which fell into bear-market territory, defined as a drop from a recent peak of at least 20%. And while that threat has stabilized somewhat, with the Organization of the Petroleum Exporting Countries considering cuts to production to address rising crude-oil inventories, a new problem appears to knocking stocks around. Some market participants were attributing a rise in the dollar to a roughly 1 1/2-year high as one of the key factors producing fresh headwinds for the broader market. A popular gauge of the buck, the ICE U.S. Dollar Index was trading at 97.48, representing its highest level since June of 2017, according to FactSet data. A stronger dollar can hurt sales of multinational companies, making goods relatively more expensive to customers purchasing abroad. Meanwhile, the bond market was closed in observance of Veterans Day. Most recently, the Dow was down 400 points, or 1.6%, at 25,584, the S&P 500 index was off 1.5% at 2,738, while the Nasdaq Composite Index retreated by 2.7% at 7,204. To be sure, a decline in shares of Apple Inc. after a series of negative reports on its holiday shipping also was weighing on technology and internet-related stocks and the broader market. A sharp decline in shares of Goldman Sachs Group Inc. also was delivering a hefty blow to the Dow and the broader market. Published:11/12/2018 10:32:14 AM
[Markets] Nasdaq's 1.6% intraday tumble takes tech-heavy stock-market gauge to roughly 2-week low The Nasdaq Composite Index early Monday was the worst performer among the three main U.S. benchmarks, with its drop putting the index on track to close at its lowest level in about two weeks. The Nasdaq was down 1.7% at 7,280. A close there would mark the technology and internet-related index's lowest level since Oct. 30 when it finished at 7,161.65, according to FactSet data. A sharp decline in shares of Apple Inc. was weighing on the broader market, including the market-capitalization S&P 500 and the price-weighted Dow Jones Industrial Average . Published:11/12/2018 9:33:01 AM
[Markets] Dow down 100-plus points early Monday; oil rebounds on talk of OPEC output curb Dow down 100-plus points early Monday; oil rebounds on talk of OPEC output curb Published:11/12/2018 9:02:18 AM
[Markets] Apple's stock exacts more than 50-point toll from Dow industrials, in early morning action The Dow Jones Industrial Average was trading solidly lower early Monday, with shares of Apple Inc. producing the greatest headwind for the price-weighted benchmark in early action. Shares of Apple were down more than $8, or about 4%, which equates to a 54-point loss for the Dow. Apple's stock was tumbling after Lumentum Holdings Inc. slashed its earnings and revenue outlook, saying it received a request from "one of its largest industrial and consumer customers for laser diodes for 3D sensing" to "materially reduce shipments" during the fiscal second quarter, which ends in December. That customer is believed to be Apple. The Dow was down 170 points, or 0.6%, at 25,821. A $1 move in any one of the Dow's components translates to a a roughly 6.8-point swing. Meanwhile, the S&P 500 index fell 0.7% at 2,761 and the Nasdaq Composite Index was trading 1.3% lower at 7,313. Apple is the biggest company by market value and one of the most influential companies within the Dow by virtue of its price. That fact makes Apple a key catalyst for market moves among the three main stock benchmarks. Published:11/12/2018 9:02:18 AM
[Markets] Apple's stock slips after J.P. Morgan trims price target again Shares of Apple Inc. fell 0.7% in premarket trade Monday, after J.P. Morgan cut its earnings estimates on the technology giant, citing new forecasts for modest declines in iPhone shipments for this year and next. Analyst Samik Chatterjee cut his stock price target, for the second time this month, to $266 from $270, but kept his rating at overweight. He said the lower earnings outlook is because of a weaker macro-economic environment in emerging markets, such as China, which is driving softer consumer confidence in certain countries, and a stronger U.S. dollar, which is making iPhones more expensive in foreign currencies. He cut his annual iPhone volume expectations for calendar 2018 to 214 million from 216 million and for 2019 to 208 million from 218 million, while his earnings-per-share estimates drop by 10 cents in fiscal 2019 and fiscal 2020. On Nov. 2, Chatterjee had trimmed his stock price target to $270 from $272 to reflect U.S. dollar strength concerns. Apple's stock has lost 1.5% over the past three months, while the SPDR Technology Select Sector ETF has dropped 4.4% and the Dow Jones Industrial Average has gained 2.7%. Published:11/12/2018 7:01:36 AM
[Markets] Futures Slide Amid Euro, Cable Rout; Dollar Soars To 2018 High

Stocks reversed earlier gains, turning lower in Europe as U.S. futures pared as many as 20 points of upside in overnight trading before turning lower on Monday, following a mixed session across most of Asia as investors weighed the outlook for equities after a roller coaster few weeks. Volumes were subdued with many banks closed for Veteran's Day in the US. Futures on the Nasdaq were flat after large-cap tech shares on Friday dragged the gauge down 1.7%.

Europe saw a sharp selloff in both the EUR and GBP this morning, with the EURUSD breaching 1.1300 to the downside, the lowest print since July 2017 as Brexit deal momentum once again faded, while the Italian budget negotiation failed to make progress ahead of another looming deadline.


For the euro, Italy was the main focus, with Rome facing a Tuesday deadline to submit a revised budget to the EU, though it has so far refused to cut the draft budget deficit, setting the stage for a collision with Brussels.  Bernd Berg, strategist at Woodman Asset Management, predicted the euro would tumble below $1.10 from the current $1.126 “as renewed eurozone and Brexit angst and a diverging economic outlook with a strong U.S. economy versus a weakening eurozone economy will trigger further euro selling pressure.”

The drop in Europe's Stoxx 600 Index was led by household goods and real estate shares. Major European indices were mixed, with Germany’s DAX (-0.8%) lagging, weighed on by Infineon (-5.3%) following a projected revenue decline and SAP (-3.2%) after the company stated they are taking over Qualtrics International. UK’s FTSE 100 (+0.2%) outperformed thanks to the weaker pound and as several big names are in the green (BHP +2.8%, Shire +2.3%, Anglo American +2.0%) outweighing the significant losses for British American Tobacco (-9.1%) and Imperial Brands (-4.1%) following reports of FDA commissioner pursuing a ban on menthol cigarettes. Similarly, sectors are mixed with IT names lagging and energy names outperforming, with FTSE giant BP (+1.8%) benefiting from the rebound in oil.

Italian bonds fell ahead of supply and the government’s deadline to resubmit its 2019 budget on Tuesday where there appeared to be no progress, while Bunds follow gilts higher on a lack of progress in the Brexit talks; The 10y spread to Germany widened 4bps to 303bps while Bund gains were spurred by gilts, which outperform by 3bps as the latest Brexit impasse lowers the chances of a BOE rate hike before November 2019, even as the next 25bps BOE hike remains fully priced in for November 2019.

Markets were also spooked by reports that Banca Carige would need around 400 million euros ($451 million) to plug a hole in its capital base and Italy’s deposit protection fund could fill only part of it. CRG.IM was halted, limited down as a result.

That raises the specter of a banking crisis in the euro zone’s third-biggest economy, keeping Italy’s bond yield spread over Germany - the risk premium attached to Italian assets - around the psychologically key 300 basis-point mark. Italian bank shares fell 0.6 percent

Earlier in the session, the MSCI Asia equities index also dropped, though shares in Japan and Hong Kong finished in a tight range, while Chinese stocks - for once - bucked the trend closing 1.2% higher. While Shanghai was lifted over one percent by regulators’ promise to simplify share buybacks, MSCI’s world equity index was down 0.3% and Asian markets broadly weakened following Friday’s weak Wall Street close.

China closed in the green even as investors fretted about signs of slowing growth in China where e-commerce giant Alibaba was the latest to raise alarm bells, with the slowest ever annual sales growth during its Singles Day shopping event.

Australia's ASX 200 (+0.3%) and Nikkei 225 (+0.1%) both recovered from the early declines and traded marginally positive although weakness in tech and financials capped gains in Australia, while recent flows into JPY restricted upside for the Japanese benchmark. As noted earlier, the Shanghai Comp. (+1.2%) and Hang Seng (+0.1%) were initially lower amid growth and trade-related uncertainty, while the PBoC also recently noted that China’s economy is under increasing downward pressure. However, Chinese markets then recovered as officials continued to pledge measures to support businesses including wider tax cuts and with China also upbeat following record-breaking Singles Day sales.

With Asia mixed and European risk assets sliding, the Bloomberg dollar index printed fresh YTD highs: “King dollar has staged a return,” Credit Agricole's FX strategist Valentin Marinov said, adding that investors had piled back into the dollar after last week’s Fed meeting confirmed a rate-tightening path. "Euro and pound are both hurt by political risk and that is aggravating  underperformance versus the dollar,” Marinov added.

Speculators’ net long dollar positions rose last week to the highest since January 2016, according to the latest Commodity Futures Trading Commission data.

The pound slumped, dropping below $1.29 for the first time in more than a week following a report that four more U.K. government ministers are on the brink of resigning over Prime Minister Theresa May’s Brexit plans, and that May was forced to abandon plans for an emergency cabinet meeting to approve a Brexit agreement, the Independent news website reported, stoking fears that the government might not be able to secure a deal that satisfied both the European Union and members of the ruling party.

The opposition Labour Party said that if May’s Brexit deal was voted down in parliament, it would push for a national election and possibly also another referendum. The latest futures data showed net short sterling positions registered their biggest weekly rise in 1-1/2 months. Deutsche Bank analysts, however, predicted more pain, telling clients: “not enough risk is priced into sterling given the parliamentary problems ahead”.

The other big move was in commodities, where Saudi Arabia’s energy minister took some pressure off last week’s oil price drop, saying on Sunday that Riyadh could reduce supply to world markets by 500,000 barrels per day in December, a global reduction of about 0.5 percent. That jolted Brent crude futures up more than 2% to a high of $71.88 per barrel. However, the supply cut may prove to be a temporary solution to falling prices as global growth slows, with two of the world’s biggest economies - Germany and Japan - expected to report a contraction in output in coming days. “Supply-side surprises appear to be the main culprit, but concern that global demand is slowing may also be creeping into markets and weighing on risk appetite,” the ANZ analysts said.

Looking ahead, Treasuries aren’t trading due to Veterans’ Day holiday. UGI Corp. and AXA Equitable are among scheduled earnings

Market Snapshot

  • S&P 500 futures little changed at 2,778.50
  • STOXX Europe 600 down 0.2% to 364.86
  • MXAP down 0.4% to 151.66
  • MXAPJ down 0.5% to 481.78
  • Nikkei up 0.09% to 22,269.88
  • Topix down 0.06% to 1,671.95
  • Hang Seng Index up 0.1% to 25,633.18
  • Shanghai Composite up 1.2% to 2,630.52
  • Sensex down 0.8% to 34,867.39
  • Australia S&P/ASX 200 up 0.3% to 5,941.30
  • Kospi down 0.3% to 2,080.44
  • German 10Y yield fell 2.0 bps to 0.387%
  • Euro down 0.7% to $1.1256
  • Brent Futures up 1.2% to $71.05/bbl
  • Italian 10Y yield rose 0.8 bps to 3.033%
  • Spanish 10Y yield fell 1.2 bps to 1.586%
  • Brent Futures up 1.3% to $71.06/bbl
  • Gold spot down 0.2% to $1,207.13
  • U.S. Dollar Index up 0.6% to 97.47

Top Overnight News from Bloomberg

  • As well as increasing domestic pressure on May to ditch her Brexit plan or face defeat in Parliament, EU ministers in Brussels on Monday didn’t fix a specific date for an extraordinary summit. There’s still a need for more clarity from the U.K. before the bloc’s leaders convene to sign off a deal, an EU official said
  • Saudi Arabia expressed the need for oil producers to cut 1 million barrels a day from October levels and announced fewer shipments from next month, as OPEC and its allies began laying the groundwork to reduce oil supply in 2019, reversing an almost year-long expansion
  • China signaled tougher management of the yuan, dropping a phrase underlining the importance of market forces from a key policy report for the first time in five years
  • The most destructive series of wildfires in California history have killed at least 31 people and forced tens of thousands more to evacuate, officials said, as firefighters struggled to gain control in swirling winds
  • President Donald Trump left World War I commemorations in France after a weekend that exposed tensions with U.S. allies in Europe over his decision to pull out of the 1987 Intermediate- range Nuclear Forces Treaty with Russia. By the time he flew home on Sunday he appeared isolated and, by some, scorned

Asian equity markets eventually traded mixed but with gains limited as some cautiousness lingered from the uninspiring performance on Wall St last Friday, where ongoing global growth concerns and continued declines in commodities weighed on sentiment. ASX 200 (+0.3%) and Nikkei 225 (+0.1%) both recovered from the early declines and traded marginally positive although weakness in tech and financials capped gains in Australia, while recent flows into JPY restricted upside for the Japanese benchmark. Elsewhere, Shanghai Comp. (+0.8%) and Hang Seng (+0.1%) were initially lower amid growth and trade-related uncertainty, while the PBoC also recently noted that China’s economy is under increasing downward pressure. However, Chinese markets then recovered as officials continued to pledge measures to support businesses including wider tax cuts and with China also upbeat following record-breaking Singles Day sales. Finally, 10yr JGBs were relatively flat with price action contained as pressure from the improvement in regional sentiment was counterbalanced by the BoJ presence in the market.

Top Asia News

  • SoftBank to Raise $21 Billion in Wireless IPO to Invest More
  • Pilot Grounded Before Delhi-London Flight for Failing Booze Test
  • China’s LVMH Wannabe to Slow M&A After $4 Billion Spree

Major European indices have turned lower, with Germany’s DAX (-0.8%) lagging, weighed on by Infineon (-5.3%) following a projected revenue decline and SAP (-3.2%) after the company stated they are taking over Qualtrics International. UK’s FTSE 100 (+0.2%) is outperforming amid currency effects and as several big names are in the green (BHP +2.8%, Shire +2.3%, Anglo American +2.0%) outweighing the significant losses for British American Tobacco (-9.1%) and Imperial Brands (-4.1%) following reports of FDA commissioner pursuing a ban on menthol cigarettes. Similarly, sectors are mixed with IT names lagging and energy names outperforming, with FTSE giant BP (+1.8%) benefiting from the rebound in oil. In terms of individual equities, Telecom Italia (+4.6%) are leading the Stoxx 600 after reports in Italian press that the Italian government are pushing a fibre deal with the Co. Elsewhere, Rio Tinto (+3.4%) rose to the top of the UK benchmark following the completion of a share-buyback programme.

Top European News

  • Merkel Bid to Make Germany Inc. World Champion Hits EU Snags
  • Italy’s Industry Output Drop Makes It Harder to Convince EU
  • Hedge Fund Wins as European Luxury Goods Hit a Wall in China
  • Cerberus Plans to Buy Spain’s Altamira, Solvia: Expansion

In FX, the Dollar is firmly back in the ascendency, albeit partly due to underperformance in major counterparts due to specific bearish factors. However, the DXY has extended recovery gains beyond 97.000 and through its previous ytd peak to top out just shy of 97.600 at 97.583, with bulls now eyeing relatively strong Fib resistance around 97.871 ahead of 98.000.

  • GBP - More Brexit-related weakness in Sterling has tipped Cable through another big figure, and just under 1.2850 at one stage, while Eur/Gbp has rebounded further from recent sub-0.8700 lows towards 0.8775 on latest threats of revolt within the UK Government and time running out fast to reach a withdrawal deal with the EU. From a technical perspective, nearest support in Cable comes in around 1.2810, which coincides with a Fib and decent option expiry interest.
  • EUR - The single currency is also under considerable pressure, and after triggering stops at 1.1300 vs the Greenback, losses accumulated quickly to 1.1250 where hefty bids stalled further downside for a while. The catalyst, ongoing Italian-EU budget angst ahead of Tuesday’s deadline for the Government to resubmit a fiscal plan, and another meeting between key Roman officials later today. Note also, 1.1 bn option expiries roll off at the 1.1250 strike, with the same size capping any rebounds to 1.1300.
  • CHF/AUD - Both around 0.4-0.45% weaker vs a generally bid Usd, with the France testing 1.1000 and Aud back below 0.7200 amidst renewed weakness in the Yuan.
  • NZD - The Kiwi is holding up moderately better than its antipodean peer, as Nzd/Usd maintains 0.6700+ status (just) and the Aud/Nzd cross retests support/bids around 1.0700.
  • CAD/JPY - Relative outperformers, or at least keeping pace with the Usd as the Loonie pivots 1.3200 and derives underlying support from a rebound in oil prices, while the latter pares losses from circa 114.20 to just above 114.00 due to its greater safe-haven allure.
  • EM - Broad declines in regional currencies vs the resurgent Dollar, but with Usd/Try slipping back from 5.5000+ levels in wake of Turkish current account data revealing another y/y improvement.

In commodities, WTI (+0.4%) and Brent (+1.0%) bounced back with a vengeance as markets had the first opportunity to digest developments from the JMMC meeting during the weekend. The complex was on track for the longest losing streak since 1984, before Saudi Energy Minister Al-Falih said the kingdom plans to reduce oil supply by 500K BPD in December due to a seasonal demand decline. Meanwhile, the JMMC decided not to take decisions on market adjustments on Sunday, with UAE’s Energy Minister noting that 2019 will require a change in OPEC strategy, adding that the new strategy is definitely not going to involve hiking output. Furthermore, in early European trade, the Kuwaiti Oil Minister stated that oil exporters discussed some kind of supply cut for next year but no volume was mentioned. Note: weekly API and DoE inventory data have been pushed back by a day due to US Veterans’ day. Elsewhere, gold (-0.1%) fell to levels last seen in mid-October as the yellow metal tracked USD moves with the DXY reaching new YTD highs in early European trade. Meanwhile, copper is taking a breather from the recent sell-off and nickel extended losses to hit 11-month lows, pressured by concerns of slowing Chinese demand for steel. At the weekend JMMC meeting, the committee decided not to take decisions on market adjustment, while Saudi Arabia Energy Minister Al-Falih said it is too premature for OPEC to discuss production cuts but stated that Saudi will reduce oil supply by 500k bpd in December amid seasonal decline in demand.

US Event Calendar

  • Nothing major scheduled due to Veterans' Day holiday

DB's Jim Reid concludes the overnight wrap

Welcome to a new week and one where Brexit seems likely to grab a disproportional amount of the headlines. As I was scouring the weekend papers for news on this bewildering subject I stumbled across an article that innocently said that the British and the Irish are the top two countries in the EU for the percentage of the population that drink alcohol least once a week. It felt quite apt given the current situation. Also in the same Eurostat survey it suggested that the Dutch are the least likely to eat fruit and veg every day which given how tall they are perhaps dispels the myth that you need them! The Italians are one of the worst for amounts of exercise (Scandis generally the best) but they have the skinniest population. If anyone in Italy can give me the secret of that equation I’d be delighted to hear it. It must be the Mediterranean diet!

Talking of Brexit and Italy, two of the main highlights for this week are likely to be the increasingly cul-de-sac Brexit scenarios being wrestled and the deadline for Italy to respond to the EU’s budget deficit demands tomorrow. Data-wise we have CPI reports in the US and Europe as well as Q3 GDP in the latter. Also worth watching is Oil which is in the midst of what is currently a record (daily data to 1983) 10-day successive slump in price. After an OPEC get together yesterday Saudi Arabia signalled that it will reduce oil exports by as much as half a million barrels a day in December as producers increasingly worry about oversupply in 2019. It’ll be interesting if they can persuade others to join them ahead of next month’s semi-annual full gathering. Oil prices (Brent +1.68% and WTI +1.21%) are up this morning on the back of this news. Can it finally close higher today and buck the two week trend?

Brexit feels like its entering a crucial stretch and Friday was a bad day for the UK government with the weekend headlines not offering much additional joy. Pro-remain Tory MP Jo Johnson resigned and suggested he wouldn’t support the deal in its current form. The arithmetic around any deal passing through Parliament was already challenging enough without losing pro-remain Conservatives. The weekend media suggests there could be others refusing to vote in favour along those lines with the Sunday Times suggesting four such proremain Government resignations are possible. Basically the deal as it stands is being criticised by both remain and leave Conservatives and also by the DUP.

Meanwhile the Labour Party opposition is highly unlikely to vote for it. So a deal being reached with the EU still seems the easy part of the equation. Sterling is down -0.5% in Asia this morning after falling -0.67% on Friday with virtually all of it after the resignation. As a reminder the DB house view is that not enough risk is priced into sterling given the Parliamentary problems ahead.

Cabinet ministers have apparently been seeing the proposed text of the deal with the EU over the last few days (seemingly without the Irish section not yet availble) and if PM May can win their approval we could see a formal cabinet meeting early this  week to formalise the deal before May makes a statement to the House of Commons. The situation is extremely fluid however especially with the increased backlash internally within the government and with the Irish border issue still outstanding. So these dates could easily (and seem likely to us to) be pushed back. How we get out of this cul-de-sac is very unclear.

Moving onto Italy, the government is due to present its new 2019 budget to the EU by tomorrow after being ask to resubmit. That said, Italy has reiterated that it won’t change its 2.4% deficit target for 2019 so it’s not clear what will change.

As for US CPI on Wednesday the consensus is for yet another +0.2% mom core reading - the 37th month in a row with such a forecast. The annual rate should however hold at +2.2% yoy – a level that the Fed should feel comfortable with and not change path. In Europe we’ll get the final October CPI revisions in Germany (Tuesday), France, Spain and UK (Wednesday), and the broader Euro Area (Friday). A first look at Q3 GDP in Europe and Germany (Wednesday) will also be worth a close watch. The rest of the week ahead is at the end.

This morning in Asia, markets have started the week with a mixed note with the Nikkei and Hang Seng both trading flat, Shanghai Comp (+0.8%) is up while the Kospi (-0.3%) is down. Elsewhere, futures on S&P 500 (+0.4%) are pointing towards a positive start. It is worth noting that today is Veterans Day in the US. The US equity market will remain open but there is a recommended full market close for the Treasury market.

Global equities were mixed last week, with US indexes mostly advancing after the US elections but emerging markets underperforming. The DOW led gains and had its best week since March, rallying +2.84% (-0.77% on Friday though), while the S&P 500 and NASDAQ gained +2.11% and +1.06% (-0.94% and -1.67% Friday) respectively. The NYFANG index fell -1.35% (-1.77% Friday) as tech continues to underperform. In Europe, the STOXX 600 advanced +0.46% (-0.37% Friday), though sectors exposed to China lagged with autos and basic resources down -4.38% and -2.21% (-1.89% and -3.41% Friday) respectively. EM equities fell -2.50% overall (-1.85% Friday) while indices in China underperformed with the Hang Seng and Shanghai Composite retreating -3.34% and -2.90% (-2.39% and -1.39% Friday) respectively. In fixed income, 10-year Treasuries touched a new 8-year high of 3.237% before retracing slightly, ending the week -2.7bps lower (-5.2bps Friday) at 3.182% while Bunds remained in their recent range and fell -2.1bps on the week (-5.0bps Friday).

The US granting of Iran sanctions waivers to eight countries was a big development last week. They will be able to continue importing limited quantities of oil from Iran without running afoul of US laws, boosting the global supply of oil. WTI crude oil prices slid -5.21% (-1.35% Friday), for their tenth consecutive daily loss, the longest such streak on record with daily data going back to 1983. Brent fell -4.30% in unison (-1.34% Friday) though the spread between the two contracts remains near recent wides around $9.85 per barrel.

With it being Veterans Day in the US (US stock market open but bond market is closed), it's a quiet start to the week. In Europe, we get France's October Bank of France industry sentiment index. There is no data of note in the US. Away from this, the Fed's Daly is due to speak on the economic outlook while the ECB's Lautenschlaeger, de Guindos and Nouy are also scheduled to speak. EU general-affairs ministers will discuss the latest on Brexit negotiations followed by a press briefing from the EU's Chief Brexit Negotiator Michel Barnier. The EC President Juncker will give opening remarks at an economic conference on “Where is Europe headed?”

Published:11/12/2018 6:31:53 AM
[Markets] Square Looks Primed to Rally in November: Chart Stocks are ending the week with a stumble, and nowhere is that more true than the technology sector. The Nasdaq is down more than 1.1% as of this writing, doubling the downside of the Dow Jones Industrial Average on the day. Published:11/10/2018 5:52:35 PM
[Markets] Crude Carnage Continues As Fed Sparks Dollar Pop, Stock Drop

Hawk 'Flawless Victory' today...

For the second day in a row, the afternoon session in China saw notable selling and no rescue...


An early pop in Europe faded quickly leaving DAX unchanged on the week... (Spanish stocks are outperforming)


US Stocks, Gold, and bonds ended lower (in price) post-Fed, USD higher...

Stocks were all lower post-Fed, even with the panic-bid into the close...


And US equities tried their best to rally after the open but it all fell apart after The Fed's hawkish statement...


US equity markets bounce stalled at crucial technical levels (S&P 100DMA, Nasdaq 200DMA, Dow 50DMA)


After 5 straight days of short-squeezing higher, "Most Shorted" stocks ended red today...


VIX term structure shifted back into inversion today as stocks sank...


Energy stocks sank today - as you'd expect - finally starting to catch on the to collapse in


Yesterday's exciting surge in FANG stocks stalled rather notably today...


Treasury yields were higher on the day (though the 30Y outperformed, ending unchanged) pushing higher after The Fed...


The yield curve flattened notably...


Either bond yields go lower or cyclicals are set to soar...


The USD Index was heading higher into the Fed statement and extending its gains notably after...


And as the dollar rallied, yuan slumped...


And EM FX plunged...


Dollar strength also weighed on cryptos...


Crude and Copper lead the commodity carnage this week and PMs faded too as the dollar jerked higher...


WTI Crude down 9 days in a row into a bear market, down 21.25% from Oct highs to 7-month lows...(a Hawkish Fed and OPEC-break-up chatter did not help)...


In 33 years of futures contract trading, it has never been down 10 in a row...


Inflation Breakevens continue to decouple from crude's collapse...


Finally, we leave you with this bigger picture chart...

As Bloomberg's Ye Xie notes, as of June, the ratio stood at 45%, the highest since the bubble at the turn of the century. It suggests that the annual return for the next decade is close to zero (0.7% to be precise, based on the regression). In other words, the stock market would deliver negative returns after adjusting for expected inflation.

Published:11/8/2018 3:10:52 PM
[Markets] Amazon set to take back its No. 2 market-cap position from Microsoft Shares of Inc. slipped 0.4% in afternoon trade Thursday, but was on track to take back its place as the second biggest U.S. company by market capitalization from Microsoft Corp. With 488.97 million shares outstanding as of Oct. 17, the stock's price of $1,749.00 gives Amazon a market cap of $855.21 billion. Microsoft's stock was down 0.6% to $111.25, and 7.68 billion shares outstanding as of Oct. 19, the software giant's market cap is $853.98 billion. Amazon had been No. 2, behind Apple Inc. , briefly seeing market $1 trillion in market cap in intraday trading in late September, until a 20% selloff in October pushed it below Microsoft, which fell 6.6% during the month. Since the end of October, Amazon shares have rallied 9.4% while Microsoft's stock has gained 4.2%. During that time, the Dow Jones Industrial Average has gained 1,014 points, or 4.0%. Apple's market cap is currently $986.14 billion and Google parent Alphabet Inc.'s is a distant fourth at $756.63 billion. Published:11/8/2018 2:08:33 PM
[Markets] Dow Rises Modestly as Wall Street Awaits Fed Decision on Interest Rates The Dow Jones Industrial Average rose Thursday after jumping 2.1% in the previous session following midterm elections that played out as expected. fell 9.9% after the payments company issued a fourth-quarter earnings forecast below analysts' expectations. decision to use chips from Intel Corp. Published:11/8/2018 10:37:49 AM
[Markets] S&P 500 threaten to halt 3-day rally as investors await Fed policy statement The Dow Jones Industrial Average and the S&P 500 are set to end three consecutive days of gains as investors await an monetary-policy update from the Federal Reserve, which could offer fresh clues on the pace of near-term rate increases. Published:11/8/2018 9:08:14 AM
[Markets] Dow and S&P 500 appear poised to halt 3-day rally as Fed policy update looms The Dow Jones Industrial Average and the S&P 500 are set to end three consecutive days of gains as investors await an monetary-policy update from the Federal Reserve, which could offer fresh clues on the pace of near-term rate increases. Published:11/8/2018 7:40:51 AM
[Markets] Us Stock Futures Slide, Dollar Rises As Fed Looms

Yesterday's torrid US market "melt-up", which was the strongest post-midterm rally since 1982 after an election whose outcome was supposedly "priced in", has faded with futures dipping 0.4% as traders shift their attention to today's FOMC decision.

Even with the US taking a breather, world stocks enjoyed the eighth straight session of gains in their longest winning streak of the year on Thursday, as strong trade data from China kept the momentum from the previous day’s U.S. rally rolling.

European shares initially jumped to a one-month high, though they have since pared most of their earlier gains despite solid results from Siemens, SocGen and Commerzbank and Sodexho which eased concerns about slowing corporate earnings in Europe. Asia and Wall Street had set similar milestones overnight. Japan’s Topix jumped 1.7% and shares in Hong Kong and South Korea also posted solid gains.

Hong Kong's Hang Seng advanced 0.3 percent while the Shanghai Composite dipped 0.2 percent, unable to hold on to gains from stronger-than-expected October Chinese exports data. Australian stocks rose 0.5 percent too, South Korea's KOSPI added 0.7% and Japan's Nikkei surged 1.8 percent, which was almost as much as Wall Street's 2 percent leap.

Earlier in the day, China reported that exports growth picked up modestly to 15.6% yoy in October, and imports growth also accelerated to 21.4% yoy in October. Both readings are above consensus. However, in sequential terms, exports slowed to 1.2% mom sa non-annualized, from a strong gain of 3.4% in September.

The dollar rebounded from two and a half week lows after three days of declines, while Italian bond yields jumped after the European Union warned the nation’s budget deficit will move dangerously close to the economic bloc’s limit of 3%.

Donald Trump’s loss of the House of Representatives in the midterms reduced the chance of another tax cut. That in turn had analysts and money managers breathing a sigh of relief that the U.S. economy wouldn’t ultimately overheat and force the Fed to keep jacking up borrowing costs.

“We think we are close to the end of the appreciation of the dollar,” said fund manager Amundi’s Didier Borowski, who expects the Fed to pause its hiking cycle next year as the economy starts to slow. “Usually we see a year-end rally (in stocks)” he added.

The bond market there was plenty of activity too, with the 10-year Treasury note yield rising to 3.24%, its highest since Oct. 9, before dipping a couple of basis points lower. Italian government bond yields were up to five basis points higher in early trade following key economic projections from the European Commission which warned the country’s 2019 deficit will be much higher than suggested by Rome.

It pushed Italy’s bond spread over higher-rated Germany out to 290 basis points and Mizuho rates strategist Peter Chatwell warned of a possible further sell-off if Rome’s populist coalition government thumbs its nose at Brussels again. “In our model, it doesn’t move fair value much from 300 bps (over Germany) but scary headlines are likely to cause a widening,” he added.

While the resignation of Attorney General Jeff Sessions prompted much media attention on Wednesday, it had no impact on markets, where the attention now shifts to Thursday’s Federal Reserve decision. Investors will be looking for any signals on the pace of policy tightening into 2019.

In currencies, the Bloomberg Dollar Spot Index whipsawed amid thin volumes ahead of the Fed rate decision. The euro swung between gains and losses as it traded in a narrow range; Sweden’s krona rallied to a three-month high against the euro after the Riksbank reasserted its tightening plans in a parliament hearing, while also benefiting from a continued strong demand for global equities. Norway’s krone and Canadian dollar were also supported by equities and by stabilizing oil prices. The Aussie got a boost from stronger-than-forecast Chinese trade data; the kiwi reversed gains as the greenback gained traction after the London open; it earlier rose as the central bank held rates and removed an explicit reference to a rate cut in its policy statement. The yen weakened as a rally in Japanese stocks damped haven demand.

In commodities, WTI inched up 0.6 percent to $62.03 a barrel after falling to an eight-month low of $61.20 on Wednesday. Oil prices struggled after surging U.S. crude output hit another record and domestic inventories rose more than expected.

Expected economic events include U.S. Federal Reserve rate decision and jobless-claims data. Bombardier, Hydro One, and Disney are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 0.4% to 2,805.25
  • STOXX Europe 600 up 0.5% to 368.09
  • MXAP up 0.9% to 154.46
  • MXAPJ up 0.5% to 493.73
  • Nikkei up 1.8% to 22,486.92
  • Topix up 1.7% to 1,681.25
  • Hang Seng Index up 0.3% to 26,227.72
  • Shanghai Composite down 0.2% to 2,635.63
  • Sensex up 0.7% to 35,237.68
  • Australia S&P/ASX 200 up 0.5% to 5,928.24   
  • Kospi up 0.7% to 2,092.63
  • German 10Y yield rose 1.3 bps to 0.46%
  • Euro down 0.08% to $1.1417
  • Italian 10Y yield fell 5.9 bps to 2.967%
  • Spanish 10Y yield rose 1.9 bps to 1.621%
  • Brent futures up 0.8% to $72.67/bbl
  • Gold spot down 0.3% to $1,223.05
  • U.S. Dollar Index up 0.3% to 96.25

Top Overnight News

  • U.K. Prime Minister Theresa May has begun briefing her Cabinet on the text of the almost-complete Brexit deal, as her negotiators seek to finalize the last outstanding issue in Brussels
  • U.S. Special Counsel Robert Mueller could challenge the appointment of Matt Whitaker as acting attorney general by saying that his predecessor, Jeff Sessions, didn’t leave voluntarily but was forced out by the president, a former federal prosecutor said
  • After weeks of accusing Rome of too- optimistic assumptions about the effect of its spending plans, the EU said Thursday that economic growth next year will be weaker than the government targets, and the nation’s budget will move dangerously close to the EU limit of 3 percent
  • The $20 billion that Japanese funds pumped into American sovereign debt in September, the most in more than two years, signals that the debate many of them have been having about currency hedging may be over. Even with 10-year Treasuries offering yields of more than 3 percent, hedging would have eliminated the gains, according to calculations by Bloomberg
  • European central banks are putting their dollar reserves to work in Japan, lured by attractive premiums paid by currency hedgers; U.K. and French investors have been the top two buyers of Japanese short-term debt in the first three quarters of the year, according to data from the Ministry of Finance
  • The ECB will review how its 2.6 trillion-euro ($3 trillion) bond-buying program is divided among euro-zone nations. Bloomberg Economics calculates that the changes could mean purchases of Italian bonds drop by 750 million euros next year, with those of Germany climbing by 1 billion euros

Major European indices are mixed (Eurostoxx 50 -0.2%) after beginning the session in the green, the SMI (+0.4%) is leading the gains, while Italy’s FTSE MIB (-0.5%) lags its peers. Similarly, after starting the session in the green major sectors are now somewhat mixed. underperformance is being seen in the consumer discretionary sector while financial names are outperforming as the sector is buoyed by SocGen (+2.8%) and Commerzbank (+6.0%) post-earnings. In terms of individual movers, Prosiebensat (-16.0%) are at the bottom of the Stoxx 600 after a miss on their earnings, while UniCredit (-2.0%) are also lower following pessimistic earnings due to write-downs for Turkey not being factored into estimates.

Top European News

  • Commerzbank Gets Boost From Retail Unit as Zielke Adds Clients
  • Siemens Raises Dividend as Health, Software Mask Power Loss
  • U.K. May Revive Belgian Truck Ferry Route to Ease Brexit Snags
  • Two Years of Pound Pain May Be Over With $1.50 On Brexit Deal

Asian stocks were mostly higher as they took impetus from the post-election rally seen on Wall St where all majors gained at least 2% and the DJIA notched more than a 500-point gain as investors ploughed back into stocks after the US mid-terms results conformed to the broad consensus. ASX 200 (+0.5%) and Nikkei 225 (+1.9%) were both firmer from the get-go with tech the outperformer in Australia after a similar strong showing of the sector in US, while the Japanese benchmark ignored the largest drop on record for Machine Orders and was boosted by a weaker currency. Shanghai Comp. (-0.1%) and Hang Seng (+0.9%) initially benefitted from the heightened global risk appetite with the latter underpinned by a decline in money market rates after the PBoC’s bill sale in Hong Kong the prior day, while participants also digested the latest trade data from China in which Trade Balance slightly missed but Exports and Imports both topped estimates. Finally, 10yr JGBs initially tracked the downside in USTs as the rampant tone in equities weighed on safe-havens but with losses stemmed following firmer demand at today’s enhanced liquidity auction for 2yr-20yr JGBs.

Top Asian News

  • Nike, LVMH Back Up China’s Piracy Efforts in Contrast to Trump
  • Takeda Offers Euro Denominated Bonds to Help Fund Shire Deal
  • APA Plunges Most Since 2008 as Australia Blocks CK Pipeline Bid
  • Treasuries Above 3% May Be Altering Japan Funds’ Math on Hedging

In currencies, the DXY index is holding relatively firm above the 96.000 handle within a fairly confined range awaiting the Fed and confirmation that it remains on course to deliver a 4th and final 25 bp hike in December. However, the Dollar is not ahead across the board vs G10 counterparts as it continues to struggle in wake of the mid-term/midweek wobble, and certain currency rivals glean support from independent factors. SEK/NOK/AUD/CAD - All outperforming, albeit to varying degrees and not necessarily for obvious or intuitive reasons. The Scandi crowns have hawkish Central Bank vibes and mainly strong economic/fiscal fundamentals, as Eur/Sek tests 10.2600 bids/support having breached a key tech level above 10.3000 and Eur/Nok revisits 9.5000 with added fuel from a rebound in oil prices, albeit from fairly deep lows. Meanwhile, the drew some encouragement from upbeat Chinese imports and exports overnight to edge a fraction closer to 0.7300 and the Loonie heads into Canadian housing data back above 1.3100, also with the aid of recovering crude. GBP/CHF/EUR - Yet more conflicting Brexit reports for the Pound to contend with and keeping Cable choppy within 1.3090-1.3150 parameters, but Eur/Gbp softer around 0.8700 in wake of news that UK PM May is heading back to Brussels for more talks and suggestions via the Austrian press citing EC sources that a deal could be reached as early as Monday. The Franc is back below parity and single currency also whippy amidst latest EU-Italian divergence on Rome’s 2019 budget projections and assumptions about deficit developments – Eur/Usd between 1.1410-45, and also eyeing decent option expiry related interest from 1.1415-25 (1.3 BN).

In commodities, WTI (+0.5%) and Brent (+0.6%) are both higher following yesterday’s sell-off as China’s October crude imports reached a record high of 9.61mln BPD, a 32% Y/Y increase, hence watering down concerns that a slowdown in their economy may lead to a glut in the oil market. Upside in oil prices are capped amid yesterday’s EIA data which showed a record production of 11.6mln barrels of US crude. Gold (-0.2%) prices have eased as the dollar rebounded from post-midterms lows ahead of the FOMC meeting later today. Elsewhere, Chinese aluminium exports fell 3.6% from September’s level, as sliding domestic production meant there was less available metal for overseas markets. Furthermore, copper underperforms today after China’s imports of the red metal falling by 18.7%, signalling lower demand.

Looking at the day ahead, highlight is the Fed meeting. Prior to that the data releases this morning include September trade balance readings in Germany and France and also the European Commission’s latest economic forecasts update. In the US we’re only due to get the latest weekly initial jobless claims print. Also worth flagging today are scheduled comments from ECB President Draghi in Dublin at 3.20pm GMT.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 213,000, prior 214,000; Continuing Claims, est. 1.63m, prior 1.63m
  • 9:45am: Bloomberg Consumer Comfort, prior 60.3
  • 2pm: FOMC Rate Decision

DB's Jim Reid concludes the overnight wrap

On the year-end rally, markets perfectly adhered to the usual post-midterms playbook yesterday as equities soared on Election Day +1. The NASDAQ (+2.64%) led the way with the NYSE FANG index also soaring +2.92% (Amazon +6.87%), closely followed by the S&P 500 (+2.12%) and DOW (+2.13%). The S&P 500 also went above its 200-day moving average for the first time since October 19th and has now retraced over 50% of the -9.88% decline the index took from the end of September into October 29th – the recent lows for the index. It’s also seen four >+1% moves in the last seven sessions. Volatility has certainly also fallen in recent weeks with the VIX yesterday falling -3.55pts (the biggest % fall since February) to 16.36 and its lowest since October 9th. That intraday high of 28.84 back on October 11th feels a while back now.

After a wide-ranging press conference where he dangled the prospect of bipartisan deals, President Trump accepted the resignation of Attorney General Jeff Sessions. His chief of staff Matthew Whitaker, who has called the Mueller investigation a “witch hunt,” will now take over oversight of the probe. This is a potential source of volatility moving forward, but vol and equity markets ignored the news amid yesterday’s euphoric rally.

Elsewhere, Europe also had a decent day yesterday too with the STOXX 600 rising +1.06% and European Banks +1.52% with Spanish lenders leading the way following a reversal of the mortgage tax verdict where banks were at risk of billions of euros of costs. Spanish banks were off the early highs of +5.81% to close +2.43%, as the Spanish PM suggested he regretted the reversal and would publish a decree to make the banks pay the tax going forward. Separately, the ECB nominated Andrea Enria (from Italy) to succeed Daniele Nouy as head of the central bank’s supervisory operations. The pick should clear the way for Bank of Ireland Governor Philip Lane to be appointed as successor to Peter Praet on the ECB’s Executive Board as Chief Economist. Lane is a pragmatist, so there should not be a major change to policy, though at the margin he may favour more macroprudential policies to limit financial excesses rather than interest rates, making him slightly more dovish on rates than otherwise.

Less one-way traffic was the move for oil yesterday. Following headlines out of Bloomberg suggesting that OPEC and allies were discussing production cuts for next year, Brent and WTI jumped as much as +2.40% and +2.45% from the early day lows before bearish supply data saw the oil complex give up all of those gains before closing -0.08% and -0.87% Brent and WTI respectively. On the potential cuts, remember that it was only back in June that we had the agreement among OPEC and major producers to boost output. Bloomberg quoted delegates as saying that the OPEC and allies coalition are likely to discuss the possibility of a cut this Sunday in Abu Dhabi.

As for other markets yesterday, well the other side of the midterm result was a weaker greenback (USD index -0.33%), and a flatter US curve. Ten-year yields closed +0.8bps higher after testing those seven-year highs just over 24 hours ago while 30-year yields fell -0.6bps. Two-year yields on the other hand were +2.9bps higher meaning the 2s10s curve flattened 2.1bps and the most in a month. The midterm results also helped the MSCI EM index to rise +0.57% while in FX the South African rand paced gains (+1.48%), however the Mexican peso fell -0.73%, possibly due to renewed concerns that the incoming Democratic House majority could delay or defeat the new USMCA deal, which has been negotiated to replace NAFTA.

Markets overnight have taken their cue from Wall Street with broad based gains across much of Asia. Leading the way is Japan where the Nikkei and Topix are +1.92% and +1.81% respectively, while the Kospi (+1.64%), Hang Seng (+0.96%) and Shanghai Comp (+0.61%) are also higher. The most notable overnight release has come in China where the October trade stats are out. Exports in both USD (+15.6% yoy vs. +11.7% expected) and CNY terms (+20.1% yoy vs. +14.2% expected) have risen faster than expected, resulting in a small widening of the trade surplus. One suggestion might be a front loading of shipments ahead of the implementation of higher tariffs in January.

So, with another political hurdle successfully dealt with its back to the more routine for markets with a Fed meeting to look forward to this evening. As a reminder this meeting doesn’t include a post-meeting press conference and is therefore unlikely to be a hugely exciting affair. Indeed the overriding consensus, both amongst economists and also in markets, is for no hike.

Our economists believe that the only “drama” about the statement will be around alterations to the Committee’s description of recent economic developments. They note that the statement can continue to see the pace of economic growth and job gains as strong, and can acknowledge that the unemployment rate has declined further. Household spending has continued to grow strongly as noted previously, but business investment has softened in recent months. The statement may make note of this, perhaps by using a phrase along the lines of: "Recent data suggest that growth of business fixed investment moderated from its strong first half pace." Inflation will still be seen as remaining near 2%, with inflation expectations little changed on average despite recent declines in market-based measures. An acknowledgement of recent tightening in financial conditions is unlikely. Outside of the statement, there will be some focus on whether or not the Fed make another “technical adjustment” by reducing the IOER by 5bps, to ensure that the fed funds rate continues to trade within its target range. Our team think this will be deferred until December when they can again raise the IOER by 20bps, though the exact timing is not especially significant in terms of monetary policy. As such we’d expect a strong signal in today’s minutes.

Staying with politics and the daily Brexit update, there was a lot more noise yesterday but still little substance on the key question: the Northern Ireland border. According to Bloomberg, Prime Minister May has shared the draft text of the UK’s withdrawal package, though has not included the section of the deal covering the Irish border. Officials from the EU, including Commission President Tusk and Irish PM Varadkar signalled that a deal may near, but the details are still being negotiated and are accordingly unclear. Despite the lack of true news, the pound continued its recent grind higher, gaining +0.21% to $1.313 (which is where its hovering around this morning), and our strategists expect a full deal to be announced next week, at which point the UK political reaction will be key.

To the day ahead now, where the highlight is almost certain to be the aforementioned Fed meeting this evening. Prior to that the data releases this morning include September trade balance readings in Germany and France and also the European Commission’s latest economic forecasts update. In the US we’re only due to get the latest weekly initial jobless claims print. Also worth flagging today are scheduled comments from ECB President Draghi in Dublin at 3.20pm GMT.

Published:11/8/2018 6:06:34 AM
[Markets] Tesla, Google, Federal Reserve, Square and Ford - 5 Things You Must Know U.S. stock futures pointed lower on Thursday, Nov. 8, following a Wall Street rally that came after the results of the midterm elections appeared unlikely to trigger major changes for either the domestic economy or the path of interest rates in the United States. Stocks rallied Wednesday, Nov. 7, as the midterm elections played out pretty much as expected. The Dow jumped 545 points, or 2.1%, to 26,180, and the S&P 500 closed at 2,813, its highest finish in four weeks. Published:11/8/2018 5:36:37 AM
[Politics] Why Democratic swell puts Wall Street at ease Gridlock is good. That’s the word on Wall Street after Democrats took control of the House of Representatives, setting the stage for a stalemate with the Republican-controlled Senate that investors are betting will boost stocks. The Dow Jones industrial average surged 545.29 points — or 2.1 percent — in Wednesday’s trading. Other indexes also rose,... Published:11/7/2018 6:33:33 PM
[Markets] Stocks - Dow Rallies 545 Points as Tech, Health Care Bask in Post-Midterm Glow – The Dow surged on Wednesday on the back of tech stocks after President Donald Trump vowed to work with Democrats after Republicans ceded control of the House in the wake of the midterm elections. Published:11/7/2018 5:34:31 PM
[Markets] US Market Indexes Close Higher for a Third Day on Wednesday Dow Jones closes at 26,180.30 with a gain of 2.13% Published:11/7/2018 4:03:28 PM
[Markets] Dow, S&P 500 log best day in 3 weeks, surging after midterm elections and after ouster of AG Sessions U.S. stocks on Wednesday registered the best day in weeks following midterm election votes that resulted in a split Congress, as expected, but removed a key source of anxiety for Wall Street investors. The Dow Jones Industrial Average rose 545 points, or 2.1%, at 26,180 (on a preliminary basis), marking the highest close for the blue-chip gauge since Oct. 9, according to FactSet data. The S&P 500 index also registered its best day in about three weeks, finishing 2.1% at 2,813, and closing above a psychological level at 2,800. The Dow closed above its short-term 50-day moving average, while the Nasdaq and the S&P 500 surged above their 200-day moving averages for the first time since October. The Nasdaq Composite Index finished the session with a 2.6% advance to end at 7,570, marking its best day since Oct. 25. The midterm elections resulted in Democrats taking control of the House while the GOP tightened their grip on the Senate. The resulting gridlock has historically been a boon for the market but investors also pointed to seasonal trends which often see equity markets climbing in the final months of the year, as institutional investors position for the coming year. Moreover, stocks took a drubbing in October, which also has helped to feed more opportunistic buying of stocks. On Thursday, the Federal Reserve will release an update to its policy statement at 2 p.m. Eastern Time, a factor that could provide insights about the pace of rate hikes next month and in the coming year. Published:11/7/2018 3:34:11 PM
[Markets] Stocks Surge On Midterm-Malaise But Bonds & Bullion Bid

500 Dow points... on an expected outcome? "That escalated quickly..."

Since The Dems were confirmed as taking the House last night, the dollar is down but bonds, stocks, and gold are all higher...

NOTE the odd panic bid in stocks at 3am.

After two afternoon sessions of recovery gains, China dumped into its close...seemingly unimpressed with Trump holding on to the Senate...


European stocks surged at the open and held gains (no extended push though)...


US Futures show a surge at Asia open, European open, and US open... (Dow futs 650 point range)


And a non-stop bid during the day session... Nasdaq's 2.4% surge was impressive to say the least... (UNH provide 75 of the Dow's points gain)

The Nasdaq Composite is up over 2%, yet only 62% of stocks in the index are higher, below the readings seen during October's snap-back rallies. Another factor that suggests a lack of verve is the percentage of volume in advancing stocks on the NYSE

Strong bid all day...

But another super-low volume day...


Dow, S&P, and Nasdaq all surged to or above key technical levels...


Healthcare led the markets (Obamacare handouts for all) and Tech and Consumer Discretionary

FANG Stocks soared...finally filling the gap-down-open from Oct 26th...


After 22 days of inversion (longest streak since 2011), the VIX term structure normalized today (barely)...


Abysmal Long Bond auction (2.3bps tail) sparked some ugliness in Treasuries in the afternoon...


But the 30Y still ended the day lower in yield (so not exactly reflective of the exuberant risk-on appetite in stocks...


But.. we note that this looks more like an equity catch up, yield catch down from early November's derisking...


The dollar was swinging around like a penny stock on Midterm elections before everyone settled on the Dems taking the House and that sparked the selling...


And amid all that chaotic dollar movement - yuan went nowhere...


Cryptos managed to hold the week's gains...


From Europe's open, commodities slid lower as the dollar limped off its lows...


WTI Crude was ugly - tumbling after the inventory data... Oil is down 8 days in a row - the longest streak since July 2014.


Once again Gold was rebalanced back to 8500 Yuan overnight...


Finally, we note that Inflation Breakevens have decoupled from Oil's collapse...

Who's right?

Published:11/7/2018 3:06:57 PM
[Markets] Dow ends up over 500 points as stocks surge after midterm elections Dow ends up over 500 points as stocks surge after midterm elections Published:11/7/2018 3:06:57 PM
[Markets] Dow jumps by more than 500 points as Sessions resigns as Attorney General amid Mueller probe The Dow Jones Industrial Average surged by more than 500 points late-Wednesday, with the blue-chip gauge taking a fresh leg higher after news that Jeff Sessions resigned as attorney general and is being replaced by his chief of staff Matthew G. Whitaker, President Donald Trump said in a tweet Wednesday afternoon. The Dow was up 505 points, or 2%, at 26,142, already buoyant following midterm elections on Tuesday that played out as Wall Street had anticipated and dispelled one uncertainty that had weighed on investor sentiment. Trump has repeatedly expressed anger with Sessions for recusing himself from the investigation into Russian election meddling, which is being overseen by Special-counsel Robert Mueller. Sessions's departure creates some uncertainty about the status of that investigation. However, the stock market appeared to shake off those concerns to race sharply higher. The S&P 500 index was up 1.9% at 2,809, while the Nasdaq Composite Index climbed 2.4% at 7,551. The gains for all three benchmarks put them in position for their best days in weeks. rallying on Wednesday, rising above a psychological level at 26,000 for the first time in about a month as markets staged a relief rally following midterm elections. The Dow was recently up nearly 380 points, or 1.5%, at 26,015, putting the blue-chip gauge on track for its best day since Oct. 30 and its best finish since Oct. 9, according to FactSet data. The index also was attempting to creep above a key line in the sand, trading above its short-term 50-day moving average at 25,863.29 for the first time since early last month. A rally in U.S. equity benchmarks comes after closely watched midterm elections resulted in a divided Congress, with Democrats taking the House and the GOP retaining control of the Senate. The split may result in gridlock in Washington, delaying the legislative agenda for Republican President Donald Trump but some investors were viewing the elections as at least removing one measure of uncertainty from markets that have been knocked around by a plethora of anxieties. Published:11/7/2018 2:35:34 PM
[Markets] GE's stock resumes tumble toward 9 1/2-year low General Electric Co. investors only got a one-day reprieve, as the struggling diversified industrial company's stock resumed its tumbled to a 9 1/2-year low. The stock dropped 2.4% in afternoon trade, after gaining 1.5% on Tuesday to snap a nine-session losing streak. It was on track for the lowest close since March 11, 2009. The losses come despite GE announcing further asset sales, including its Current LED technology business to American Industrial Partners and its gasification business to Air Products & Chemicals Inc. for undisclosed sums. GE shares have now shed 30% over the past three months, while the Dow Jones Industrial Average has gained 1.5%. Published:11/7/2018 1:03:30 PM
[Markets] Stocks - Wall Street Rises as Split Congress Boosts Investor Confidence The S&P 500 rose 31 points, or 1.14%, to 2,786.88 as of 9:38 AM ET (14:38 GMT), while the Dow increased 208 points, or 0.81%, to 25,843.70 and the tech-heavy Nasdaq Composite was up 87 points, or 1.18% to 7,463.15. Published:11/7/2018 10:41:28 AM
[Markets] Dow surges 270 points, pops above 50-day moving average, as McConnell signals infrastructure bill still possible The Dow Jones Industrial Average traded near session highs Wednesday morning, as investors appeared to assume a sanguine stance after midterm elections resulted in a split Congress. The Dow was up nearly 270 points, or 1.1%, at 25,905, popping above its 50-day moving average at 25,863 for the first time since early to mid- October when stocks were rocked lower, according to FactSet data. Gains come as investors appear hopeful that they may yet see market-boosting legislation, including an infrastructure spending bill. Democrats claimed a majority in the House of Representatives and Republicans retained control of the Senate, in Tuesday's midterm votes. During a Wednesday news conference Sen. Mitch McConnell said that he would work with House Democratic Leader Nancy Pelosi on bills like infrastructure even if Democrats pursued investigations into the president.The S&P 500 index , meanwhile, gained 1.4% at 2,792, shy of its 50-day MA at 2,833. Market technicians view moving averages as gauges of bullish and bearish momentum in an asset. The Nasdaq Composite Index climbed 1.8% at 7,509. Published:11/7/2018 10:05:47 AM
[Markets] Dow up nearly 200 points early Wednesday as midterms yield divided Congress Dow up nearly 200 points early Wednesday as midterms yield divided Congress Published:11/7/2018 9:34:41 AM
[Markets] Markets Right Now: US futures higher as Dems regain House Futures for the Dow Jones Industrial Average and the S&P 500 have held steady with the Democrats looking likely to gain control of the U.S. House of Representatives. The mixed outcome for the midterm election, with the Republican Party still in control of the Senate, suggested a limited scope for a change of course on President Donald Trump's polices on trade and other issues. Asian shares are trading higher as results come in for the U.S. midterm elections. Published:11/7/2018 12:32:39 AM
[Markets] Stocks, Dollar, Bond Yields Tumble As Early Election Results Hit

Update: This is what drove it we suspect:


Only 23 more to go...

*  *  *

While it is hard to discern exactly what drove this sudden shift towards a 'blue wave'-themed derisking in markets, Dow futures are down 100 points...

10Y yields are down 3bps...

and the dollar tumbled...


Published:11/6/2018 7:00:30 PM
[Markets] Stocks - Dow Rallies as Midterm Mania Grips Wall Street - The Dow closed higher Tuesday, led by materials stocks on the back of strong corporate earnings, though uncertainty about the outcome of the U.S. midterm election results kept some traders on the sidelines. Published:11/6/2018 5:29:18 PM
[Markets] Dow ends up over 170 points ahead of midterm election results Dow ends up over 170 points ahead of midterm election results Published:11/6/2018 3:27:44 PM
[Markets] Breakevens & Black Gold Battered As Stocks Rally On Ultra-Low Volumes

Ahead of tonight's results, this seemed appropriate...


Another afternoon-session buying spree saved China stocks overnight...


After going nowhere yesterday, European stocks dropped and popped today to end modestly negative on the week...


US Futures show that while yesterday's cash open was panic-selling in Nasdaq, today was panic-buying... weakness towards the end of the day was quickly assailed with a manic-bid into the uncertainty of tonight's results...


On the day, early gains evaporated into the last hour.., then the ubiquitous FOMO buying panic hit (despite a huge MOC sell order)...

Look at those charts - what a farce!!

Volume was abysmal - 60% below average!

But that didn't stop the machines swinging from a massive negative TICK to a huge positive one...

The Dow managed to limp back above its 100DMA...


FANG stocks rolled over after a strong open...


Financials continued to outperform the market into the midterms...



Treasury yields were higher across the curve (but the long-end outperformed - trading in an extremely narrow range all day)...


Crushing the yield curve...


Of significant note in bond-land is the collapse in short-dated breakevens...

It's another signal from the weakening breakeven market, as well as other markets, that investors are concerned the Federal Reserve is too tight. This week's meeting is a chance for the central bank to mention breakevens and changing inflation expectations. Will they note that this year's gains have now disappeared for five-year breakevens? After all, in their last statement, they had noted five-year breakevens had ``ticked up'' between their August and September meetings.

Bloomberg's Sebastian Boyd notes that this deflationary impulse seems to be all about oil...

Seems he is right (a linear regression of the 5y5y breakeven rate against the generic 6th WTI contract, gives an r-squared of 0.826 over the past five years).

The Dollar leaked lower on the day...


Offshore Yuan went nowhere today...


Cryptos continue to rise on the week with Ripple surging along with Bitcoin Cash (Bitcoin vol is now at a record low)...


Copper continued its slide and despite dollar weakness, the entire commodity space fell on the day...


WTI Crude crashed to a $61 handle and 7-month lows, down 20% from its October highs and officially in a bear market...

The Yuan peg to gold continues at around 8500...

We give the last word to Gluskin-Sheff's David Rosenberg who has an ominous historical reminder...


Published:11/6/2018 3:27:44 PM
[Markets] Eli Lilly beats earnings expectations, raises guidance Eli Lilly & Co. reported Tuesday third-quarter earnings and revenue that topped expectations and raised its full-year guidance. The stock was still inactive in premarket trade. Net income rose to $1.15 billion, or $1.12 a share, from $555.6 million, or 53 cents a share, in the same period a year ago. Excluding non-recurring items, adjusted earnings per share came to $1.39, above the FactSet consensus of $1.37. Revenue rose 7% to $6.06 billion, just beating the FactSet consensus of $6.05 billion. Among the drug maker's top sellers, Humalog revenue fell 5% to $664.6 million, missing the FactSet consensus of $707.4 million, and Trulicity revenue jumped 55% to $816.2 million, just shy of expectations of $816.6 million. Animal health revenue grew 4% go $772.7 million, above the FactSet consensus of $760.1 million. For 2018, the company raised its adjusted EPS outlook to $5.55 to $5.60 from $5.40 to $5.50 and revised up its revenue guidance to $24.3 billion to $24.5 billion from $24.0 billion to $24.5 billion. The stock has rallied 8.0% over the past three months, while the SPDR Health Care Select Sector ETF has inched up 0.1% and the Dow Jones Industrial Average has eased 0.2%. Published:11/6/2018 5:57:21 AM
[Markets] What Is the Dow Jones Industrial Average? Since its creation, the Dow has remained one of the most popular indexes to follow on the stock market, and its companies are traded on the New York Stock Exchange (NYSE) and the Nasdaq. Most recently, the Dow experienced what most experts claim was the longest bull market in history - with the index rocketing up from around 6,500 in 2009 to an astonishing 26,000 in 2018. The Dow Jones Industrial Average is a price-weighted average of 30 large American publicly traded companies on the stock market. Published:11/5/2018 6:52:03 PM
[Markets] Midterm-Mania Sparks Chaos In Quiet Markets

This just seemed appropriate...

China was mixed overnight despite extremely weak PMIs, thanks to an incessant bid in the afternoon session...


And European markets went sideways all day...


US Markets saw low volumes - over 20% below average...


Futures show the quiet overnight session... and a panic-bid spiked stocks at 1415ET after Rasmussen polls showed the GOP retaining the House...


Cash markets show that Small Caps and Trannies got back to even, Nasdaq almost made it but Dow and S&P led the way today...


The surge in buying was very evident in TICK...


Also of note, after a few weeks of incessant huge gap opens, the last few days have seen negligible overnight moves...


The Dow made it back to its 100DMA, bouncing almost perfectly off its 200DMA (rest of the majors remain well below 200DMA)...


FANG stocks suffered again early but were panic-bid after the Rasmussen headlines...


But, despite the surge in market, AAPL was the big loser, and remains well below its 100DMA...


As AAPL Catches down to its FANG friends freefall...

And also  note that AAPL never caught a bid when the markets ramped on the poll headlines...


Despite broad market gains (yes, Nasdaq was lower), bonds were also bid with 30Y outperforming


The Dollar faded after overnight gains, completing the right shoulder of a head-and-shoulders pattern...


Yuan was weak overnight after dismal PMI data...


Cryptos were higher on the day with Bitcoin Cash surging 20% from Friday's 'close'...


Despite dollar weakness, it appears the China headlines weiughed on copper and gold and silver slipped lower...


As Trump unleashed Sanctions on Iran, WTI crude jumped and then dumped back below a $63 handle...


Gold in Yuan remains glued around 8500...


Finally, we note that the exodus in so-called 'Smart' money continues to accelerate...


And VIX's term structure remains inverted for the 21st day straight...the longest streak since Sept 2011...

Published:11/5/2018 3:23:11 PM
[Markets] Dow industrials end up over 190 points; Apple weighs on Nasdaq Dow industrials end up over 190 points; Apple weighs on Nasdaq Published:11/5/2018 3:23:11 PM
[Markets] Did the Broader Market Shield Energy ETFs from Oil’s Fall? On October 26–November 2, US equity indexes ended in the green. Last week, the S&P Mid-Cap 400 (IVOO), the Dow Jones Industrial Average (DIA), and the S&P 500 (SPY) rose 3.7%, 2.4%, and 2.4%, respectively. Energy stocks form ~5.1%, 5.2%, and 5.9%, respectively, of these equity indexes. Published:11/5/2018 11:49:53 AM
[Markets] Stocks head toward split decision Monday: Dow up 150, Nasdaq down 65 Stocks head toward split decision Monday: Dow up 150, Nasdaq down 65 Published:11/5/2018 11:22:53 AM
[Markets] US STOCKS SNAPSHOT-Apple drags down Nasdaq at open; S&P, Dow rise The Nasdaq opened lower on Monday, dragged down by a more than 2 percent fall in Apple Inc shares, while a jump in energy stocks supported the S&P 500 and the Dow Jones industrial index. The Dow Jones Industrial Average fell 9.36 points, or 0.04 percent, at the open to 25,261.47. The S&P 500 opened higher by 3.31 points, or 0.12 percent, at 2,726.37. Published:11/5/2018 8:49:58 AM
[Markets] FedEx to raise ground, home delivery shipping rates starting Jan. 7 FedEx Corp. said Monday it will increase U.S. shipping rates by an average 4.9%, starting Jan. 7, 2019. The package delivery service said the increase includes rates for U.S. domestic, U.S. export and U.S. import services, including FedEx Ground and FedEx Home Delivery. Rates for FedEx SmartPost will also increase. FedEx Freight shipping rates will increase by an average of 5.9%. FedEx reported in September fiscal first-quarter operating expenses increased 12% to $15.98 billion, as employees costs rose 11% and purchased transportation grew 15%. The stock was still inactive in premarket trade. It has lost 8.9% over the past three months, while shares of rival United Parcel Service Inc. have declined 11%, the Dow Jones Transportation Average has slipped 2.3% and the Dow Jones Industrial Average has gained 2.2%. Published:11/5/2018 8:27:15 AM
[Markets] Warren Buffett's Berkshire Hathaway's stock surges after earnings, first buybacks in 6 years Shares of Warren Buffett's Berkshire Hathaway Inc. (Class B) surged 2.6% in premarket trade Monday, after the company revealed over the weekend better-than-expected third-quarter earnings and that it bought back stock for the first time in six years. The company disclosed it bought back $928 million worth of Class A and Class B shares during the quarter. The last time the company repurchased shares was December 2012, when it paid about $1.3 billion to buy back it's stock, including $1.24 billion to buy 9,475 Class A shares at an average price of $131,065.62 and $53.8 million to buy 606,499 Class B shares at $88.76. Through Friday's closing prices, the Class A shares have gained 135% and the Class B shares have rallied 133%. In comparison, the Dow Jones Industrial Average has gained 93% since the end of 2012 through Friday. Separately, the company reported third-quarter net earnings of $18.54 billion, or $7.52 per Class B share, compared with $4.07 billion, or $1.65 a share in the same period a year ago, boosted by equity security investment gains of about $11.4 billion included as a result of changes in accounting rules. Published:11/5/2018 7:19:14 AM
[Markets] Asian shares slide on worries over US-China relations Asian markets tumbled Monday as traders feared that President Donald Trump only reported progress in trade talks with China to score political points as the U.S. midterm elections draw near. The S&P 500 index dropped 0.6 percent to 2,723.06 and the Dow Jones Industrial Average lost 0.4 percent to 25,380.74. Published:11/5/2018 1:53:01 AM
[Markets] Asian shares slide on worries over US-China relations Asian markets tumbled Monday as traders feared that President Donald Trump only reported progress in trade talks with China to score political points as the U.S. midterm elections draw near. The S&P 500 index dropped 0.6 percent to 2,723.06 and the Dow Jones Industrial Average lost 0.4 percent to 25,380.74. Published:11/4/2018 10:18:10 PM
[Markets] Real Money Post Industrial Average Handily Outperforming the S&P and Dow YTD What a month it was for the stock market. In today's short-term focused society some will focus on the rebound over the last few days in the major domestic stock market indices, but even those gains cannot hide the fact that October was one of the most challenging months for stocks in recent memory. All told, the Dow Jones Industrial Average fell 5.1% in October, making it the best performer of the major market indices! By comparison, the S&P 500 dropped 6.9% led by declines in eight of its 10 subgroups. Published:11/4/2018 10:15:34 AM
[Markets] Did "Octobear" Pull The Rug Out From Under Bull?


Big down months off of highs have led to bear markets in the past.

Everything was going just fine for investors at the end of September (well, maybe not under the surface). The major averages closed right near all-time highs, just in time for quarterly 401(k) statements. Then October happened and, well, you know…a nearly double digit drawdown intra-month in the Dow Jones Industrial Average (DJIA) and an eventual loss of more than 5% for the month. But, that’s just one bad month, right? Not the start of a new trend or anything? Certainly, only the future knows the answer to that. However, the past may suggest that it may be more than a 1-month hiccup.

Why do we say that? Take a look at the 14 other months in the past 100 years when:

  1. The DJIA set a multi-year high one month, then

  2. Suffered at least an 8% intra-month drawdown and closed down at least 4% the next month.

Now, we’ll show the months and aggregate performance in the table below. However, the best message is probably drawn by a glance at the chart above and the inordinate number of significant tops marked by such month “rug pulls” — including cyclical tops in 1929, 1937, 1946, 1965, 2000 and 2007. (The 1-month return signifies the drawdown month).

So will history repeat again in 2018? It remains to be seen. We certainly aren’t going to hang our hat on this single data point. However, it does fit with much of our other analysis and, because of that, we would not put it past the bears to form another significant top here.

*  *  *

If you’re interested in the “all-access” version of our charts and research, we invite you to check out our site, The Lyons Share. FYI, given the current treachorous market landscape, TLS has extended our CRASH SALE through this weekend. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

Published:11/4/2018 9:43:05 AM
[Markets] [$$] Peaking Corporate Profits Put Global Stocks at a Crossroads The postcrisis boom in U.S. corporate profits appears to have peaked for this economic cycle, a development that poses a fresh threat to a nine-year rally that has taken the Dow Jones Industrial Average up more than threefold. Published:11/4/2018 8:12:51 AM
[Markets] Apple is still worth $1 trillion despite worst stock drop since 2014 Shares of Apple Inc. closed down 6.6% on Friday after the company delivered a disappointing December-quarter forecast and announced that it would no longer provide unit-sales figures in its earnings reports. The drop, Apple's worst single-day percentage fall since January 2014, left the company with a closing market value of just over $1 trillion, based on the 4.83 billion share count it disclosed in its most recent 10-Q filing in July, though Apple will likely disclose a lower share count in its forthcoming 10-Q for the September quarter. Apple's decision to end unit-sales disclosures sparked debate among Wall Street analysts, and the report prompted price target cuts from Morgan Stanley and BMO Capital Markets, among others. Apple shares have gained 22% over the past 12 months, while the Dow Jones Industrial Average , of which Apple is a component, has risen 7.4%. Published:11/2/2018 3:34:28 PM
[Markets] Weekend Reading: October Exposed The Passive Problem

Authored by Lance Roberts via,

I have written about the “problem with passive” previously which mostly fell on “deaf ears.” Such should not be surprising after one of the longest advances in market history with virtually no volatility in 2017.

However, as they say, “payback is a bitch.”

This year started off with a January rush higher followed immediately by a 2-week sell-off that wiped out the entire advance. But then it was over, and the market began to stair step higher ultimately reaching all-time highs.

Once again, the “buy and hold” and “passive indexing” mantras were seemingly proved right.

And then the month of October arrived and stocks plunged more in one month (-7.4%) as compared to the decline from the closing highs in January to the lows of March (-6.5%).  (As noted, it is important that November musters a fairly strong rally to keep the monthly MACD sell signal from triggering. Such would denote a much more negative backdrop for stocks in the months ahead.)

Over the last couple of months, we have repeatedly warned our readers that a pickup in volatility in October was highly likely due to the strong advances made by the markets during the preceding summer months. At the beginning of September I penned:

“However, there are plenty of warning signs that the “good times” are nearing their end, which will likely surprise most everyone.”

Then I reiterated that point two weeks later. To wit:

“While we are long-biased in our portfolios currently, such doesn’t remain there is no risk to portfolios currently. With ongoing “trade war” rhetoric, political intrigue at the White House, and interest rates pushing back up to 3%, there is much which could spook the markets over the next 45-days.”

The chart below only shows months where the market lost more than 5%. You will notice clusters of losses during the centers of major bear markets such as 1974, 2000, and 2008.

So, with October behind us, the market should march back to all-time highs. Right? Maybe not, as this time is not like last time.

  • The Fed is hiking rates versus either lowering or keeping them at zero.

  • The Fed is reducing rather than increasing their balance sheet.

  • The current Administration is insisting on a “trade war” which slows global growth.

  • The economic cycle is mature rather than recovering.

  • Record levels of debt at risk of rising rates versus a re-leveraging cycle with ultra-low rates.

  • A mature housing, auto, and consumption cycle versus a recovery.

  • Global central bank interventions have begun to taper versus expansion

  • Peak earnings growth versus expansion

  • Peak valuations versus expanding valuations


While the sell-off this past month was not particularly unusual, it was the break of material levels of support which was different. Furthermore, the uniformity of the price moves revealed the fallacy “passive investing” as investors headed for the door all at the same time. Such a uniform sell-off is indicative of what we have been warning about for the last several months and should serve as a warning.

“With everyone crowded into the ‘ETF Theater,’ the ‘exit’ problem should be of serious concern. Unfortunately, for most investors, they are likely stuck at the very back of the theater.

However, I am suggesting that remaining fully invested in the financial markets without a thorough understanding of your ‘risk exposure’ will likely not have the desired end result you have been promised.

As I stated often, my job is to participate in the markets while keeping a measured approach to capital preservation. Since it is considered ‘bearish’ to point out the potential ‘risks’ that could lead to rapid capital destruction; then I guess you can call me a ‘bear.’ 

Just make sure you understand I am still in ‘theater,’ I am just moving much closer to the ‘exit.’”

Despite the best of intentions, individual investors are NOT passive even though they are investing in “passive” vehicles. When these market swoons begin, the rush to liquidate entire baskets of stocks accelerate the decline making sell offs much more violent than what we have seen in the past.

This concentration of risk, lack of liquidity, and a market increasingly driven by “robot trading algorithms,”  reversals are no longer a slow and methodical process but rather a stampede with little regard to price, valuation, or fundamental measures as the exit becomes very narrow.

October was just a “sampling” of what will happen to the markets when the next bear market begins.

Oh, I almost forgot, the other problem with the whole “passive investing” mantra is that “getting back to even” is not a successful investment strategy to begin with.


Just something to think about as you catch up on your weekend reading list.

Economy & Fed


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“You get recessions, you get stock market declines. If you don’t understand that’s going to happen, then you are not ready and you will not do well in the markets” – Peter Lynch

Published:11/2/2018 3:34:27 PM
[Markets] Market Snapshot: Stock market loses steam after jobs report; Apple sinks on outlook Stocks are trading lower Friday, erasing an early rally that saw the Dow Jones Industrial Average surge nearly 200 points, as stronger-than expected jobs report reaffirmed the consensus that the Federal Reserve will again raise interest rates soon.
Published:11/2/2018 12:31:58 PM
[Markets] Stocks - Wall Street Mixed After Upbeat Jobs Report The S&P 500 rose 10 points, or 0.37%, to 2,750.38 as of 9:36 AM ET (13:36 GMT), while the Dow increased 133 points, or 0.53%, to 25,514.48 and the tech-heavy Nasdaq Composite was down 4 points, or 0.06% to 7,429.73. Published:11/2/2018 11:43:26 AM
[Markets] Dow, S&P lose early gains after jobs report; Apple’s stock sinks on outlook The Dow Jones Industrial Average on Friday is poised to rise for a fourth consecutive day, extending a recent rally after a closely watched jobs report. Published:11/2/2018 10:30:25 AM
[Markets] Dow rises 160 points after jobs report, but Apple's sinking stock was hamstringing a stock-market rally The Dow and S&P 500 looked set to rise a fourth session in a row after Friday's closely watched jobs report came in better than forecast, solidifying expectations for a final rate increase by the Federal Reserve in December and underlining strength in the U.S. economy. However, disappointment over comments made by Apple Inc.'s executives made late Thursday about its unit sales was slamming shares of the iPhone maker and weighing on the broader market. The Dow Jones Industrial Average , where Apple is a component, was up 164 points, or 0.7% at 25,551. Apple's shares were down 5.8%, or $12.54, translating to a nearly 90-point headwind for the price-weighted Dow. Meanwhile, the S&P 500 index rose 0.5% to 2753, while the Nasdaq Composite Index [: COMP] was flat at 7,435. The U.S. economy added 250,000 new jobs in October, beating economists' expectations of 202,000, according to a MarketWatch poll. The unemployment rate remained unchanged at 3.7%, while the report showed year-over-year wage gains rising to 3.1%, slightly above the consensus estimate of 3%. Investors also were watching developments in trade talks between the U.S. and China after a Bloomberg reported said President Donald Trump ordered a draft agreement be created ahead of talks between him and Chinese President Xi Jinping later this month. Published:11/2/2018 9:00:37 AM
[Markets] Dow on track for 4th gain in a row as traders await jobs report; Apple’s stock sinks on outlook The Dow Jones Industrial Average on Friday is poised to rise for a fourth consecutive day, extending a recent rally ahead of a closely watched jobs report. Published:11/2/2018 7:36:08 AM
[Markets] Dow aims for 4th gain in a row ahead of jobs report; Apple’s stock sinks on outlook The Dow Jones Industrial Average on Friday is poised to rise for a fourth consecutive day, extending a recent rally ahead of a closely watched jobs report. Published:11/2/2018 6:29:19 AM
[Markets] Stocks Rally on US-China Trade Talks; Apple's Softer Outlook Keeps Tech in Check Apple shares slide 5.3% in overnight trading and are set to clip 80 points from the Dow at the start of trading, but futures still suggest a 220 point gain for the benchmark at the start of trading. Global stocks rallied sharply Friday, lifting markets in Asia to the highest levels in nearly a month, as investors cheered news of a potential thaw in the U.S. China trade war and shrugged off disappointing fourth quarter earnings from Apple that could mark a major shift for the world's most valuable company. A Thursday phone call between Presidents Donald Trump and Xi Jinping Thursday, as well as statements from Washington and Beijing, suggest the two sides could be moving closer towards a trade compromise when the pair meet later this month at the G-20 Summit in Argentina. Published:11/2/2018 4:01:30 AM
[Markets] Stocks - Dow Extends Rally as Trump Touts Trade Optimism - The Dow rose for a third-straight day Thursday as positive remarks from President Donald Trump on China-U.S. trade relations fueled hopes that both nations will seek to resolve their bitter trade dispute. Published:11/1/2018 7:29:43 PM
[Markets] Only 28% Of Americans Are "Financially Healthy" Despite Largest Wealth Bubble Ever

Authored by Jesse Colombo via,

MarketWatch published a piece today called “Here is the ‘true state’ of Americans’ financial lives,” which stated that 42% of Americans have no retirement savings at all and that only 28% of Americans are considered “financially healthy”:

The finances of Americans may not be as good as they look from the outside.

Despite optimistic metrics like a nine-year-long bullish, if volatile, stock market, low unemployment levels, and consumer confidence levels nearing record highs, millions of Americans continue to struggle, a study released Thursday from financial consultancy nonprofit the Center for Financial Services Innovation (CFSI) found.

Only 28% of Americans are considered “financially healthy,” according to a CFSI survey of more than 5,000 Americans. “Financial health enables family stability, education, and upward mobility, not just for individuals today but across future generations,” the CFSI says. “Many are dealing with an unhealthy amount of debt, irregular income, and sporadic savings habits.”

Meanwhile, 17% of Americans are “financially vulnerable,” meaning they struggle with nearly all financial aspects of their lives, and 55% are “financially coping,” meaning they struggle with some but not all aspects of their financial lives. The recent volatility in the Dow Jones Industrial and S&P 500 has not helped Americans feel secure, experts say.

What I found jaw-dropping about these depressing financial health statistics is that they are this bad even though America is currently experiencing its largest household wealth bubble in history. As I explained in a recent presentation, U.S. household wealth has surged by approximately $46 trillion or 83% since 2009 to an all-time high of $100.8 trillion. Since 1951, household wealth has averaged 379% of the GDP, while the Dot-com bubble peaked at 429%, the housing bubble topped out at 473%, and the current bubble has inflated household wealth to a record 505% of GDP (see the chart below):

Unfortunately, this wealth boom is not a sustainable, permanent wealth increase, but an artificial, Fed-driven bubble that is going to burst with disastrous effects. If America’s personal financial health is this bad right now, just imagine how much worse it will be when our household wealth bubble bursts! (please watch my presentation to learn more). 

(Yes, I know that the 28% who are considered “financially healthy” possess a disproportionate amount of America’s wealth that is currently inflated, but the bursting of this bubble will make these statistics even worse.)

Published:11/1/2018 4:57:40 PM
[Markets] Apple stock falls after earnings beat but outlook disappoints Shares of Apple Inc. were down 5.1% in after-hours trading Thursday after the smartphone manufacturer reported better-than-expected results for its fiscal fourth quarter but delivered a disappointing revenue outlook for the current quarter. Net income rose to $14.1 billion, or $2.91 a share, up from $10.7 billion, or $2.07 a share, a year earlier. Analysts surveyed by FactSet were expecting earnings per share of $2.78 for the quarter. Apple posted revenue of $62.9 billion, up from $52.58 billion in the year-earlier quarter. The FactSet consensus called for $61.46 billion. The company sold 46.9 million iPhones in the quarter and generated $37.2 billion in revenue from this segment, whereas analysts were calling for 47 million units sold and $35.6 billion in iPhone revenue. For the December quarter, Apple expects revenue of $89 billion to $93 billion. Analysts had been projecting $92.9 billion in sales for the holiday period. Apple shares have gained 32% over the past 12 months, while the Dow Jones Industrial Average , of which Apple is a component, has gained 8%. Published:11/1/2018 3:57:50 PM
[Markets] Stocks Jump On Biggest Short-Squeeze Since Brexit As Dollar Dumps



While stocks bounced, the headline of the day deserves to the PBOC - which drained liquidity for the 5th day in a row and finally engineered a snap squeeze higher in Yuan...


And the second biggest headline belongs to this - Today was the biggest short-squeeze since the June 2016 rebound from Brexit...


China stocks roundtripped overnight giving back early session gains despite the one-way street in yuan...


European stocks bounced then faded also...


Positive tone from Trump (and China) on trade talks sparked the biggest short squeeze since June 2016 but headlines of China stealing tech IP took the shine off a little... Small Caps ripped (on the short-squeeze, up over 2%) as S&P and Dow jumped and then flatlined for most of the day...

Futures show US equity indices testing the stops at last Wednesday highs (before the plunge)...


We note that despite the mega squeeze, The Dow struggled to hold/break above yesterday's highs until the closing ramp...


No big selling at the close fact hardly any selling at all...


Before we move on - let's note that we have seen these sudden short-squeezes before...


VIX tumbled back below 20 today...


And the term structure flattened to almost uninverted...


FANG Stocks bounced to one week highs...


AAPL rallied ahead of earnings...


Notably, bonds and stocks were bid from the cash open, decoupling yields from equity prices...


The short-end outperformed on the day...


And Breakevens collapsed today as oil plunged...



As Yuan surged, the Dollar tumbled to start the month...the biggest single-day drop for the dollar since March...


Bear in mind that we have seen this kind of Yuan squeeze before... a few times...


Cable also spiked - back above 1.30 on headlines about EU financial linkage progress - which were denied...


Cryptos rallied along with gold as the dollar dumped...


Silver soared and black gold was battered today...


Dollar weakness helped send gold higher, breaking above its 100DMA...and Silver back above its 50DMA...


Despite the spike in Yuan today, gold remains well managed...


While gold gained, crude was clubbed like a baby seal to a $63 handle... nearing a bear market down around 18% from the highs...


Finally, of course it could just be a coincidence, but it looks like oil prices reversed as the price of barrel reached 5 oz of silver - the same level they plunged at in 2014...


Published:11/1/2018 3:25:31 PM
[Markets] Nomi Prins: Expect The Fed To Pause If Volatility Continues

Authored by Nomi Prins via The Daily Reckoning,

It’s a good thing October is at an end. It’s been a particularly lousy month for the markets. October has seen about $8 trillion in value erased from global markets.

Reasons for that sell-off range from fear over Fed rate hikes, trade wars, elections and buyback “blackout” periods during earnings.

Buyback blackouts are ending, which should provide markets some needed lift over the next month. Buybacks have been one of the primary reasons markets have risen this year.

But other areas will keep the level of volatility high into the year-end. The upcoming elections, for example, could reshape Congress. If there is a turnover from Republicans to Democrats, legislation that relates to tax policy, financial regulations and international relations could be stalled or reversed.

Externally, we’re facing global volatility factors that include increasing uncertainty over what Brexit will look like and how it will impact the European economy. The new election of a Trump-like populist figure in Brazil could have ramifications for trade in the Americas and Asia. Emerging-market countries are also seeing their currencies falter against the dollar.

Volatility is nothing new. It’s how you deal with it that matters.

In early 2016, just after the Fed first raised rates in December 2015 after eight years of zero interest rate policy, the markets took a nosedive. As a result, the Fed put the brakes on hiking rates for an entire year.

Meanwhile, the European Central Bank (ECB) and the Bank of Japan (BOJ) ramped up their asset-buying programs, which provided stimulus to the financial markets.

All of that led to calmer markets. Investors believed easy money would continue. That’s why we saw the Dow Jones industrial average rise over 60% through this September from where it was in January 2016.

But now the markets have fallen out of bed.

Some economists at Deutsche Bank agree that “unless the markets regain their footing soon, the pressure for the Federal Reserve to reassess their monetary policy will continue to mount.”

The Fed has, for now, forecast another hike coming in December and more next year.

I think the Fed will hold off on a December rate hike as well. Last week, the Fed already tempered some of its “hot economy” rhetoric. It said, “wages and prices are rising in its 12 districts and overall economic activity expanded at a “modest to moderate” pace.”

Some analysts interpreted this as an open invitation for a December Fed rate hike. But there’s reason to believe the opposite.

It’s not an especially glowing statement about wages or prices rising. Plus, GDP only grew 3.5% in the third quarter compared to 4.2% in the second, a slowdown I warned would happen. And if you look behind the numbers, growth may have been even weaker than indicated. That gives the Fed another reason to slow down its tightening pace.

Current Fed leaders know that tightening too much too quickly could result in significant market drops and credit crunches.

Last Friday, not one, but two Federal Reserve officials noted that the Fed “won’t raise short-term rates without taking economic conditions into account.”

It’s worth noting, and is likely not coincidental, that they made those statements right after GDP growth came in lower for the third quarter versus the second quarter.

First, Cleveland Fed President Loretta Mester told CNBC that you could think of the Fed as “a hiker.” She went on to say that, “We’re going to be using what the economy is telling us, and the data that comes in, to inform our outlook and that is going to determine” the hiking path.

She stressed, and agreed with me, that “the economy is slowing and that was maybe why stocks have been volatile.” Although she doesn’t see the slowdown as a serious problem right now, she “still expects to see growth around a 2.75% annual rate in 2019.”

That’s a far cry from the 4.2% GDP growth that was reported for the second quarter of this year. And well below the 3.5% third-quarter figure that just came in.

Another Fed official, Dallas Fed President Robert Kaplan, told Bloomberg much the same. He noted that the Fed would not be “rigid or predetermined.”

But it’s not just Mester and Kaplan that are raising the warning flags.

The Fed’s vice chair for supervision, Randal Quarles, recently said that uncertainty calls for gradual U.S. rate hikes. Consider the term gradual. You should interpret it as an indicator that if something changes dramatically in economic growth forecasts or other geopolitical factors, the Fed could act by slowing down on rate hikes and its quantitative tightening (QT) plan.

And then we come to the Fed chairman himself.

In a recent interview with The Atlantic at an event in Washington, D.C., Fed Chair Jerome Powell seemed to back off the tightening language.

“Powell said he sees the rates as a balance between the Fed trying to avoid suffocating growth and to maintain its tools for future use,” The Atlantic reports, adding:

“He said he thinks the Fed is striking that balance now, and the positive indicators in the economy suggest it’s working. But that doesn’t mean he feels totally safe about the economy.”

You should take this synopsis as a signal that the Fed will be treading very carefully in December.

It means the Fed is watching slowing growth and market volatility carefully. Again, I expect the Fed to hold off on a December rate hike.

The next meeting is set for Dec. 18–19. That’s still almost two months away. If conditions continue to deteriorate, the Fed could well hold off on another rate hike this year.

If that is the case, it could lead to an end-of-year surge in the market and a collective sigh of relief that central banks still have the financial markets’ backs.

Across the Atlantic, the European Central Bank (ECB) left benchmark interest rates unchanged last week. It also confirmed that it would keep on with its plan to end growing its quantitative easing (QE) program by the end of 2018.

But in a statement, the ECB added language which gave it room to maneuver, or to extend its QE program just a little bit longer if it deems necessary. It said, “subject to incoming data confirming the medium-term inflation outlook, net purchases will then end.”

That signals to me that the ECB is going to watch both the stock and bond markets in Europe, as well as slowing global growth, before it truly ends its QE program. And even then, it’ll be a while before it sells off any of its massive book of assets.

This emerges at a time when European corporate bonds and government bonds in some Southern European countries are having serious problems.

Right now, with pressure mounting in Italy and worries growing about historically high debt levels, the ECB could unleash a credit crisis — especially if it stops QE in a period of market volatility.

That’s why, like the Fed in the U.S., the ECB is more likely to push off any such shift in policy into the new year. That means you should expect a potential bond market pop in Europe in December.

The bottom line is, don’t expect central banks to abandon the markets if things continue to go downhill. The game can’t go on forever. But it’s the only game they know how to play.

Published:11/1/2018 2:55:46 PM
[Markets] Apple stock-option traders aren't expecting a blow-out, or blow-up earnings report Traders of Apple Inc. stock options don't seem to expect a blow-out, or a blow-up stock reaction to the technology behemoth's fiscal fourth-quarter earnings report, due out after Thursday's close. An options strategy known as a straddle, which involves the simultaneous buying of bullish and bearish stock options at the current price, with expiry Friday, are priced for a 5.0% move in either direction on Friday. That's barely above the above the average one-day post-earnings move of 4.5% over the past five years. The media move has been 4.3%. During the past 20 quarters, the stock rose 11 times the day after earnings for an average gain of 4.9%, while it fell an average of 4.0% the nine times it declined. Apple's stock was up 0.1% ahead of earnings. It has gained 8.7% over the past three months while the Nasdaq Composite has shed 4.3% and the Dow Jones Industrial Average has slipped 0.1%. Published:11/1/2018 11:56:29 AM
[Markets] Trader Suggests "Patience Is A Virtue" As Market's 'October Is A Distant Memory' Bounce Continues

With stocks erasing yesterday afternoon's plunge, the hope (and the hype) is back that the worst is behind us. As the turn of a page on the calendar has its usual 'bullish' impact on newsletter writers and sell-side analysts, self-reinforcing anecdotes are running amok (despite the fact that FANG stocks are sliding today as The Dow surges).

And while it is is easy to quickly jump to fading yet another dead cat bounce, we have seen how far these short-squeezes can run before, and as former fund manager and FX trader Richard Breslow notes, "it's time to respect the market, not disdain it," although he's not buying the f**king dip yet...

Via Bloomberg,

It’s a new month and a loudly proclaimed surge of renewed optimism is being exhibited all over my screens. Equities, emerging markets and global yields are up. Traders are espousing newfound faith that solutions will be found. Doesn’t matter to what. Everyone is saved. If you believe that, you should be chasing the market rather than just getting stopped out of what has been working.

It’s tempting, I know, to want to fade these bounces. It was the first thing I thought of. After all, I haven’t changed my opinions on anything. But it feels like a low-probability trade. The market just doesn’t feel like it’s ready to reassert itself and the longer it takes, the greater will be the pull to lock in any profits that remain. And the feedback loops get stronger and stronger.

Levels like 1.13 in EUR/USD and 7 in USD/CNY, which felt like they were just begging to be taken out, may remain close in terms of pips, but a little too far away given positioning and traders’ risk averse state of mind when it comes to ceding P&L.

And if both these levels hold, there is a strong possibility that the allure for carry will prove strongly, even if fleetingly, more than can be resisted. Old habits really do die hard.

The economic news in South Africa has been bad. Just this week headlines have highlighted a bad government bond auction in response to a poorly received budget. A trade deficit that yesterday sent the rand to a new three-week low. And today a manufacturing PMI which was a train wreck. What’s the currency doing? Flying. Strongest performer on my launchpad.

If you eyeball it with the price action of China’s offshore yuan, you would be hard-pressed not to think they were twins. It took S&P 500 futures a little time to wake up, but then they quickly followed suit.

Should this carry on, commentaries will take a very different tone in sympathy. Compromises and truces will out word count seeing reason and intractable differences. And this will last until October becomes a distant memory. Which could be anywhere from this afternoon to sometime in January when the world is bulled up for the new year.

It’s important not to change your world view based on short-term asset price movements. But it’s also folly to ignore them or not take them seriously. Snowballs have been known to cause avalanches. Sticking with your guns has been a discipline that should be selectively employed. Because it’s hard to do that with tight draw-down constraints and market flightiness. I think the U.S. economy is strong. Europe and China are weak. But that is irrelevant for the moment.

The latest string of liquidity measures from the PBOC is getting a lot of attention. Forgotten for the moment is how many previous policy shifts have yet to kick-start things for them.

And if they come at the expense of deleveraging efforts, that is long-term quite negative. Compare European and U.S. numbers and it really is a stretch to trade based on some spurious argument that the relative economic growth will converge to the euros advantage. That’s some form of mean reversion run amok.

I’m usually an advocate of getting in there and seeing how it feels. That is what we get paid for. But there are times when patience really is a virtue. Even if it is just to wait until the rest of the market comes to what you think are its senses.

Published:11/1/2018 11:56:29 AM
[Markets] U.S. stock gains accelerate after Trump says he had a 'good conversation' with Xi Stocks added modestly to their gains Thursday, after President Trump hinted at progress in early talks with China on trade. "Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade," he tweeted. A tit-for-tat trade spat between Beijing and Washington has been on investors minds, as executives are increasingly citing rising costs related to tariffs as a reason for caution going forward. Trump and XI are scheduled to meet on the sidelines of the G-20 conference on November 30th, with hope that an accord can be struck then. The Dow Jones Industrial Average is up 0.7% at 25305, the S&P 500 has risen 0.7% at 2731, and the Nasdaq Composite Index is up 0.8% to 7364. Published:11/1/2018 10:03:04 AM
[Markets] Stocks- U.S. Futures Rise as Market Recovery Continues - U.S. futures pointed to a higher open on Wall Street on Thursday, with the Dow on track for triple digit gains as investor sentiment continued to recover following a heavy equity market selloff in October. Published:11/1/2018 9:24:11 AM
[Markets] Stocks Jump After Trump Says He Spoke To President Xi "On Trade", Discussions "Moving Along Nicely"

Moments after stocks stumbled after the latest disappointing, and rather stagflationary Manufacturing ISM print, the S&P spiked higher following a Trump tweet in which the president said he just had a "very good" conversation with Chinese' president Xi, in which the emphasis was on trade and added that "discussions are moving along nicely."

The optimistic tweet reversed much of the early morning pessimism, which had nearly brought the Dow to the unchanged line, and sent the Dow Jones to session highs, up as much as 150 points, as sentiment once again shifts on trade, this time with markets now expecting a favorable outcome from the G-20 meeting between the two presidents.

The Chinese Yuan also spiked to session highs following Trump's tweet:

Ironically, the news comes at the very same time that AG Jeff Sessions is said to announce a new initiative in response to China’s economic espionage, according to a U.S. official. The Initiative will be led by agency’s National Security Division Head John Demers and will increase the use of DOJ tools to counter China’s activities.

According to Bloomberg, Sessions is ordering the FBI and NSD to step up enforcement, and DOJ will select five U.S. attorneys to be part of the initiative. The announcement will be coupled with unsealing today of a criminal case by the U.S. Attorney for the Northern District of California that involves a Chinese co. that stole trade secrets from a U.S. company.

However, as shown above, stocks are ignoring the DOJ news and focusing solely on Trump's tweet as the market's bipolar nature once again emerges to the surface.


Published:11/1/2018 9:24:11 AM
[Markets] Does This Bounce Mean The Sell-Off Is Over?

Authored by Jesse Colombo via,

The Dow was up 241 points yesterday and the Bubble Heads already think it’s “back to the races again.” I’m still cautioning “not so fast!,” however. Nothing has changed technically since last week’s major technical breakdown that caused the bellwether S&P 500 to close below a very important uptrend line that started in early-2016. The “Godfather” of chart analysis Ralph Acampora feels the same way as me and said that the “damage done to the stock market is much, much worse” than anyone is talking about.

According to the chart below, the S&P 500 is still below its uptrend line, which means that the breakdown is still intact. The uptrend line is now an overhead resistance level. All of the movement that occurs between this line and the 2,550 to 2,600 support zone (the early-2018 lows) is basically randomness or “noise,” not “signal.” The S&P 500 would need to break back above its former uptrend line in a convincing manner in order to negate the breakdown. As I’ve been saying, the S&P 500 is likely to continue testing its 2,550 to 2,600 support zone before its able to stage a decent bounce. If the index closes below this zone, it would likely signal further declines ahead.

Despite the bounce of the past two days, the Nasdaq Composite index is still below its uptrend line that it broke last week, which means that the breakdown is still intact:

As I explained yesterday, I am watching if a bearish head and shoulders pattern is forming in the S&P 500 and other major U.S. stock indices. If we are actually following this pattern, the left shoulder was the late-2017 surge and early-2018 plunge, the head was the summer surge and October plunge, the S&P 500 would have further to drop in order to test its neckline, and a final “dead cat bounce” would be ahead as the right shoulder forms. 

I am not predicting or guaranteeing that the market is forming a head and shoulders topping pattern. I am simply curious to see if we are forming this pattern, so I am taking a “wait and see” approach. Importantly, technical analysis is not a guarantee of future outcomes. It is the analysis of previous price trends in order to apply probabilities to our portfolio management. What this analysis clearly suggests is an environment of mounting risks in the markets which our entire portfolio management team at Real Investment Advice and Clarity Financial have been keenly focused on.

As portfolio managers, we are aware of the damage sudden and unexpected downdrafts in markets can have on invested capital. Our team produces commentary each week which discusses the near term trends of the market and how we are navigating the increasingly dangerous waters of an overvalued, late cycle, bull market. If you tired of being told to just “ride it out,” and are concerned about growing your wealth, and protecting your financial future, click here to ask me a question to find out more.

Published:11/1/2018 8:54:28 AM
[Markets] US Futures Jump, Global Markets Rise As Dollar Tumbles

After a torrid rally in the last two days of a brutal October helped offset some of the losses in the worst month for global equities in more than six years, world markets started off November in a sea of green with gains in Asian and European markets, and S&P futures pointed to a higher open buoyed by upbeat earnings and hope that today's Apple earnings will ease more "growth" and tech stock concerns, while sterling rallied on reports that Britain and the European Union are close to a post-Brexit deal on financial services, even though a government official has since denied the report.

After October's drubbing which saw global markets drop 7.5%, their worst month since May 2012, as shares took a battering on a number of factors ranging from trade wars to concerns about the global economy and higher U.S. interest rates, the MSCI All-Country World Index was up 0.3% on the first day of November. The recent rally has helped the S&P rise above its long-term uptrend.

Futures on the S&P 500 jumped after the European open, having traded mixed for much of the overnight session, and rising 0.6% as of 7am ET.

European markets followed a strong start in Asia, with robust company earnings helping the pan-European STOXX 600 index hit a  two-week high with miners and carmakers leading the way higher. And while strong results from the likes of ING Groep helped push European banking shares higher, not all the news was positive, with Royal Dutch Shell falling after profit fell short of expectations. At the same time, Britain’s FTSE 100 fell 0.1% as the pound strengthened on a report - since denied - that Britain and the EU are close to a deal that would give financial services firms in the UK continued access to European markets once Brexit happens.

Earlier in the session, Asian shares also posted advances with MSCI’s index of Asia-Pacific shares outside Japan rising 0.7%, adding to modest gains the previous day. The index had fallen 10.2% in October, its worst monthly performance since August 2015.

Earlier in Asia, markets enjoyed Wall Street's improved mood, and rose for a second day on Wednesday as strong company results and bargain hunting of beaten-down technology and internet favorites lifted spirits, despite an air pocket late in the session which cut the Dow's 400 point gain in half in a manner of minutes. Hong Kong’s Hang Seng rose 1.5 percent on Thursday and the Shanghai Composite Index climbed 0.2%, closing barely green after stronger gains earlier in the session.

China's yuan rallied from the weakest level in a decade as the country’s leadership signaled that further stimulus measures are being planned.

Japan’s Nikkei bucked the trend and slipped 1% following two days of big gains.

“What we are seeing is the equity markets trying to rebound after bottoming out. Corporate earnings in the U.S. and Japanese markets have been relatively strong on the whole, which means there are plenty of bargain hunting opportunities,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

The big currency mover overnight was the pound, which surged after reports that U.K. and European negotiators have reached a tentative agreement to give U.K. financial services companies access to European markets, however, on Thursday morning this report was denied by a government official, paring some of the gains.


Sterling’s rally nudged the dollar off its recent peak, with the DXY index sliding 0.6% to 96.539. The index had spiked to a 16-month high of 97.20 overnight after the ADP report showed U.S. private sector payrolls increased by the most in eight months in October. The Bloomberg Dollar Spot Index headed for its biggest loss in nearly three weeks as profit taking was the name of the game, given multiple signals the latest move was overdone versus other Group-of-10 currencies.

The Australian dollar and the Kiwi dollar were also sharply higher, rising 1.2% and 1.4% respectively after strong domestic trade data helped offset some of the concerns about slowing growth in China - Australia’s biggest trading partner. “We’ve got a reasonably risk-friendly market, and with the new month we have some dollar selling,” said Kit Juckes, a strategist at Societe Generale.

The Scandinavian currencies - the Norwegian crown and Swedish crown - a proxy for overall risk, also rallied as did the euro, which rose over half a percent to $1.1376 after retreating to $1.1302 on Wednesday, its lowest since mid-August. The single currency has been weighed by less-than-stellar economic news from the euro zone.

In commodities, WTI futures were down 0.86 percent at $64.75 per barrel after its worst month in more than two years, and Brent crude lost 1.13 percent to $74.19 per barrel. The two benchmarks remained on the back foot after falling more than $10 from a four-year peak reached early in October as broader market ructions were seen hurting demand for fuel.

The focus now turns to Apple earnings Thursday, then to the monthly U.S. jobs report Friday. Other expected data highlights include initial jobless claims and manufacturing PMI readings from Markit and ISM. In addition to Apple, DowDuPont and Starbucks are among companies set to report earnings.

Market Snapshot

  • S&P 500 futures up 0.2% to 2,717.00
  • STOXX Europe 600 up 0.4% to 363.15
  • MXAP up 0.2% to 149.84
  • MXAPJ up 1% to 476.56
  • Nikkei down 1.1% to 21,687.65
  • Topix down 0.9% to 1,632.05
  • Hang Seng Index up 1.8% to 25,416.00
  • Shanghai Composite up 0.1% to 2,606.24
  • Sensex up 0.2% to 34,505.43
  • Australia S&P/ASX 200 up 0.2% to 5,840.80
  • Kospi down 0.3% to 2,024.46
  • German 10Y yield rose 1.2 bps to 0.397%
  • Euro up 0.5% to $1.1372
  • Brent Futures down 0.5% to $74.68/bbl
  • Italian 10Y yield fell 4.7 bps to 3.056%
  • Spanish 10Y yield fell 0.7 bps to 1.541%
  • Brent Futures down 0.5% to $74.68/bbl
  • Gold spot up 0.9% to $1,225.61
  • U.S. Dollar Index down 0.5% to 96.61

Top Headline News from Bloomberg

Asia equity markets traded mostly higher as the region sustained the momentum from Wall St where stocks continued to pare back some of the losses from its worst monthly performance in 7 years, helped on the day by month-end rebalancing and with sentiment also underpinned by strong jobs data as well as a rally across FAANG stocks post-Facebook earnings beat. ASX 200 (+0.2%) was lifted by early outperformance in the mining sector as BHP shares gained on the announcement of a USD 10.4bln shareholder return program, although upside was capped by indecisiveness across financials amid less than inspiring NAB results and M&A hopes with Macquarie said to be mulling an offer for AMP Capital. Elsewhere, Nikkei 225 (-1.0%) was pressured by the recent currency strength and with much of the focus on earnings, while Shanghai Comp. (+0.6%) and Hang Seng (+1.8%) outperformed following the better than expected Chinese Caixin Manufacturing PMI data and continued supportive efforts by Chinese authorities. Finally, 10yr JGBs were lower with yields higher across the curve after the BoJ tweaked its monthly bond purchases in which it cut the number of occasions it will buy 1-3yr and 3-5yr JGBs to just 4 times from 5 times per month, although firmer demand at the 10yr auction helped stem losses.

Top Asian News

  • China’s Yuan Jumps Most in Three Weeks as USD Bulls Take Profit
  • Daiwa Finds Partner to Set Up Majority-Owned China Venture
  • Hong Kong Reveals Crypto Rules in Push to Tame Wild Market
  • Japan Victory Over Mobile Carriers Triggers $34 Billion Rout
  • Keyence Boosts Full Year Dividend Forecast, Beats Estimates

Top European News

  • BT’s Brighter Profit Outlook Smooths Path for New CEO Jansen
  • BOE Rate-Hike Plans Hamstrung by Brexit: Decision Day Guide
  • Emirates and FlyDubai Evolve From Odd Couple to Best Buddies
  • Novo Slashes 1,300 Jobs as CEO Jorgensen Reshapes Drugmaker
  • Abu Dhabi Said in Talks to Form 2 Banks in Three-Way Merger

Looking at the day ahead, we get the preliminary Q3 nonfarm productivity and unit labour cost releases, the latest weekly initial jobless claims print,  final revision to the October manufacturing PMI, September construction spending, ISM manufacturing and then October vehicle sales data. Away from all that the big earnings release today is Apple when we’re due to get numbers at the close, while Royal Dutch Shell, Dow Dupont, Kraft Heinz and Credit Suisse are other notable highlights.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior 70.9%
  • 8:30am: Nonfarm Productivity, est. 2.1%, prior 2.9%; Unit Labor Costs, est. 1.0%, prior -1.0%
  • 8:30am: Initial Jobless Claims, est. 212,000, prior 215,000; Continuing Claims, est. 1.64m, prior 1.64m
  • 9:45am: Markit US Manufacturing PMI, est. 55.8, prior 55.9
  • 10am: Construction Spending MoM, est. 0.0%, prior 0.1%
  • 10am: ISM Manufacturing, est. 59, prior 59.8
  • Wards Total Vehicle Sales, est. 17.1m, prior 17.4m

DB's Jim Reid concludes the overnight wrap

What is it about Octobers? History is quite clear that Octobers are by no means always bad, but when they are bad they have a tendency to be quite bad or at least more volatile!

Normally we publish our MTD and YTD performance review on the first of every month in the EMR but because the past month has seen such big and interesting moves we felt that the review deserved a standalone piece. In particular in the review today we will show that if the year ended now, we’d be set for a record % of assets in our universe in negative territory in dollar terms for a year. This follows last year, when the exact opposite was true. Of the assets we track, we saw the least number in negative territory in dollar terms in 2017. This perhaps highlights a world where we’ve moved from peak QE and everything being expensive to QT over the last 2 years. For this analysis we’ve used the data we collate for our long term study and go back to 1901. So this will be published slightly later this morning along with all the usual stats.

However as an interesting aside, in today’s pdf in the EMR we show the typical daily progression of the S&P 500 through the average year using daily data back to 1927. The average year sees the S&P gain +7.53% on a price basis using this data. However by September 6th, the average year has already seen the index climb +6.05%. Over the course of the next 7 weeks this falls back to +4.70% by October 27th. To be fair, September is worse from a performance basis but October has seen bigger ranges. After these two months are left behind, we then see the usual Santa Claus rally and average gains of nearly +3% into YE on average.

Highlighting the fact that volatility increases we also show the +/- 1 standard deviation of the move over the course of the year. The graph quite clearly shows how the range of outcomes increases dramatically in October before calming down through November and December. Why this happens we still don’t know after over 20 years of observing this trend, but 2018 has further advanced the legend of Octobers being difficult. So click on the link for these graphs and watch out for the performance review slightly later this morning.

There’s something ironic about the fact that despite the S&P 500 just having its worst monthly performance since September 2011, the two-day rally into month end of +2.67% which included a climb of +1.09% yesterday was the biggest since February and the third biggest since June 2016. The two-day climb for the NASDAQ of +3.63% was the biggest since June 2016 (following a +2.01% rally yesterday) although in fairness the index is only now just back to within 10% of its all-time closing high back in  August while the NYSE FANG index has rallied +5.54% over the last two days (following a climb of +3.59% yesterday) – the biggest two-day gain since February 2016.

So an impressive turnaround which at least has helped to limit some of the damage done in October. Europe also got swept up in the risk-on tone yesterday with the STOXX 600, DAX, CAC and FTSE 100 climbing +1.71%, +1.42%, +2.31% and +1.31% respectively. Italy unperformed but the FTSE MIB did still nudge up +0.27% and BTPs finished -4.6bps lower in yield following an Il Sole report in the morning which suggested that the Italian government may try to make the case to the EU that the ‘effective’ budget may be closer to 2% for 2019 versus the current 2.4% draft when taking into account slowing growth and lower spending on pensions and the planned citizens income.

Overnight in Asia we’ve seen markets extend on yesterday’s gains with the exception of Japan where the Nikkei (-0.88%) and Topix (-0.69%) have struggled with the telecoms sector down around 8% following news of heavy prices cuts on mobile plans. Away from that however the Hang Seng (+1.84%), Shanghai Comp (+1.13%) and Kospi (+0.47%) are all higher along with S&P 500 futures (+0.30%). A more or less in-line Caixin manufacturing PMI in China (50.1 vs. 50.0 expected) was confirmed this morning however notably we did see PMIs fall below 50 in Taiwan, Malaysia and Thailand overnight for the month of October – all export driven economies and signs therefore of the impact of the trade war on the wider region.

Back to yesterday where EM FX (-0.33%) actually weakened despite the move for equities with the likes of the South African Rand (-1.29%), Mexican Peso (-1.40%) and Brazilian Real (-0.68%) all under pressure. The Turkish Lira (-1.92%) underperformed, as the government announced a new suite of substantial tax cuts. Treasuries nudged up another +2.1bps after the US Treasury Department refunding announcement largely met expectations, while there was a similar move for Bunds (+1.6bps) while WTI Oil fell another -1.31% and edged lower for the third consecutive session. Gold and Silver also fell -0.67% and -1.55% respectively as risk-off dissipated.

There wasn’t really a lot of new news to drive markets yesterday although the tech sector was certainly at the heart of it aided by Facebook’s (+3.81%) earnings post the close on Tuesday. Netflix climbed +5.59%, Alphabet +3.91% and Amazon +4.42%. As you’ll see in the day ahead we’ve got Apple’s earnings later this evening so expect another decent test for the sector. Yesterday we got stronger than expected earnings from 25 out of the 34 companies that reported in the S&P 500 with 25 also beating on revenues.

The narrative around this earnings season has focused on the downward revisions to guidance, but our US equity strategy team argues in a note last night that this earnings season is largely a return to historical averages, and that underlying earnings growth remains strong. Beats are around their historical norms, and headline margins continue to climb to record highs. Buybacks continue their blistering pace as companies continue to return capital to investors, though companies are also paying down debt.

In the US, our economists have updated their various market-based models, and conclude that the risks of a recession over the next 12 months is right around its historical average of 15%. We would have sympathy with this but with QT in full force things could look different in 12 months’ time. Their full note is available here.

Meanwhile, yesterday’s headlines out of the Politburo in China suggesting that more stimulus may be on the way is perhaps helping sentiment overnight, however our economists thought the message from the official press release was subtle. They note that the government did recognise the economic slowdown and promised to take "timely actions", as widely reported by journalists. But the government also mentioned that (1) the focus of the economy has moved from speed to quality; and more importantly (2) some policies have been released, and their effect will be transmitted to the economy with a lag. Our economists think that these subtle messages suggest likely disagreements in the government.

They highlight that while some may be worried about the downside risk to the economy, others may argue the slowdown is natural and push against aggressive policy easing. You can find more in our colleagues’ report here.

Today we will see the BoE meeting at lunchtime. Neither we nor the market are expecting any policy changes with rising external risks and lack of clarity on a transition deal however our UK economists do expect Governor Carney to talk up market pricing of a rate hike next year on the back of stronger wage and output growth in Q3 which should make him sound marginally hawkish. As far as the inflation report is concerned only marginal tweaks are likely compared to the September forecasts.

Speaking of Brexit, Sterling has had a fairly strong last 36 hours. Yesterday the currency strengthened +0.47% following a Bloomberg report in the late afternoon suggesting that Brexit Minister Raab expects a Brexit deal by November 21. However, upon closer examination, this turned out to be a bit of a misleading headline and the pound quickly retraced the some of the move. The letter being cited was a week old and merely said the Raab would be willing to testify to the Brexit Committee on November 21 which could be a suitable date after a deal was struck. But the details were vaguer than the headline. Overnight however Sterling is up another +0.60% and back above $1.280 following a report in the Times suggesting that the UK and Europe have tentatively agreed to all aspects of a future deal on services which would include the EU guaranteeing UK companies access to markets in Europe as long as financial regulation in the UK remained broadly aligned with Europe. Expect some reaction to that today.

Elsewhere in Europe, the race to replace German Chancellor Merkel as party leader is on, with Friedrich Merz giving a long news conference in Berlin to introduce his candidacy. Merz has been out of parliament since 2009, but he is one of the three frontrunners to succeed Merkel. He did not offer any surprising policy positions in his remarks, focusing his remarks on the need for party unity and for including younger voters and women in the process.

On the data front, preliminary October Euro Area CPI printed in line with expectations at +2.2% headline and +1.1% core, from +2.1% and +0.9%, respectively. French and Italian October CPI both printed 0.1pp lower that forecast, at +2.5% and +1.7% respectively. In Germany, September retail sales rose +0.1% mom, less than the +0.5% expected, and, when combined with downward revisions to prior months and a substantial base effect, equal to a -2.6% yoy decline. So further evidence of third quarter softness in Germany.

Before turning to today's calendar, it's worth a look ahead to next week's major event: the US midterm election. Our US team has updated their analysis of the polls, betting odds, and markets ahead of the vote. It looks probable that the Democrats will take control of the House, while the Republicans are likely to retain control of the Senate. The policy implications are a bit ambiguous,  as trade policy - the most important area for markets - is somewhat disconnected from the legislature.

As far as the day ahead is concerned then, this morning in Europe we’ll get October house prices data in the UK followed closely by the UK’s manufacturing PMI. Focus should stay here into lunch with the aforementioned BoE meeting before this afternoon in the US we get the preliminary Q3 nonfarm productivity and unit labour cost releases, the latest weekly initial jobless claims print,  final revision to the October manufacturing PMI, September construction spending, ISM manufacturing and then October vehicle sales data. Away from all that the big earnings release today is Apple when we’re due to get numbers at the close, while Royal Dutch Shell, Dow Dupont, Kraft Heinz and Credit Suisse are other notable highlights.

Published:11/1/2018 6:27:01 AM
[Markets] Teva stock surges 6% on Q3 beats, upbeat guidance Teva Pharmaceutical Industries Ltd. stock rose 6.1% in Thursday premarket trade after the company reported third-quarter profit and revenue beats and raised its 2018 outlook. The company reported a loss of $273 million, or a loss of 27 cents per share, after earnings of $530 million, or 52 cents per share in the year-earlier period. Adjusted earnings-per-share were 68 cents, above the FactSet consensus of 54 cents. Revenue declined to $4.53 billion from $5.62 billion, above the FactSet consensus of $4.46 billion. The latest results include a revenue beat for the company's North America segment and and a miss for its European and International Markets segments, as compared with the FactSet consensus. Teva's revenue from other activities also came in above the consensus. The latest results include strong growth for the company's therapy for Huntington's disease chorea, Austedo, while its multiple sclerosis therapy Copaxone -- which has been facing generic competition -- maintained market share, Schultz said. The company has also achieved cost reductions of $1.8 billion in the first nine months of the year due to its major restructuring plan, Chief Executive Kåre Schultz said. Teva now expects 2018 EPS of $2.80 to $2.95, an increase from previous guidance of $2.55 to $2.80, and above the FactSet consensus of $2.73. Shares of the U.S.-listed Teva have dropped 16.3% over the last three months, compared with a 3.6% drop in the S&P 500 and a 0.9% decline in the Dow Jones Industrial Average . Published:11/1/2018 6:27:01 AM
[Markets] Exposing The Fed's Mandate To Pick Your Pocket – The Real Price Of Inflation

Authored by Michael Lebowitz via,

Inflation is everywhere and always a monetary phenomenon.” – Milton Friedman

This oft-cited quote from the renowned American economist Milton Friedman suggests something important about inflation. What he implies is that inflation is a function of money, but what exactly does that mean?

To better appreciate this thought, let’s use a simple example of three people stranded on a deserted island. One person has two bottles of water, and she is willing to sell one of the bottles to the highest bidder. Of the two desperate bidders, one finds a lonely one-dollar bill in his pocket and is the highest bidder. But just before the transaction is completed, the other person finds a twenty-dollar bill buried in his backpack. Suddenly, the bottle of water that was about to sell for one-dollar now sells for twenty dollars. Nothing about the bottle of water changed. What changed was the money available among the people on the island.

As we discussed in What Turkey Can Teach Us About Gold, most people think inflation is caused by rising prices, but rising prices are only a symptom of inflation. As the deserted island example illustrates, inflation is caused by too much money sloshing around the economy in relation to goods and services. What we experience is goods and services going up in price, but inflation is actually the value of our money going down.

Historical Price Levels

The chart below is a graph of price levels in the United States since 1774. In anticipation of a reader questioning the comparison of the prices and types of goods and services available in 1774 with 2018, the data behind this chart compares the basics of life. People ate food, needed housing, and required transportation in 1774 just as they do today. While not perfect, this chart offers a reasonable comparison of the relative cost of living from one period to the next.

Chart Courtesy: Oregon State LINK

Three characteristics about this chart leap off the page.

  1. Prices were relatively stable from 1774 to 1933

  2. Before 1933, disruptions in the price level coincided with major wars

  3. The parabolic move higher in price levels after 1933


As is evident in the graph, prior to 1933 major wars caused inflation, but these episodes were short lived. After the wars ended, price levels returned to pre-war levels. The reason for the temporary bouts of inflation is the surge in deficit spending required to fund war efforts. This type of spending, while critical and necessary, has no productive value. Money is spent on making highly specialized technical weaponry which are put to use or destroyed. Meanwhile, the money supply expands from the deficit spending.

To the contrary, if deficit spending is incurred for the purposes of productive infrastructure projects like roads, bridges, dams and schools, the beneficial aspects of that spending boosts productivity. Such spending lays the groundwork for the creation of new goods and services that will eventually offset inflationary effects.

Post 1933

After 1933, price levels begin to rise, regardless of peace or war, and at an increasing rate. This happened for two reasons:

First, President Franklin D. Roosevelt (FDR) took the United States off the gold standard in June 1933, setting the stage for the government to increase the money supply and run perpetual deficits. FDR, through executive order 6102, forbade “the hoarding of gold coin, gold bullion and gold certificates within the continental Unites States.” Further, this action ordered confiscation of all gold holdings by the public in exchange for $20.67 per ounce. Remarkably, one year later in a deliberately inflationary act, the government, via the Gold Reserve Act, increased the price of gold to $35 per ounce and effectively devalued the U.S. dollar. This move also had the effect of increasing the value of gold on the Federal Reserve’s balance sheet by 69% and allowed a further increase in the money supply while meeting the required gold backing.

That series of events was followed 38 years later by President Nixon formally closing the “gold window”, which was enabled by the actions of FDR decades earlier. This act prevented foreign countries from exchanging U.S. dollars for gold and essentially eliminated the gold standard. Nixon’s action eradicated any remaining monetary restrictions on U.S. budget discipline. There would no longer be direct consequences for debauching the currency through expanded money supply. For more information on Nixon’s actions, please read our article The Fifteenth of August.

The second reason prices escalated rapidly is that, following World War II, the U.S. government elected not to dismantle or meaningfully reduce the war apparatus as had been done following all prior wars. With the military industrial complex as a permanent feature of the U.S. economy and no discipline on the budget process, the most inflationary form of government spending was set to rapidly expand. Excluding World War I, defense spending during the first 40 years of the 1900’s ran at approximately 1% of GDP. Since World War II it has averaged around 5% of GDP.

Returning to Milton Friedman’s quote, it should be easier to see exactly what he meant. Re-phrasing the quote gives us an effective derivation of it.  Inflation is a deliberate act of policy.

Fed Mandate

The Fed’s dual mandate, which guides their policy actions, is a commitment to foster maximum employment and price stability. Referring back to the price level graph above, the question we ask is which part of that graph best represents a picture of price stability? Pre-1933 or post-1933? If someone earned $1,000 in 1774 and buried it in their back yard, their great, great, great grandchildren could have dug it up 150 years later and purchased an equal number of goods as when it was buried. Money, over this long time period, did not lose any of its purchasing power. On the other hand, $1,000 buried in 1933 has since lost 95% of its purchasing power.

What does it mean to live in the post-1933, Federal Reserve world of so-called “price stability”? It means we are required to work harder to keep our wages and wealth rising quicker than inflation. It means two incomes are required where one used to suffice. Both parents work, leaving children at home alone, and investments must be more risky in an effort to retain our wealth and stay ahead of the rate of inflation. Somehow, the intellectual elite in charge of implementing these policies have convinced us that this is proper and good. The reality is that imposing steadily rising price levels on all Americans has severe consequences and is a highly destructive policy.

Cantillon Effect

The graph below uses the same data as the price level graph above but depicts yearly changes in prices.

Chart Courtesy: Oregon State LINK

What is clear is that, prior to 1933, there were just as many years of falling prices as rising prices and the cumulative price level on the first chart remains relatively stable as a result. After 1933, however, Friedman’s “monetary phenomenon” takes hold. The money supply continually expands and periods of falling prices that offset periods of rising prices disappear altogether. Prices just continue rising.

There is an important distinction to be made here, and it helps explain why sustained inflation is so important to the Fed and the government. It is why inflation has been undertaken as a deliberate act of policy. As mentioned, periods of falling prices are not necessarily periods of deflation. Falling prices may be the result of technological advancements and rising productivity. Alternatively, falling prices may result from an accumulation of unproductive debt and the eventual inability to service that debt. That is the proper definition of deflation. This occurs as a symptom of excessive debt build-ups and speculative booms which lead to a glut of unfinanceable inventories. This is followed by an excess of goods and services in the market and falling prices result.

Furthermore, there are periods of hidden inflation. This occurs when observed price levels rise but only because of policies that intentionally expanded the money supply. In other words, healthy improvements in technology and productivity that should have brought about a healthy and desirable drop in prices or the cost of living are negated by easy monetary policy acting against those natural price moves. By keeping their foot on the monetary gas pedal and myopically using low inflation readings as the justification, the Fed enables a sinister and criminal transfer of wealth.

This transfer of wealth euthanizes the economy like deadly fumes which cannot be smelled, seen or felt. It works via the Cantillon Effect, which describes the point at which different parts of the population are impacted by rising prices. Under our Fed controlled monetary system, new money enters the economy through the banking and financial system. The first of those with access to the new money – the government, large corporations and wealthy households – are able to invest it before the uneven effects of inflation have filtered through the economic system. The transfer of wealth occurs quietly between the late receivers of new money (losers) and the early receivers of it (winners). Although a proponent of inflationary policies as a means of combating the depression, John Maynard Keynes correctly observed that “by continuing a process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Conclusion – Investment Considerations

In the same way that only a very small percentage of recent MBA grads could, with any coherence, tell you what inflation truly is, the investing public has been effectively brainwashed into thinking that they should benchmark their investment performance against the movements of the stock market. Unfortunately, wealth is only accumulated when it grows faster than inflation. In our modern society of continually comparing ourselves with those around us on social media, we obsess about what the S&P 500 or Dow Jones are doing day by day but fail to understand that wealth should be measured on a real basis – net of inflation.  For more on this concept, please read our article: A Shot of Absolute – Fortifying a Traditional Investment Portfolio.

Mainstream economists, either unable to decipher this process of confiscation or intentionally complicit in its rationalization, have convinced an intellectually lazy populace that some degree of rising prices is “optimal” and normal. Individuals that buy this jargon are being duped out of their wealth.

Holding elected and unelected officials accountable for a clear and proper measurement of inflation is the only way to uncover the truth of the effects of inflation. In his small but powerful book, Economics in One Lesson, Henry Hazlitt reminded us that policies should be judged based on their effect over the longer term and for society as a whole. On that simple and clear basis, we should dismiss the empty counterfactuals used as the central argument behind inflation targeting and most other monetary and fiscal policy platitudes. The policy and process of inflation is both toxic and malignant.

Published:10/31/2018 6:21:01 PM
[Markets] Shocktober Is Over - Global Stocks Lose $8 Trillion, Most Since Lehman

Eight. Trillion. Dollars...

And it's gone...

“The volatility you’re seeing is in reaction to a market that has continuously had a buy-the-dip mentality that is being challenged now,” said Rick Bensignor, president and founder of the Bensignor Group.

“The market is finally putting people’s beliefs to the test.”

October's Carnage at-a-glance...

  • S&P 17 down days most since 1970

  • Nasdaq 100 worst month since Oct 2008

  • S&P worst month since Feb 2009 (lowest monthly close since April)

  • FANG stocks crashed 21% in October - the biggest monthly drop on record

  • Semis plunged almost 15%, the biggest monthly drop since Nov 2008

  • "Most Shorted" stocks down 13.8% in October - worst month since Jan 2016 (or best for shorts)

  • S&P Financials dropped over 7% in October - worst month since Jan 2016

  • GSIBs (Global Systemically Important Banks) dropped over 10% in October, worst month since June 2016 (Brexit)

  • China

  • European stocks worst month since Jan 2016

  • Hedge Funds were hammered as Goldman's VIP Basket plummeted 11.5% in October - its biggest drop ever.

  • Stocks and Bonds both fell on the month (first time since Feb 2018)

  • This is the worst October for Junk bonds since 2008 (HYG saw record volume in October)

  • USD's biggest monthly gain since Nov 2016 (Trump election)

  • USD and Gold both rallied for first month since Feb 2017

  • Gold's biggest monthly gain against Yuan since June 2016

  • Oil's worst month since July 2016

While the world's stocks (ex-US) are down almost 13% YTD, US equities are unchanged (erasing the entire year's gains in October)...


So, let's start with China - because that's where the chaos seems to be emanating from...Chinese stocks in October fell the most since Jan 2016, despite the heavy hand of The National Team...


European stocks tumbled around 6% on the month - the worst month since Jan 2016... Italy and France were worst on the month


Despite ending the month with the biggest 2-day rise since the rebound from Brexit...

It was an ugly ugly month for US stocks...

In managing to close green today, the S&P avoided doing something it has never done before - not having one back-to-back positive close.

The Dow managed to scramble back above its 200DMA today but disappointingly closed below the crucial technical level...

As The Dow tagged the recent pre-plunge stops and dumped into the close...

We note that today's ramp was not a short-squeeze per se as "Most Shorted" stocks actually fell on the day. October was the biggest drop for "Most Shorted" stocks since Jan 2016...

Breaking the longer-term uptrend...


Bigger picture themes show growth stocks underperforming value stocks by the most since March 2001...Russell 1000 Growth/Value breaking below its 200DMA for the first time since March 2017...

Growth bounced back the last two days...


Only Staples and Utilities managed gains on the month... Energy and Industrials were worst


FANG Stocks suffered their worst month ever...


...led by NFLX and AMZN (even with the bounce on the last two days)...


Intraday trading in October was also extreme with TICK crashing twice to its lowest since May 2010's Flash Crash...

But even more stunning than that, Monday's swing this week was almost unprecedented as investor psychology switched from buy-the-dip to sell-it-all. The breadth gauge spiked to almost 1,500 before tumbling to about minus 1,700. Such a big intraday turnaround has happened only once before in data going back to 1989.


The percent of Nasdaq Composite stocks still above their 50- and 200-DMAs understandably has plummeted to the low double-digits.

Nasdaq stocks have plunged as one with intra-index correlation soaring in October...


If you need another example of the extreme pain in the tech sector, Nasdaq VIX is at its highest relative to S&P VIX since 2004...


Not all global equity markets were red - Brazil outperformed...

But South Korea and Argentina were worst...


Stocks and bonds both fell on the month - first time since Feb 2018...


October has been positive for high-yield bonds in every year since 2008, when the market tumbled almost 16 percent in the month.

It was also the worst month for HY bonds since Dec 2015 (and HYG - the HY Bond ETF - saw record volume)...


Energy HY bonds were the biggest laggard but every sector was hit...


Treasury yields were higher on the month (despite stocks plunge) with the long-end underperforming... (up 37bps in the last two months)


That is a dramatic steepening on the month - 2s30s +13bps (biggest since Nov 2016 - Trump election)...


The Dollar surged over 2.3% in October -0 its biggest month since Nov 2016 (election) to April 2017 highs...

Offshore Yuan fell for the 7th month in a row


EURUSD tested down to critical support levels today with the biggest monthly drop since May...


On the day the Turkish Lira tanked after the finmin announced plans to cut taxes... October was the Lira's best month since May 2003...


All the pesos were punished in October except Argentina - The Real and Lira also gained...


Cryptos were all lower on the month with Bitcoin the notable outperformer... vol has collapsed in Bitcoin too


Despite the strong dollar, gold managed gains in October as crude was crushed...


Gold and the dollar both rallied in October - the first time since Feb 2017...


Commodities were pretty much a one-way street lower all month...


WTI tumbled today back below its 200DMA with the worst month since July 2016... to the lowest in over 2 months


So are you buying this dip? With the rest of the world's markets and the most systemically important bank stocks all collapsing along with global balance sheets, roll the dice?

Do you feel lucky punk?

Published:10/31/2018 3:20:02 PM
[Markets] The stock market lost more than $2 trillion in October. Here's what happened U.S. markets lost more than $2.5 trillion in October coming into the month's final day of trading, according to S&P Dow Jones Indices analyst Howard Silverblatt. The biggest technology stocks – most well-known as FANG – were among the hardest hit this month. October is set to be the worst month for the S&P 500 since August 2011, Silverblatt noted. Published:10/31/2018 1:23:04 PM
[Markets] Gold ends at three-week low as global stocks surge, but bullion logs strong October rise Gold prices ended firmly lower Wednesday, on the back of a stronger dollar and a bounce for beaten-down equities, but month-to-date losses for benchmark U.S. stock indexes have helped to pull prices for the precious metal up in October. December gold finished $10.30, or 0.8%, lower at $1,215 an ounce, as a popular dollar index firmed and as the Dow Jones Industrial Average , S&P 500 index and the Nasdaq Composite Index staged a powerful two-day rally that may signal a pause in risk-off sentiment that has gripped equity benchmarks in October. The ICE U.S. dollar index was up 0.2% at 97.16, late Wednesday in New York. A stronger dollar can make assets priced in the currency, like gold, less attractive to buyers using other monetary units. Still, the stock-market downturn helped gold to book a monthly gain of about 1.6%, based on the settlement for futures at the end of September. Published:10/31/2018 12:51:56 PM
[Markets] "High Anxiety Markets" - Doug Kass Warns "We Live In Mel Brook's Mad Mad Mad World Now"

Authored by Lance Roberts via,

“Brophy: I got it. I got it. I got it. 


Brophy: I ain’t got it.” – Mel Brooks, High Anxiety

Arriving at Los Angeles International Airport, Dr. Richard Thorndyke has several odd encounters (such as a flasher impersonating a police officer, and a passing bus with a full orchestra playing inside it). Dr. Thorndyke remarks:

“What a dramatic airport!”

He is taken by his driver, Brophy, to the Psycho-Neurotic Institute for the Very, Very Nervous, where he has been hired as a replacement for Dr. Ashley, who died mysteriously. Brophy has a condition of nervousness, and he takes pictures when he gets nervous. Upon his arrival, Thorndyke is greeted by the staff, Dr. Charles Montague, Dr. Philip Wentworth, and Nurse Charlotte Diesel. When he goes to his room, a large rock is thrown through the window, with a message of welcome from the violent ward.

During the movie, Thorndyke suffers from a neural disorder called “High Anxiety”, a mix of acrophobia and vertigo, and tries to overcome the infliction.

We Live In Mel Brook’s Crazy World Now

With an intraday move of almost 4% – the S&P futures fell by a remarkable 100 points from the day’s high to the day’s low. A large sell program at around 3:30 p.m. abruptly moved the market down by fifty handles in one of the largest sell programs I have ever seen hit the floor. (The day’s swing in the Dow Jones Industrial Average exceeded 900 points!)

The Spyders peaked at over $270 at around 10:10 a.m. and bottomed at under $260 (with 30 minutes left in the trading session). Spyders closed the day at $263.86.

Talk about High Anxiety!

As I write this morning’s missive the market volatility has continued. When I started writing this column, S&P futures were +18 and Nasdaq futures were +38 . They are now essentially flat, on no new news.

What Was Trump Thinking?

Since early 2018 I have warned that the return of The Orange Swan introduces more uncertainty – “Making economic uncertainty and market volatility great again.” #MUVGA I have and continue to caution that Trump’s behavior and his (hastily crafted) policy – conflated with politics – are now hurting the markets.

Case in point, futures rose early on Monday after the president said that he is going to make a great deal with China.

Then, in the middle of Monday’s volatile trading session (at around 2 p.m.), the president added fuel to the trade war with China with another threat to introduce more tariffs on the rest of China’s imports to the U.S.

As I wrote late in the day, Karen Finerman, on CNBC’s Fast Money, asked an interesting question – why did Trump bring up the Chinese tariff debate again?

After all he already has stated (as has Steve Mnuchin) that the stock market is a real-time judge of the administration’s economic policy and he must have known that his comments would be market unfriendly.

So, what was it?

Here are some possibilities:

  1. He is doubling down and posturing against the Chinese (I doubt it because he has already been quite hawkish in his trade rhetoric).

  2. Is the president simply oblivious and doesn’t care about the impact of his actions? (That’s hard to believe because we are so close to the important midterm elections).

  3. Is he not focused? (I don’t know)

  4. Was the statement part of a broader or more grand strategy? (I have no idea)

  5. He just felt like saying it, wants to humiliate China and is appealing to his base. (No clue, here)

  6. Is he playing chess while everyone else is playing checkers? (Doubtful)

  7. Is he testing the market’s response to a ridiculous policy that he has no intention of implementing? (Again, I am clueless)

  8. Is he overplaying his hand? (Clueless, Part Trois)

  9. Is it simple arrogance and ignorance? (Clueless, Part Four)

  10. Is he trying to change the narrative from the bomb mailings and the terrorist act in Pittsburgh? (You get the point by now!) 

I Have Warned About The Growing Risks of A “Flash Crash” in 2018

Back in December, 2017, I warned:

Surprise #9: Volatility Spikes, Causing a Major Flash Crash

“Though large daily drops in the markets are rare, the factors that could contribute to a quick drop have increased.

Investors have been concerned about the VIX for years, but the positioning has now moved to an extreme. Such positioning could accelerate a market drop as the chances of a flash crash have escalated.

Hyman Minsky has warned about the risks of becoming numb to the risks associated with a period of stability amid rising asset prices; it is not only inevitably followed by instability, it inevitably creates it.

In a world in which the chances of an external market shock are rising and at a time when volatility is cratering and stock prices never decline, the risks of a flash crash caused by the one-sided market positioning in VIX futures is increasing and are at a higher probability of occurring than at any time in history.” – Kass Diary, 15 Surprises for 2018

Kill The Quants Before They Kill Our Markets

Most observers are of the view that there is order in our markets today – that fundamentals and/or technicals are understandable and analyzable stars that shine above us and give us direction.

If you believe the market’s volatility is a function of the earnings reports, trade wars or interest rates concerns – I believe you are mistaken. Rather, this is the cruel cocktail consisting of the proliferation of ETFs and other quant strategies.

But, its not our “fathers’ market.” These factors used to be an important determinant to stock prices – they still are, but markets are now too frequently punctuated by the influence of ETF flows and risk parity leveraging or deleveraging.

As an example, it’s commonplace, in a market that moves by nearly 1000 DJIA points from high to low for bond markets to exhibit a “flight to quality”, for gold to rise and/or volatility to explode to the upside. None of this happened yesterday. There was no movement in bond yields lower (bond yields were up one basis points) nor a rise in the price of precious metals (gold fell). Credit spreads would also normally widen in the sort of volatility we saw on Monday – this, too, did not happen. And, importantly, volatility rose by a mere 50 cents.

I used the 3:30 p.m. “woosh lower” to add to my trading long rentals. It was not an easy tactic as markets were in a scary free-fall (a likely occurrence that I predicted previously in my Surprise List 10 months ago).

Tactical Approach to an Anxiety-Driven and Machine/Algo Influenced Market 

Throughout 2018 I have been looking at a projected S&P range of approximately 2550-2800. (In September we overshot the top end of my range by about 120 S&P points.) 

My “fair market value” calculation has been about 2500 and my pessimistic case has circled around the 2400 level.

I have been consistent with my forecasts – and I continue to basically have the same range projection (2550-2775), “intrinsic value” of (2500) and pessimistic case (2400). 

There are numerous reasons to be cautious today – a changing and more problematic market structure, a monetary pivot, trade rhetoric/wars, ambiguous global economic growth, political (The Orange Swan) and geopolitical uncertainties, etc. The market is still “a full on Monet”.

The new regime of volatility is now another bona fide reason to sit on the sidelines.

All these factors, I have argued, cap the market’s upside to levels much lower than believed by the consensus.

Nevertheless I am sticking with my process and trying to trade unemotionally and let the market’s wild moves work to my advantage. (In days like yesterday it was tough to divorce myself from the volatility in order to reach for opportunity – but I purchased the late afternoon “woosh” based on the move to the lower end based on my projected the 3-6 month trading range of 2550-2775 and what the current price provided in terms of reward v. risk. (At around 3:30 p.m. S&P cash traded at about 2598 – within 50 handles from the estimated low of the range).

Unlike many talking heads I do not confidently make these projections – as I recognize that the plethora of fundamental outcomes as well as the dangers of a changing market structure (in which too many are on the same side of the bullish boat and an increasingly large amount of traders/investors worship at the altar of price momentum).

The global stock markets are damaged (non U.S. markets led this decline which, in many stocks, are already in bear market territory) – it’s still “a full on Monet!”

“It’s like a painting, see. From far away it’s okay, but up close it’s a big ol’ mess.” 

I am still of the view that we made important tops in late January, 2018 and in September, 2018 – and that tops are processes, not events.

But, when anxiety and fear are elevated, trading opportunities abound.

Bottom Line 

I started Monday on an optimistic note, “The Case For an Oversold, Contra Trend and Playable Rally Higher Increases in Probability” – and, on cue S&P futures rose by over 30 handles in the early going:

The last thirty minutes of trading on Friday bears witness to the disproportionate role of passive strategies (ETFs and risk parity and other quant strategies that worship at the altar of price momentum – and exaggerate short term market movement – in which the Dow Jones Industrial Average moved up and down in excess of 400 points.

This unnatural backdrop – which showed a sharp drop in the last few minutes – was likely artificial and provided yet another short term trading opportunity.

As I have been harping on, the market is dynamic and we, or at least I, have to unemotionally and opportunistically trade in order to deliver superior investment returns. The machines and algos should be taken advantage of. (I covered my (SPY)  short on Friday at very nice prices and for a quick, few hours, +$4 to $5 gain.)

Though I have little idea how long it will last, there are several factors that may contribute to higher stocks in the next few weeks:

* As the Reporting Period (for 3Q2018 earnings) Matures, Buybacks Will Soon Be Back

* Investor Sentiment Is Dismal: The CNN Fear & Greed Indicator is at an ‘extreme fear’ level.

* Many talking heads in the media, formerly bullish, are now fearful.

* An Oversold Market: Several market Indices are 2-3 Standard Deviations Below 50 Day Moving Averages.

* The End of Mutual Funds’ Fiscal Year: Loss taking may soon be over as the month and fiscal year end on Wednesday.

As previously mentioned, I (unemotionally) purchased the “woosh” lower on Monday and I am temporarily net long based on my calculation of upside reward v. downside risk.

Published:10/31/2018 10:18:41 AM
[Markets] Dow Surges Above Key Technical Level, Now What?

The last two days have seen Dow futures rise over 1100 points, ripping back above their 200DMA...

Dow Futs spiked from 24086 to 25145 in the last two days...


Send them very technically to their 200DMA...

Will it hold?
Published:10/31/2018 9:18:20 AM
[Markets] Wall Street opens higher on strong earnings (Reuters) - U.S. stocks opened higher on Wednesday and were set for a second day of gains at the end of a brutal month, as Facebook led a slew of encouraging earnings reports. The Dow Jones Industrial ... Published:10/31/2018 8:49:55 AM
[Markets] Global Stocks Surge On Last Day Of Dismal, Turbulent October

The nightmare on Wall Street may finally be over with markets getting a treat this Halloween...  but will the trick emerge during the last hour of selling trading?

It is a sea of green as stocks hope to end a turbulent month - which saw the biggest losses for global equity markets since 2012 - in an upbeat mood, with European stocks sharply higher following a rebound in Asia as US equity futures extended on their Thursday gains which saw the Dow soar by more than 400 points, while the dollar remained near one year highs as Treasury yields posted another day of modest increases.

A confluence of factors ranging from China-U.S. trade tensions to worries about global economic growth, corporate profits and higher U.S. interest rates have spurred volatility in financial markets in the past few weeks. But shares in Europe were expected to follow Asia’s lead higher on the last day of the month, while U.S. S&P mini-futures edged up 0.3 percent.

Every sector in Europe's Stoxx 600 Index rose, with miners and energy companies leading the way. France’s CAC 40 (+1.9%) outperformed peers with the index pushed higher by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. Energy names lead the gains as the complex retraced yesterday’s losses, while utility names underperformed. Tech stocks thanks to Dialog Semiconductor (+10.0%) which rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

Earlier in Asia, the MSCI Asia-Pacific index rose 1%, with Japanese stocks the stand-out performers thanks to a 2.2% advance in the Nikkei, reassured by the Bank of Japan’s signal that it will keep its ultra-easy policy for some time to come. Even so, Asia was on track to fall around 11% this month, which would be its worst monthly performance since September 2011, dropping to its lowest level since February 2017 this week.

Hong Kong’s Hang Seng rose 1 percent on Wednesday and the Shanghai Composite Index climbed 1.4% as weaker-than-expected factory activity data reinforced views that Beijing will roll out more support measures for the economy.

In the latest economic disappointment out of Beijing, the latest official NBS manufacturing PMI fell to 50.2 in October, the lowest level since July 2016 as almost all sub-indexes showed weaker growth momentum. The non-manufacturing PMI missed expectations as well, printing at 53.9, below the 54.9 in September, due to the weaker services PMI.

In Beijing's ongoing attempt to stabilize the yuan, China's overnight repo rate surged by 84bps - the most in more than four years - to 2.39%, as authorities take aggressive steps to combat bets against the yuan, which held near the weakest level in a decade against the greenback.

Even so, hopes of boosting the Yuan have proven futile so far, with the USDCNH rising to the highest since January 2017, just shy of 6.800 and knocking on the door of the critical 7.00 level, with today's move largely a function of renewed dollar strength. The Chinese currency was on track for a loss of 1.4% in October, its seventh straight monthly loss — the longest such losing streak on record

Australian stocks ended 0.4 percent higher, South Korea’s KOSPI added 0.7 percent.

Today's gains will be a welcome respite in a month that has seen a near historic selloff: the broader MSCI All Country World index was down 8.6% this month, its biggest monthly drop since 2012, losing $4 trillion in market value.

The narrower MSCI World Index was down 8.43% and has wiped out $4.5 trillion in October. The month-end gains followed a sharp bounce for Wall Street’s main indexes, which jumped more than 1% on Tuesday, helped by strong gains for chip and transport stocks as investors took advantage of cheaper prices following the steep recent pullback for equities.

Equity bulls will be hoping this rebound can last following a series of bounces in the past few weeks that quickly gave way to declines as late day algo selling put a dent on carbon-based BTFDing.

Corporate results will be key to sustaining the share gains: attention will next turn to earnings from Apple on Thursday. But trade risks continue to simmer in the background, with the U.S. jobs report is due Friday and US midterm elections are creeping closer, all of which have the potential to further roil markets.

"The recent slide in equities had gone to such an extent that it was bound to invite buyers, such as in the Japanese stock market," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. Ichikawa said the U.S.-China trade row will likely remain a factor of concern beyond the U.S. midterm elections on Nov. 6.

In FX, the Bloomberg Dollar Spot index headed for its best month in two years amid supportive month-end flows that offset profit taking by short-term investors. Price action in the euro was quiet while the pound rebounded, tracking trading in the options market. The yen was steady as the Bank of Japan left its monetary stimulus unchanged and kept its 10-year bond yield target at about zero percent as it updated price forecasts that confirm it won’t meet its inflation target for years to come. Australia’s dollar declined following a weaker-than-expected inflation reading and the abovementioned miss in China's PMIs. The Indian rupee fell as much as 0.6% on reports that the central bank governor may consider resigning amid growing tensions with the government.

In rates, the 10Y TSY yield climbed 2bps to 3.14%, the highest in more than a week. Germany’s 10-year yield advanced two basis points to 0.39%. Britain’s 10-year yield advanced 3 bps to 1.434%, the largest gain in more than a week. The spread of Italy’s 10-year bonds over Germany’s declined 9 bps to 3.0205%.

Oil prices recovered slightly after dropping to multi-month lows the previous day on signs of rising supply and concern that global demand for fuel will fall victim to the U.S.-China trade war. WTI futures were up 0.38% at $66.43 per barrel after dropping to $65.33 on Tuesday, the lowest since mid-August. Brent crude gained 0.62% to $76.38 after a decline of 1.8% on Tuesday. Gold declined and oil recovered from a two-month low.

Expected data include mortgage applications and Chicago Business Barometer. Air Canada, ADP, General Motors, Kellogg, Sprint, and AIG are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.6% to 2,701.25
  • STOXX Europe 600 up 1.4% to 360.66
  • MXAP up 1.6% to 148.97
  • MXAPJ up 1.4% to 469.62
  • Nikkei up 2.2% to 21,920.46
  • Topix up 2.2% to 1,646.12
  • Hang Seng Index up 1.6% to 24,979.69
  • Shanghai Composite up 1.4% to 2,602.78
  • Sensex up 1% to 34,231.36
  • Australia S&P/ASX 200 up 0.4% to 5,830.31
  • Kospi up 0.7% to 2,029.69
  • German 10Y yield rose 2.6 bps to 0.395%
  • Euro up 0.09% to $1.1355
  • Italian 10Y yield rose 13.6 bps to 3.103%
  • Spanish 10Y yield unchanged at 1.567%
  • Brent futures up 1.1% to $76.75/bbl
  • Gold spot down 0.5% to $1,216.90
  • U.S. Dollar Index down 0.1% to 96.91

Top Overnight News

  • BBDXY rose for the third day to a fresh 2018 high even as the greenback traded mixed against Group-of-10 peers; Treasury yields crept steadily higher and the curve steepened
  • An official gauge of activity in China’s manufacturing sector worsened in October as the effects of an ongoing trade war with the U.S. hit home. The non-manufacturing PMI also worsened. China’s manufacturing PMI fell to 50.2 this month, lower than projected in a Bloomberg survey of forecasters. A gauge of new orders for export fell to the lowest reading since early 2016
  • Optimism in Britain’s economy slumped in October to the lowest level this year, with confidence falling in almost all parts of the country, Lloyds Bank said in a survey published on Wednesday
  • Italy’s populists are insisting their plans to ramp up government spending will shield the nation from recession, brushing off warnings that their confrontational approach may already be hurting the economy
  • Australia’s annual core inflation was weaker than forecast in the three months through September, suggesting the central bank’s prolonged interest-rate pause has further to run
  • The Aussie dollar lead G-10 declines, weighed down by slowing inflation and deteriorating Chinese PMI data, though an options expiry helped limit the drop
  • The Bank of Japan left its monetary stimulus unchanged as it updated price forecasts that confirm it won’t meet its inflation target for years to come
  • Official figures released over the past few weeks suggest money is increasingly leaving China’s borders
  • The euro held losses after inflation data matched estimates while the pound edged higher once London entered the market; Italian bonds extended bull steepening after a report that the government may see a deficit nearer to 2% than the 2.4% in the current budget draft for 2019
  • The yen held losses after the BOJ left its monetary policy unchanged, and forecasts inflation to remain below its 2% target through until at least early 2021
  • The rupee pared losses as India’s government sought to defuse growing tensions with its central bank, saying it respects the institution’s autonomy

Asian equity markets traded positive as the region sustained the momentum from Wall St where all majors finished with
firms gains and in which both S&P 500 and DJIA moved back into profit for the year. ASX 200 (+0.4%) and Nikkei 225 (+2.2%)
were higher from the open with financials the early outperformer in Australia after ANZ Bank earnings and with CBA to offload its
funds unit for over AUD 4.1bln, while Japanese stocks were underpinned by a weaker currency and with focus on a slew of
earnings releases. Hang Seng (+1.6%) and Shanghai Comp. (+1.4%) conformed to the overall risk appetite as investors digested
earnings including big 4 lenders ICBC and Agricultural Bank of China, but with early indecision seen following uninspiring Chinese
PMI data in which both Official Manufacturing PMI and Non-Manufacturing PMI fell short of estimates. Finally, 10yr JGBs were
lower with demand subdued by the strong performance in Japanese stocks and following an unsurprising BoJ policy
announcement in which the central bank maintained all policy settings.
PBoC skipped open market operations for a net daily drain of CNY 150bln, while it announced to sell CNY 10bln in 3-month and
CNY 10bln in 1yr CNY-denominated bills in Hong Kong on November 7th.

Top Asian News

  • BOJ Cuts Frequency, Tweaks Ranges for Short Bonds for November
  • MUFG Buys Commonwealth Bank Asset Arm for $2.9 Billion
  • Incredible Shrinking Australian Banks Shed $13 Billion of Assets
  • HNA Is Said to Try Offloading Airbus Planes to Leasing Firms

European equities are higher across the board (Eurostoxx 50 +1.3%) as the region took impetus from the gains experienced in Asia and on Wall Street. France’s CAC 40 (+1.9%) outperforms its peers with the index fuelled by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. In terms of sectors, energy names lead the gains as the complex retraces yesterday’s losses, while utility names underperform. Elsewhere, Dialog Semiconductor (+10.0%) rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

Top European News

  • Telefonica Signals End to Decade of Weakness With Soccer Push
  • Sanofi Lifts Forecast as Vaccines, Eczema Drug Provide Fuel
  • Spanish Economy Proves Euro-Area Brightspot as Recovery Holds
  • Casino Short Sellers Ask Board to Block Interim Dividend Payment
  • L’Oreal Jumps as Luxury Cosmetics Get Another Boost From China

In FX, after breaching 97.00 to the upside overnight to hit its highest level since June 2017, the DXY initially paused for breath to sit on a 96.00 handle before extending gains back above 97.00 thereafter. USD will likely garner a bulk of the focus in the FX space today with month-end flows (as according to Barclays, Citi, Nordea and Credit Ag) said to be positive for the greenback. Furthermore, Nordea highlight that today is SOMA redemption day for the USD which will have a net USD -22.9bln impact on liquidity; Nordea explains that “On the ten SOMA days since the end of February, EUR/USD has always been lower at CET17:15 vs CET08:00, by an average of 0.25%”. In terms of where the majors stand vs. the USD, EUR/USD was unable to hold onto initial gains after Friday’s low at 1.1336 eventually gave way. As such, a test of 1.1300 to the downside could now well be on the cards. Option expiry activity for the pair could be a guiding force later on with 871mln due 1.1275-85, 2.2bln between 1.1300-25 and a further 1.47bln between 1.1340-50. EUR relatively unreactive to EZ inflation prints with headline Y/Y CPI in-line with Exp. at 2.2%, core and super-core metrics both slightly firmer than forecast. The AUD remains softer vs. the USD in the wake of domestic inflation metrics whereby all figures either missed or printed in-line with estimates and which was below the RBA’s 2%-3% target range. The data sent AUD/USD back below 0.7100 with Chinese PMI readings thereafter guiding the pair to session lows of 0.7073 before staging a mild recovery back towards the 0.71 handle. Elsewhere for the region, USD/JPY trades relatively unchanged as the risk environment outweighs mild USD softness; prices trade in close proximity to the 113.00 handle and just below 1.3bln in expiries at 113.10-20.0 Finally, focus during the Asia-Pac session also fell on the INR which faced some selling pressure amid a widening rift between the RBI and government with reports noting that Governor Patel may consider resigning; reports briefly pushed USD/INR above the 74.00 level. Turkish Central Bank Governor reiterates that the central bank will maintain a tight monetary policy decisively and further tightening will be delivered if needed with the use of all available instruments.

In commodities, WTI (+0.4%) and Brent (+0.8%) are both in the green amid a positive risk tone. This comes alongside markets preparing for Iranian sanctions coming into effect next week. Last night’s APIs showed a larger-than-expected crude stock build, although this was almost half of last week’s figure. Trader’s will be keeping an on US oil production numbers released later today with the weekly DoEs. Gold is trading in the red, albeit off lows amid safe haven outflows as equity markets continue to trade positively following the momentum from Asia. In related news, the London Bullion Market Association predicts that gold is to reach USD 1532/oz by October of next year. Separately, disappointing Chinese manufacturing PMI has resulted in a fall in the price of both zinc and copper, as well as affecting the outlook for China metals demand.

Looking at the day ahead, there should be some focus on the Q3 employment cost index (+0.7% qoq expected) along with the October ADP employment change report and October Chicago PMI. Worth flagging today also is scheduled comments from Italian Finance Minister Tria this morning, along with comments from the ECB’s Nowotny, Hansson and Nouy. Earnings wise today we’ve got Sanofi, GlaxoSmithKline, General Motors, Anthem, ADP, Estee Lauder, AIG, and Yum Brands.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 4.9%
  • 8:15am: ADP Employment Change, est. 187,000, prior 230,000
  • 8:30am: Employment Cost Index, est. 0.7%, prior 0.6%
  • 9:45am: Chicago Purchasing Manager, est. 60, prior 60.4

DB's Jim Reid concludes the overnight wrap

The tech sector had another wild ride yesterday, first tricking and then treating investors - especially into the US close. The NY FANG index reversed an early decline of as much as -2.33% to close up +1.88% – snapping a two day run which saw the index lose nearly $250bn in market cap. After the close Facebook posted EPS of $1.76 versus expectations for $1.47, but revenues were softer at $13.73bn versus $13.80bn. Facebook shares initially fell but recovered to be up +3.37% after hours. After Facebook, fellow tech company eBay reported mixed earnings, beating profit forecasts and upgrading its fourth quarter guidance, but posting weaker free cash flow and sales growth.

Before all this the S&P 500, DOW, NASDAQ and Russell 2000 closed +1.57%, +1.77%, +1.58% and +1.99% respectively last night – only the fifth time this month that all four bourses have closed higher. Markets had earlier pared their gains around US lunchtime and flirted with turning red, but ultimately rallied into the close, with the VIX ending the session -1.34pts at 23.36.

This morning in Asia positive sentiment from Wall Street has carried over with the Nikkei (+1.67%), Hang Seng (+0.60%), Shanghai Comp (+1.13%) and Kospi (+0.33%) all up along with most Asian markets. In terms of data, the official China October PMIs were released with the composite reading at 53.1 (vs. 54.1 in previous month) as both the manufacturing PMI (at 50.2 vs. 50.6 expected) and services PMI (at 53.9 vs. 54.6 expected) decelerated. The accompanying statement with the PMI release attributed the weakness to the long holiday in October but also admitted that the external environment is starting to drag manufacturing lower. In the details for the manufacturing PMI, the new export orders decelerated to 46.9 from 48.0 in September, marking the 5th consecutive month with a sub 50 reading. In the meantime, China's onshore yuan continues to attract attention and remains under pressure with it reaching the level of 6.9714 yesterday, the lowest since May 2008. It is currently trading
flattish in the Asian session at 6.9668, as we type.

Overnight, the BoJ left key interest rates and asset purchase targets unchanged while the BoJ's quarterly outlook report indicated  that inflation will remain below its 2% target at least until early 2021 and lowered the 2018 GDP growth forecast to 1.4% from 1.5%. The BoJ also added a statement in its outlook report about the need to "pay close attention to future developments" regarding risks to the financial system, while saying that the risks are not currently significant thanks to sufficient capital bases. The BoJ is also seeing the current core-CPI rising to around 1% yoy from earlier range of 0.5%-1%, which was lowered at June meeting. The BoJ will release its schedule for JGB purchases next month at 5pm Tokyo time today (8am BST) which is likely to be closely watched given the recent news from Asahi that the BoJ might tweak the schedule and also BoJ Governor Kuroda's presser will likely be started by the time this reaches your inbox.

Outside of Facebook and eBay, other major earnings were a bit disappointing when you include guidance. GE stock fell 8.88% to a new 9-year low, and the company’s benchmark 2035 bonds dropped to a record low price, after the company cut its dividend to $0.01 per share from $0.12 and announced that the SEC is expanding an investigation into the company’s accounting practices. Mastercard and Pfizer also traded lower, despite beating earnings estimates, as the market continues to punish companies for moderating guidance of missing on revenues. Coca-Cola was a bright spot, gaining +2.54% after beating on most major metrics and maintaining strong guidance.

In contrast to the US yesterday Europe largely struggled for traction from the moment the Italy and Euro Area GDP figures hit early in the session. More on that shortly but by the close the STOXX 600 had finished +0.01% and the DAX -0.42%. Italy’s FTSE MIB also ended -0.22% after being up as much as +0.73% while 10y BTP yields rose +13.8bps. Bunds and Treasuries on the other hand were -0.9bps and +3.8bps respectively.

Oil prices fell -1.72% to a two-month low amid reports that China and India, the top two buyers of Iranian oil, will defy American sanctions and continue to buy imports from Iran. Europe and South Korea have also indicated some degree of unwillingness to accommodate US sanctions, and there could therefore be minimal downside for Iranian oil exports moving forward – though they are already down -500,000bpd to 1.6mmbpd as of September. With less pressure on the supply side of the global oil balance, there could be scope for oil prices to remain pressured.

The British pound was pressured in yesterday’s trading, dropping -0.64% versus the dollar as S&P indicated that the potential for a no-deal Brexit outcome is a factor in its ratings decision for the UK. They argued that such a scenario would result in a “moderate recession” and cautioned that the odds have risen, given the apparent impasse within the governing coalition over how to address the Irish border issue in the withdrawal treaty. Separately, however, the DUP agreed to support the autumn budget removing the tail risk of a nearterm potential government crisis.

Back to the data. As noted earlier in Europe the big focus was on the Italian GDP preliminary print which disappointed at 0.0% qoq for Q3 compared to expectations for a +0.2% reading. That’s the first time the Italian economy has stalled since Q4 2014 with the last negative reading coming in Q2 2014. Our Italian economist Clemente De Lucia made the point yesterday that the focus will now turn to growth over the coming quarters as the fiscal expansionary plan put out by the government is largely based on the assumption that growth will surprise to the upside and converge to broader euro area levels. However with tighter financial conditions, elevated uncertainty, and softer Q4 data so far, the risks certainly appear to be to the downside for now. Post the data, Deputy PM Salvini stated that the government will push ahead with the budget regardless, while also blaming the weak quarter growth on the previous government.

That data - combined with a slightly softer than expected France reading (+0.4% qoq vs. +0.5% expected) - played a role in the broader Euro Area miss (+0.2% qoq vs. +0.4% expected) although there is likely to also be softness elsewhere in the region. Either the German economy must have contracted in the third quarter, Spain must have had a notable miss to our expectations for +0.6% qoq growth, or smaller countries like Ireland and the Netherlands must have had a marked slowdown. While the annual rate slipped to +1.7% yoy the previous quarter reading was revised up one-tenth to +2.2%. Also out yesterday was the preliminary October CPI reading in Germany which came in as expected at +0.1% mom and +2.4% yoy. That annual reading is actually the highest in over a decade now. German unemployment stayed steady at 5.1% as expected.

In the US the data was a bit more contrasting. The consumer confidence data for October was actually stronger than September, following downward revisions. The headline reading rose +2.6pts to 137.9 (vs. 135.9 expected) and marked a new post crisis high – in fact a new 18 year high. The present conditions index also rose 3.4pts to 172.8 and the expectations component 2.1pts to 114.6. The associated statement highlighted that employment growth continues to fuel sentiment, however next month’s data should be more interesting in light of capturing the full market crash in October and also the midterm elections. Meanwhile, the latest housing market data was a tad softer in the US yesterday. The August S&P CoreLogic house price index fell to +5.5% yoy from +5.9% and is now at the  lowest since December 2016.

To the day ahead now where the early focus in Europe this morning should be with the October CPI figures for the broader Eurozone. The consensus is for a lift in the YoY core rate to +1.1% yoy from +0.9% in September. Prior to this we’ll get France’s CPI report while a little later on we also get the same data in Italy. The release of the Central Bank of Turkey’s inflation report could also be worth a watch in EM land while Brazil’s latest policy meeting is also due today. This afternoon in the US there should be some focus on the Q3 employment cost index (+0.7% qoq expected) along with the October ADP employment change report and October Chicago PMI. Worth flagging today also is scheduled comments from Italian Finance Minister Tria this morning, along with comments from the ECB’s Nowotny, Hansson and Nouy. Earnings wise today we’ve got Sanofi, GlaxoSmithKline, General Motors, Anthem, ADP, Estee Lauder, AIG, and Yum Brands.



Published:10/31/2018 6:49:40 AM
[Markets] Intercept Pharma stock rises 3.2% on narrower-than-expected Q3 loss Intercept Pharmaceuticals Inc. shares rose 3.2% in Wednesday premarket trade after the company reported a narrower-than-expected third-quarter loss. Intercept Pharma reported a net loss of $64.5 million, or a loss of $2.18 per share, after a loss of $72.6 million, or a loss of $2.89 per share in the year-earlier period. The FactSet adjusted earnings-per-share consensus was a loss of $2.56. Revenue rose to $46.99 million from $41.33 million, compared with the FactSet consensus of $48.2 million. Ocaliva sales rose to $46.6 million from $40.9 million, below the FactSet consensus of $47 million. Intercept Pharma still expects early results from its phase 3 trial testing Ocaliva in patients with non-cirrhotic nonalcoholic steatohepatitis (NASH) in the first half of next year. The company continues to expect 2018 net sales for its Ocaliva therapy of between $170 million and $185 million, in line with the FactSet consensus of $177.8 million. Intercept shares have dropped 4.3% over the last three months, compared with a 4.8% drop in the S&P 500 and a 2.1% decline in the Dow Jones Industrial Average . Published:10/31/2018 6:49:40 AM
[Markets] Facebook, General Motors, eBay, Baidu and Waymo - 5 Things You Must Know U.S. stock futures were rising on Wednesday, Oct. 31, suggesting Wall Street would extend the previous session's solid gains through the final day of October, a month that has seen the S&P 500 fall 7.91% and come close to "correcting" from the all-time high it reached on Sept. 20. Contracts tied to the Dow Jones Industrial Average gained 107 points, futures for the S&P 500 rose 13.75 points, and Nasdaq futures were up 52.75 points. The S&P 500 gained 1.57%, and the Nasdaq rose 1.58%. Published:10/31/2018 5:51:27 AM
[Markets] US Market Indexes Close With Gains on Tuesday Dow Jones closes with a gain of 1.77% Published:10/30/2018 5:16:53 PM
[Markets] Dow rallies over 400 points as stocks bounce back from previous day's slide Dow rallies over 400 points as stocks bounce back from previous day's slide Published:10/30/2018 3:14:20 PM
[Markets] Stocks Bounce In 'Pause That Refreshes' For Bears As Systemic Risk Surges

The last few days explained...

China started off weak but quickly ramped, pushing CHINEXT green for the week - briefly...

European stocks failed to be inspired by China and limped weaker with Italy worst today...


A chaotic open saw stocks bounced

...Nasdaq was levitated to unchanged on the week...


Futures show the indices chaotic swings and push for Friday's highs again...


All the major US equity indices remain well below their 200DMAs. Dow futs ramped to theoir 10/11 plunge l;ows - looks like we are going back down...


GE was a bloodbath back below $10...


MSFT tumbled back below its 200DMA and bounced...


FANGs were mixed all day (AMZN and NFLX red, FB and GOOGL green)


But we note that AMZN may have lost its battle with retailers


But we have seen these size drawdowns before - will it be different this time?


Despite stocks bounce, credit markets continued to crack wider as cash markets catch up to derivatives...


Treasury yields limped higher today as stocks bounced with 30Y underperforming...


10Y yields bounced off unch for the month...


For now bond yields are up and stocks are down for the month...


The Dollar Index is up for the 4th time in 5 days making new 2018 highs (highest since May 2017)

NOTE - the USD is up over 2% in the last 10 days - the biggest surge since May.


Offshore Yuan drifted near its cycle lows...


Cable tumbled to near August cycle lows after S&P said it now sees a no-deal Brexit as a rating consideration...


Cryptocurrencies trod water after yesterday's tumble...


Despite the surge in the dollar,. silver was flat today (after yesterday's tumble) but copper and crude slid notably...


WTI Crude fell to a $65 handle intraday as oil suffers its worst month since July 2016...


Gold slipped back to support...


Finally, we note the pros' risk indicator in the market - that of implied correlation (or true systemic risk) - has spiked to its highest since February...

And judging by Goldman's Financial Conditions Index (modeled by Bloomberg's Sebastian Boyd), the S&P has plenty of room to fall further...

Published:10/30/2018 3:14:19 PM
[Markets] Dow Rises but Wall Street Wavers Amid Mixed Earnings Reports The Dow Jones Industrial Average rebounds Tuesday after closing lower during the previous session for the eighth time in 11 trading days. Published:10/30/2018 12:45:41 PM
[Markets] Stocks - Wall Street Rises on Upbeat Earnings The S&P 500 rose 17 points, or 0.67%, to 2,658.83 as of 9:52 AM ET (13:52 GMT), while the Dow increased 132 points, or 0.54%, to 24,575.56 and the tech-heavy Nasdaq Composite was up 33 points, or 0.47%, to 7,083.71. Published:10/30/2018 12:13:04 PM
[Markets] Apple introduces new iPad Pro, Apple Pencil After announcing new versions of its MacBook Air and Mac Mini, Apple Inc. on Tuesday unveiled an update to the iPad Pro. The device comes in two sizes. A new 11-inch screen is housed in the same body as the previous 10.5-inch model but has fewer bezels. It starts at $799. Apple also launched a new 12.9-inch model that's in a smaller body that its prior 12.9-inch version, which starts at $999. Both have Apple's "liquid retina" displays. The company said that the new 12.9-inch device is now roughly the size of a piece of 8.5-inch by 11-inch paper. The new Pro has Apple's latest generation neural engine, which the company said will support 5 trillion operations per second. The device features FaceID facial recognition and 1,000 times faster graphic performance relative to its predecessor. Both devices are available for preorder today and go on sale on Nov. 7. Apple announced that the iPad Pro is moving to USB-C connectivity, which will allow users to charge their iPhones through their iPads. The company also announced its new Apple Pencil, which attaches magnetically to the iPad, automatically pairs with the device, and starts charging wirelessly. Users will be able to tap the device to switch between modes on the Pencil. Apple shares are up 0.7% in Tuesday morning trading, and they're up 28% over the past 12 months. The Dow Jones Industrial Average , of which Apple is a component, has gained 5.8%. Published:10/30/2018 10:46:27 AM
[Markets] All but three Dow components post gains in early going Tuesday All but three Dow components post gains in early going Tuesday Published:10/30/2018 9:12:47 AM
[Markets] Dow poised for slight bounce at open after Monday's wrenching reversal Dow poised for slight bounce at open after Monday's wrenching reversal Published:10/30/2018 8:18:42 AM
[Markets] Walmart introducing a speedier checkout option for the holidays Walmart Inc. said Tuesday that it is launching a speedier check out option that allows customers to bypass long lines, Check Out With Me, as part of the holiday season experience. Starting November 1, associates will be in the busiest parts of the store, including electronics and garden center, and will be able to check out customers with the swipe of a card. Steve Bratspies, chief merchandising officer for Walmart U.S., told reporters that the service is ideally suited for customers buying a large item or just a couple of small things rather than a large basket, however, the service is available to anyone. The Walmart app now also has store maps that are specific to each location and will help shoppers find items easily. The retail giant also recently announced two-day shipping on online marketplace items. Walmart shares are up about 1% for the year to date while the Dow Jones Industrial Average is down 1.1% for the period. Published:10/30/2018 7:44:38 AM
[Markets] Market Snapshot: Dow poised for slight bounce after Monday’s gut-wrenching reversal Stock-index futures on Monday are set to open slightly higher on Tuesday, a day after the Dow Jones Industrial Average staged an ugly reversal to end the session with a triple-digit loss, partly on the back of tariff worries.
Published:10/30/2018 6:41:36 AM
[Markets] Allergan reports Q3 beats alongside net loss Allergan PLC reported third-quarter profit and revenue beats early Tuesday alongside a net loss for the quarter, and raised its 2018 guidance. The company reported a loss of $37.9 million, or a loss of 11 cents per share, after a loss of $4.03 billion, or a loss of $12.07 per share in the year-earlier period. Adjusted earnings-per-share were $4.25, compared with the FactSet consensus of $4.04. Revenue declined to $3.91 billion from $4.03 billion, above the FactSet consensus of $3.89 billion. The latest results reflect a 3% decline in net revenue driven largely by loss of patent protection on some brands, Chief Executive Brent Saunders said, as well as growth in key brands like Botox, Juvederm and Vraylar. Allergan also noted a nearly 20% decline in sales of the dry eye therapy Restasis as compared with the prior year, "due to lower net pricing, demand and trade inventory levels." Allergan now expects 2018 revenues of $15.58 billion to $15.73 billion, up from previous guidance of $15.48 billion to $15.63 billion, and 2018 adjusted EPS of $16.20 to $16.60, up from previous guidance of $16.00 to $16.50. The company also said on Tuesday that it will pay a cash dividend of 72 cents per share in the fourth quarter on Dec. 14 to shareholders on record as of Nov. 13. Allergan shares rose 0.2% in Tuesday premarket trade. Shares have dropped 5.5% over the last three months, compared with a 5.8% drop in the S&P 500 and a 3.4% drop in the Dow Jones Industrial Average . Published:10/30/2018 6:41:36 AM
[Markets] Futures Rally Fizzles After Trump China "Great Deal" Headline Sparks Algo Confusion

Yesterday's violent reversal which saw the Dow tumble nearly 1000 points intraday from session highs on the Bloomberg report that Trump was preparing to unleash tariffs on all Chinese imports if upcoming talks with China's president do not yield results, continued in the overnight session with headline scanning algos launching a global buying frenzy on a late Monday headline that Trump expects a "great deal" with China during a Fox News interview, while completely ignoring the rest of what Trump said, namely that China has "drained" the U.S. which has "really helped rebuild China" adding that "we are going to win that one," referring to China trade battle, but the piece de resistance was that Trump doesn’t think China is "ready" to make a deal. Trump also confirmed the Monday's Bloomberg report, saying that he is ready to impose $250BN in additional tariffs if deal doesn’t go through and adding that $267BN in tariffs was "waiting to go if we can’t make a deal."

As it turned out, however, the "great deal" quote was enough to push Chinese stocks out of negative territory, and send Chinese stocks higher on the day, closing up 1%...

... while US futures followed suit and rose as much as 20 points from Monday's close. However, it took some human intervention to temper the algo enthusiasm and read between the lines and trim the entire S&P futures rally...

.... while European stocks dropped as traders turned their focus to a slew of company results while realizing the what Trump said was not at all positive, and instead confirmed the next phase of a trade standoff between America and China.

While Europe's Stoxx 600 index opened higher after better-than-expected results for major companies including BP and Volkswagen, earnings were mixed overall and promptly European bourses went into reverse after Germany's DAX slumped to session lows dragging the broader Stoxx 600 into the red. Automakers declines were the culprit, which as Bloomberg noted is a sign that any inkling of good news, like VW's earnings beat for example, faces a high bar in convincing investors the worst is over for the sector.

Optimists meanwhile noted that U.S. futures were still up, if well off session highs, while there's was little spillover into other asset classes. Core euro-area bonds were underperforming the periphery, while risk-sensitive currencies like AUD and NZD in G-10, or TRY and ZAR in the EM are keeping their gains for the moment even as the dollar surged to session highs.

Earlier, the MSCI Asia Pacific Index outside Japan swung in and out of negative territory in morning trade and last traded 0.3 percent higher on the day, halting a five-day losing streak. The yen slid and Aussie rose as Japanese and Australian shares rallied. China’s stocks climbed after authorities made a fresh attempt to stabilize its stock markets by saying they’d encourage long-term funds to invest, although activity was choppy with investors cautious about further escalations in the Sino-U.S. trade war.

The index has lost 12 percent this month and is on track for its biggest October decline since 2008, during the global financial crisis: "At this point, nobody can say the equity market is bottoming out. Global investor sentiment remains shaky," said Yasuo Sakuma, chief investment officer at Libra Investments in Tokyo.

China’s Shanghai Composite and the blue-chip CSI 300 gained to 1.0% and 1.1%, respectively, winning back earlier losses in a volatile session after China’s securities regulator said it would encourage share buybacks and mergers and acquisitions by listed firms, and would enhance market liquidity, in the latest attempt to put a floor under the country’s skidding equity markets. Japan’s Nikkei average also erased early losses and climbed 1.5%.

Adding to the jitters, China’s yuan continued to weaken, drawing closer to the closely watched support level of 7.00 vs the dollar. In onshore trade, the yuan slipped 0.15 percent to 6.9774 per dollar, a more than 10-year low, stirring speculation over whether the central bank will tolerate a slide beyond the key level of 7 per dollar.

According to Reuters, major state-owned Chinese banks were seen swapping yuan for dollars in forwards on Tuesday, but there was no immediate evidence of dollar selling in the spot market as the currency neared a key support level, three traders said.

As a result of the rising volatility, sentiment has continued to deteriorate: “The probability of global stocks turning to a bear market is increasing,” said Masanari Takada, cross-assets strategist at Nomura Securities. “While some investors who look at fundamentals buy stocks on dips, there are other players who keep selling automatically in response to heightened volatility. At times like this, buyers can easily be overwhelmed by negative headlines on tariffs, etc.”

In FX, the dollar extended its recent advance as month-end flows that kicked off the London session lent support, sending the euro and sterling to fresh day lows. The common currency subsequently got brief support from regional German inflation data and rebounded while Antipodean currencies led gains in G-10. The dollar gained on a decline in the euro after news German Chancellor Angela Merkel would not seek re-election as head of her CDU party and a big miss in European GDP (Q3 GDP 0.2%, vs Exp. 0.4%). Merkel said she would not seek re-election as party chairwoman, heralding the end of a 13-year era in which she has dominated European politics.

Oil prices were mixed after easing overnight as Russia signaled that output will remain high and as concern over the global economy fueled worries about demand for crude. West Texas Intermediate crude futures dropped below $67/barrel, while Brent crude futures dipped 0.3 percent to $77.13.

Expected data include Conference Board Consumer Confidence. Aetna, Allergan, Fiat Chrysler, GE, Mastercard, Pfizer, Amgen, Facebook, Hyatt, and T-Mobile are among many companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,646.00
  • STOXX Europe 600 up 0.1% to 355.88
  • MXAP up 0.6% to 146.61
  • MXAPJ up 0.3% to 462.99
  • Nikkei up 1.5% to 21,457.29
  • Topix up 1.4% to 1,611.46
  • Hang Seng Index down 0.9% to 24,585.53
  • Shanghai Composite up 1% to 2,568.05
  • Sensex down 0.2% to 34,009.09
  • Australia S&P/ASX 200 up 1.3% to 5,805.10
  • Kospi up 0.9% to 2,014.69
  • German 10Y yield rose 2.0 bps to 0.397%
  • Euro down 0.01% to $1.1372
  • Italian 10Y yield fell 10.7 bps to 2.967%
  • Spanish 10Y yield rose 0.3 bps to 1.547%
  • Brent futures down 0.4% to $77.02/bbl
  • Gold spot down 0.5% to $1,223.42
  • U.S. Dollar Index up 0.2% to 96.76

Top Overnight Headlines

  • President Trump tells Fox News a deal with China has to be “great” because China has “drained” the U.S. “We have really helped rebuild China,” Trump says
  • U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Trump and Xi Jinping fail to ease the trade war, three people familiar with the matter said
  • China is considering atax cut to revive its flagging automotive market, according to people familiar with the matter, lending support to a key industry that’s been damaged by a trade war with the U.S.
  • Yuan exchange rate is unlikely to weaken past the level of 7 per dollar as China’s international balance of payments remains sound and monetary authorities are determined to stabilize market, Economic Information Daily says
  • President Trump’s job approval rating plunged 4 percentage points last week amid a wave of violence, the latest troubling signal for Republican chances in upcoming midterm elections
  • China will increase stock market liquidity and cut trading barriers, China Securities Regulatory Commission says in Weibo statement in response to market concerns
  • The European Union won’t allow a no-deal Brexit to cut off access to London’s crucial financial infrastructure, which would threaten trillions of dollars of derivatives contracts, according to the bloc’s financial-services policy chief
  • The recent rally in Treasuries has seen derivatives traders bid up the price of related call options, potentially fueled by demand for hedges. The difference in implied volatilities between these bullish bets and bearish put options on the benchmark notes is now back at levels which have tended to see a sell-off in bonds
  • The VIX surged above its European equivalent in mid-October and has stayed above it on most days since -- an occurrence that before this year almost never lasted more than a day
  • Italy’s growth was unchanged in the three months through September on a quarterly basis, down from 0.2 percent in the second quarter. The median estimate in a Bloomberg survey of 31 analysts called for expansion of 0.2 percent

Asian equity markets were mostly higher as the region aggressively shrugged-off the weak lead from Wall Street, where stocks extended on losses due to renewed tariff concerns and in which the major US indices were momentarily all in correction territory. ASX 200 (+1.3%) and Nikkei 225 (+1.5%) both pared opening losses as a rebound in tech and resilience in Australia’s top-weighted financial sector led the advances, while the Japanese benchmark and its exporters cheered the favourable currency moves. Elsewhere, Shanghai Comp. (+1.3%) and Hang Seng (-0.1%) both initially lagged following recent reports that suggested US is planning to announce further tariffs on China if talks between US President Trump and Chinese President Xi fail, while the upcoming deluge of blue-chip earnings and continued liquidity drain by the PBoC added to the cautious tone. However, Chinese markets gradually recovered amid continued supportive intentions by China’s authorities and optimism by US President Trump who was said to predict a great deal with China on trade. Finally, 10yr JGBs were softer amid the improved risk tone but with losses stemmed by the BoJ’s presence in the market for JPY 880bln in JGBs, while the central bank also kicks off its latest 2-day policy meeting.

Top Asian News

  • Analysts Still Love This Chinese Supplier to Nike
  • China Evergrande to Sell Dollar Debt as Bond Prices Plunge
  • Noble Group Flags Another Loss as Restructuring Costs Mount
  • Kazakhstan Drops 20-Year Dollar Addiction With First Euro Bond
  • Bond Buyers Scorched as Sri Lanka’s Promise Turns to Crisis

Major European bourses are mixed with the SMI (+0.3%) out in front despite being weighed on heavily by Geberit (-9.0%) following their earnings; and the Dax (-0.7%) lagging with Lufthansa (-7%) dragging it down. Sectors began in the green, but have since fallen to being largely in the red with industrials lagging (-0.8%), although energy is still the outperforming sector (+1.1%). In terms of individual equities Ocado (+7.0%) is higher following a master services agreement with Kroger, while BP (+4.0%) rose after reporting earnings higher than their previous, notably revenue is up by USD 20bln. Elsewhere, Jyske Bank (-10.0%) are at the bottom of the Stoxx 600 after reporting a miss on earnings.

Top European News

  • Italian Economy Stalled in Third Quarter in Populist Setback
  • Hammond Spends His U.K. Budget Windfall Buying Votes for May
  • Reckitt Benckiser Formula Glitch Hits Kapoor’s Turnaround Effort
  • BP Profit Smashes Estimates on Eve of Giant Shale Oil Deal
  • Genmab Soars After ‘Impressive’ Results With Cancer Treatment

In FX, the Greenback remains relatively evenly split vs G10 counterparts, with its Dollar peers still outperforming and preventing the index from staging a more concerted attempt to test recent peaks ahead of the ytd high and psychological 97.000 marker. However, the DXY is nudging closer at 96.847 vs 96.860 and 96.984 respectively as other majors succumb to more downside pressure. AUD/NZD/CAD - As noted above, the non-US Dollars are bucking the overall trend again, and deriving support from another resilient performance across Asia-Pacific bourses overnight given Wall Street’s retreat from early recovery highs. The Aud in particular may also be gleaning encouragement from US President Trump’s talk about a decent trade agreement with China and latest Yuan stabilisation talk from a PBoC advisor that appears to be keeping the Cny and Cnh just off 7.0000 vs the Usd. However, Aud/Usd is still struggling to climb above 0.7100, while the Kiwi looks equally toppy over 0.6550 and the Loonie seems unable to breach resistance at 1.3100. JPY/GBP/EUR/CHF - All victims of the general Buck bid into month end, and their own downfalls to an extent, as Usd/Jpy climbs through recent highs and closer to 113.00, with a 50% Fib at 112.97 just ahead of the big figure. Cable has failed to maintain recovery gains above 1.2800 and is now only just holding above 1.2750, with tech support seen down at 1.2724, while Eur/Usd has retreated further from 1.1400 to 1.1350 amidst a stagflationary mix of Eurozone data and surveys. The Franc has extended losses beyond parity and hardly helped by a disappointing Kof indicator.

Commodities are mostly lower with WTI and Brent in close proximity to USD 67/bbl and USD 77/bbl respectively, on speculation that an escalating trade war between the world’s two largest economies will dampen global growth at a time when US crude inventories are growing. Meanwhile, IEA’s Chief Birol said he sees the oil market tightening next month, while adding that oil demand faces downward pressure in 2019. Traders will be keeping an eye on the weekly API crude inventories released later today for a sign of rising inventories. Elsewhere, gold is softer as the yellow metal mirrors dollar action, while copper and Shanghai rebar steel dipped as market sentiment was dampened by the prospects of a fresh round of US tariffs on USD 257bln of Chinese goods.

Earnings are busy today, with Facebook, Mastercard, Coca-Cola, General Electric, Pfizer, Sony, eBay, BP and BNP Paribas all releasing their earnings. On the data front, we get the advance Q3 GDP release for the Euro Area, France, and Italy along with preliminary October CPI for Germany and Spain, and October confidence indicators for the Euro Area and Italy. In the US, we get October Conf. board consumer confidence and expectations survey. Late night, we get Japan's preliminary September industrial production.

US Event Calendar

  • 9am: S&P CoreLogic CS 20-City MoM SA, est. 0.1%, prior 0.09%; YoY NSA, est. 5.8%, prior 5.92%
  • 9am: S&P CoreLogic CS US HPI YoY NSA, prior 6.0%
  • 10am: Conf. Board Consumer Confidence, est. 135.9, prior 138.4; Present Situation, prior 173.1; Expectations, prior 115.3

DB's Jim Reid concludes the overnight wrap

A bullish morning European session peaked at the US open yesterday with the S&P 500 soon +1.81% shortly after the start. However this was the high-water mark with the index eventually closing -0.66% after dipping as low as -1.95% 15 minutes before the close. A wild ride and one led by tech with the NASDAQ losing -2.02%. Amazon led losses, falling -6.33%. The internet retailer is now down -24.55% from its peak and has shed $242bn worth of market capitalisation, equivalent to the 17th largest S&P 500 company and more than the market cap of Verizon or Procter and Gamble. Also more than the largest pure continental European company. A stunning fall of late. The NY FANG index closed down -3.24% having been -5.58% just over 15 minutes from the close. The DOW traded in an 918 point range, (which is actually only the 11th widest of the year), and like the S&P 500 touched “correction” territory, dipping -10% off its peak before ending -0.99% lower and escaping that definition on a closing basis.

While a global tech tax in the UK budget weighed on global tech stocks a little, markets were seemingly more pressured by the news that the US is readying tariffs on the remainder of China imports. According to reports (Bloomberg), the administration is preparing a product list to encompass up to $257bn of imports, which would be released later this year and implemented in Q1 2019. Apparently, the tariffs will be deployed in the event that next month’s meeting between Presidents Trump and Xi does not go well. As a result the defensive rotation continued, with the real estate and utilities sectors gaining +1.56% and +1.35%, respectively.

As discussed above though, Asia has rebounded ahead of a day that gives us Italian Q3 GDP (and elsewhere in Europe), flash German inflation and Facebook’s earnings as the highlights. The Nikkei (+1.84%), Hang Seng (+0.47%), Shanghai Comp (+0.72%) and Kospi (+1.50%) all up along with most Asian markets. Futures on the S&P 500 (+0.67%) are also pointing to a positive start. Sentiment is being aided by US President Trump’s late night rhetoric on trade as in an interview with Fox News he stated that "I think we will make a great deal with China, and it has to be great because they’ve drained our country" even as he cautioned that he doesn’t think China is “ready” yet. This was enough though to ease the concerns related to escalations in the trade war. Elsewhere, the Chinese yuan reached levels of 6.9689 against US dollar, the lowest level since June 2008 and is now closing in on touching the key level of 7. A reminder that DB is targeting 7.40 next year.

Back to yesterday and behind the scenes it was an interesting day for a bigger picture theme we’ve been following carefully over the last couple of years - namely global fiscal loosening. Since 2016 we’ve felt that we’re structurally moving away from maximum loose monetary policy and tight fiscal policy to tighter monetary and looser fiscal policy. This should mean higher yields and inflation. The move is partly because of populism, and partly due to the realisation of the counterproductive elements to negative rates/yields and extreme easing. The fiscal stimulus in the US has been the biggest evidence of this so far, but slowly and surely we’re seeing more and more major economies following in various forms. The Italian budget follows the same path, as does the recent tax change package in China, albeit more to prop up growth rather than from populism. Yesterday, we saw further subtle moves in this direction around the globe as we saw suggestions of a fresh tax cut on autos from China, a UK budget with some signs that austerity is being slowly reversed, and the start of the changing of the political guard in Germany that might lead to speculation about looser domestic policy further down the road.

The German story is still the most tenuous as the alternatives to Mrs. Merkel could still be even more fiscally prudent, but there was certainly chatter yesterday that with the global anti-establishment political trend continuing to hit Germany as well, the pressure might be to win over voters in the future. In the near term see here for our DB experts take on Merkel’s announcement that she won’t run again for the CDU’s party-leadership at the Dec. party convention and will end her political career in 2021 at the end of her current term assuming she can make it there. They analyse the top contenders to replace Merkel: Party Secretary Kramp-Karrenbauer, Health Minister Jens Spahn, and former Party Whip Friedrich Merz. The CDU has lost voters to both its left flank (i.e. to the Greens) and its right flank (i.e. to Alternatives for Germany), so it is not immediately clear which direction the party will move. Kramp-Karrenbauer is likely to be the safest and least disruptive successor, while Spahn and Merz are somewhat more conservative. The note also looks at the problems for the SPD.

In China, the wires (e.g. Bloomberg) circulated stories that the country’s top regulator is considering a cut in the tax on auto sales from 10% to 5%. Such a tax cut could boost the sector in China, which has been flagging lately amid trade headwinds and slowing macro momentum. Auto sales declined yoy in September, and they are now up only +0.6% yoy over the first 9 months of the year. The auto sector has expanded every year since the 1990s, so such a contraction would likely worry policymakers in Beijing. Auto stocks across the world rallied in response, with the automobiles and parts indexes of the STOXX 600 and S&P
500 gaining +2.95% and +2.61% respectively.

In the UK, Chancellor Philip Hammond announced an end to austerity in the UK, though deficit forecasts were actually revised lower. Growth projections were higher, and several new spending initiatives were moved forward. The budget will include a 2.8bn pound income tax cut for individuals in 2019-2020, earlier than expected, and another 1.3bn pounds of spending on infrastructure, education, and contingency spending in the event of a no-deal Brexit outcome. The budget also included the aforementioned new digital services tax on tech companies, which will apply based on the companies’ amount of revenue, not profit. The UK is still hoping they’ll be a global agreement on this before this comes in in 2020 but the plan is to implement it unilaterally if not.

Before the US sell-off, European bourses had traded higher, boosted by the news of fiscal easing in China as well some excitement over the news that Prime Minister Merkel will not run again as party leader which as discussed was hoped by some to be a gateway to more stimulative policies whether wishful thinking or not. The DAX gained +1.20% and the STOXX 600 advanced +0.90%. German bund yields rose +2.5bps, while peripheral spreads tightened. Italy outperformed, with 10-year spreads to bunds trading -13.4bps narrower in the first day of trading since S&P opted to not lower the country’s credit rating. All eyes will be Italy’s GDP print later today as the next major landmark.

Now looking at data releases from yesterday. In the US, September core PCE came at +0.2% mom with the unrounded reading at +0.153% mom (vs. +0.1% mom expected), keeping the annual inflation rate in line with consensus at 2.0% mom. September real consumer spending came in line with consensus at +0.3% mom while the previous month’s read was revised upwards to +0.4% mom from +0.2% mom. September personal income came in at +0.2% mom (vs. +0.4% mom expected), while the previous month’s read was revised upwards to +0.4% mom from +0.3% mom.

In Europe, UK’s September net consumer credit stood at +£0.8bn (vs. +£1.2bn expected) while mortgage approvals came in at 65.3k (vs. 64.7k expected) with net lending secured on dwellings standing at +£3.9bn (vs. +£2.9bn expected). The UK’s September M4 money supply came at -0.3% mom while the previous month’s read got revised down to +0.1% mom from +0.2% mom.

Earnings are busy today, with Facebook, Mastercard, Coca-Cola, General Electric, Pfizer, Sony, eBay, BP and BNP Paribas all releasing their earnings. On the data front, we get the advance Q3 GDP release for the Euro Area, France, and Italy along with preliminary October CPI for Germany and Spain, and October confidence indicators for the Euro Area and Italy. In the US, we get October Conf. board consumer confidence and expectations survey. Late night, we get Japan's preliminary September industrial production.

Published:10/30/2018 6:13:47 AM
[Markets] Dow stages biggest intraday reversal in more than 8 months; Nasdaq sees biggest U-turn in 3 years The Dow Jones Industrial Average gave up a 352-point gain to end lower Monday and highlighted a market that has grown increasingly unsettled amid concerns about global growth and escalating tariff clashes between the U.S. and China. The action marked the biggest U-turn for the Dow industrials (DJIA) since Feb. 7, when the Dow erased a roughly 382-point gain to finish with gut-wrenching losses. On Monday, the Dow closed down 245 points, or 1%, at 24,442.92. Published:10/30/2018 5:42:56 AM
[Markets] Facebook, General Electric, Apple, BP and IGC - 5 Things You Must Know U.S. stock futures were rising modestly on Tuesday, Oct. 30, following a volatile session on Wall Street that saw a 900-point swing for the Dow Jones Industrial Average and ahead of another day with corporate earnings in focus. Equities turned negative after Bloomberg reported the U.S. was preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between Donald Trump and Chinese President Xi Jinping didn't result in a significant breakthrough in their ongoing trade war. Published:10/30/2018 4:45:55 AM
[Markets] U.S. stock futures swing higher after Trump says upbeat on China trade deal U.S. stock futures pointed to a higher open for Tuesday, on the heels of a volatile and bruising session for equities. Dow Jones Industrial Average futures rose 116 points, or 0.5%, to 24,545, while S&P 500 futures rose 15.4 points, or 0.6%, to 2,659.25. Nasdaq-100 futures gained 45.75 points, or 0.7%, to 6,780.50. Futures rose after President Donald Trump said the U.S. will "make a great deal with China," in an interview with Fox News. That comes after Monday's session that left major indices lower, with the biggest intraday reversal for the Dow industrials in eight months and the largest turnaround from an opening gain for the Nasdaq Composite since 2015. The S&P 500 also stumbled. Those losses came after a Bloomberg report that the Trump administration was getting ready to impose tariffs on all Chinese imports. Asian equities also moved higher on Tuesday. Published:10/30/2018 3:10:19 AM
[Markets] [$$] Global Stocks Haven’t Looked This Cheap Since 2016 Global stocks are trading at their lowest valuations in more than two years as pessimism grows over the growth outlook, dangling the prospect of opportunity to some bargain-minded investors. After a punishing October, major indexes in Europe, Japan, Shanghai, Hong Kong, Argentina and Canada are all languishing in correction territory—a drop of at least 10% from a recent high. The U.S. is teetering on the edge of joining its peers there after a selloff last week wiped out all of the S&P 500 and Dow Jones Industrial Average’s gains for the year. Published:10/29/2018 7:11:16 PM
[Markets] Asia Stocks Set to Drop on Fresh Trade Strife: Markets Wrap Futures on Japanese equity benchmarks pointed lower, while they were little changed in China and Hong Kong as the S&P 500 Index pared a drop in the final 15 minutes of trading. The Dow Jones Industrial Average slid more than 500 points at its worst, dipping into a correction, while the Nasdaq 100 Index tumbled to the lowest level since May. The S&P 500 and Nasdaq indexes are on track for the steepest monthly declines of the record-long bull market. Selling intensified after Bloomberg reported the U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war. Published:10/29/2018 6:40:30 PM
[Markets] Dow ends down over 200 points after erasing triple-digit gain Dow ends down over 200 points after erasing triple-digit gain Published:10/29/2018 3:34:21 PM
[Markets] Dow's down over 500 points in final minutes as Boeing slides Dow's down over 500 points in final minutes as Boeing slides Published:10/29/2018 3:03:29 PM
[Markets] Monday’s nasty stock-market reversal is evidence that the worst is far from over for Wall Street Don’t be fooled by the stock market’s early, manic Monday moves, some market participants caution. A jump by the Dow Jones Industrial Average (DJIA) the S&P 500 index (SPX) and the Nasdaq Composite Index (COMP) in early trade has investors hoping that a withering rout that has played out since early October may be coming to an end. For the month, the Dow is on track to shed 6% of its value, the S&P 500 is off 4.7% and the Nasdaq, which has lost 10% from a recent peak, putting it in correction territory, is down 10.3% so far this month, according to FactSet data. Published:10/29/2018 3:03:28 PM
[Markets] Stocks have erased strong early gains, with the Dow dropping 400 points off high Stocks have erased strong early gains, with the Dow dropping 400 points off high Published:10/29/2018 1:34:50 PM
[Markets] Stocks - Wall Street Rises After Inflation Data, IBM Acquisition The S&P 500 rose 34 points or 1.32% to 2,693.68 as of 9:41 AM ET (13:41 GMT), while the Dow increased 205 points, or 0.83%, to 24,893.86 and the tech-heavy Nasdaq Composite was up 94 points, or 1.31% to 7,261.46. Published:10/29/2018 12:01:58 PM
[Markets] Dow up 300 points as stocks look to construct a rebound from last week’s rubble Dow up 300 points as stocks look to construct a rebound from last week’s rubble Published:10/29/2018 10:32:00 AM
[Markets] Dow Rebounds as Stocks Limp Toward the End of a Brutal Month The Dow Jones Industrial Average rebounded sharply on Monday after the blue-chip index fell 3% last week and into negative territory for 2018. Gains Monday moved the Dow back into the green for the year. fell 2.1% on Monday after the tech giant reached a deal to buy Red Hat Inc. Published:10/29/2018 10:04:11 AM
[Markets] All 11 S&P 500 sectors trade in positive territory in early Monday action All 11 of the S&P 500's key sectors were enjoying firm gains early Monday, as the U.S. stock market attempts to mount a broad-based rebound following a week that erased the full-year returns for both the Dow and the S&P 500 last week. The S&P 500 was being led by gains in financials , which have been mostly falling despite a rise in interest rates that should benefit companies within that grouping. The S&P 500, most recently, was up 1.2% at 2,691, with a year-to-date gain of 0.8%, powered by Monday's early rise. Meanwhile, the Dow Jones Industrial Average was up 0.8% at 24,884, pushing it out of negative territory for the year, up 0.7% thus far in 2018. The Nasdaq Composite Index was rising 1.2% at 7,256, extending its 2018 gain to 5.2%. Markets have been marked by volatile moves, which have mostly driven equity gauges lower, amid nagging concerns about rising interest rates, slowing global economic expansion and fears that earnings growth may be peaking. Published:10/29/2018 9:00:32 AM
[Markets] US Futures, European Markets Jump Despite Another Chinese Rout

After trading modestly in the red for much of Monday's early session, US equity futures rebounded to session highs even with IBM 5% lower after its offer to buy Red Hat at a ridiculous 63% premium...

... and European stocks jumped as investors rediscovered some confidence as corporate buybacks were set to return with a bang. The euro first dropped then jumped after reports German Chancellor Angela Merkel would step down as leader of Germany's ruling CDU party, although she would stay on as Chancellor.

Meanwhile, concern over China’s slowing economy sent the Shanghai Composite lower for another day, sliding 2.2% on Monday and keeping Asian stocks under pressure.  Chinese data underscored worries of a cooling economy as profit growth at its industrial firms slowed for the fifth consecutive month in September due to ebbing sales of raw materials and manufactured goods.

Shares in Tokyo also ended lower after rising more than 1% at one stage. South Korea also slumped, but markets in Hong Kong, Australia and India all gained.

Contracts for the S&P 500, Dow Jones and Nasdaq indexes all climbed as the European morning wore on, tracking a bank-led rally for the Stoxx Europe 600 Index after HSBC Holdings Plc earnings beat expectations. Earlier in Asia the mood had been more cautious, and shares in Tokyo ended down after rising more than 1 percent at one stage. Gauges in China and South Korea slumped, but those in Hong Kong, Australia and India all gained.

European shares climbed led by banks thanks to encouraging earnings reports and relief that S&P did not downgrade Italy on Friday and after HSBC Holdings earnings beat expectations, while the Stoxx 600 Automobiles & Parts index surged 3.8%, the biggest intraday rally since July 5, as China’s top economic planning body is proposing cutting the tax levied on car purchases by half.

The euro first fell to a session low, then rebounded sharply, after a senior party source said German Chancellor Angela Merkel would not seek re-election as party chairwoman after bruising losses for her Christian Democrats in a regional election in Hesse. Germany's DAX was up 0.7% while the leading index of euro zone stocks rose 0.5 percent, boosted by a weaker euro. Italy's FTSE MIB led the market with a 1.5% gain after Italian bond yields fell sharply to a one-week low following Standard & Poor's decision to leave Italy's sovereign rating unchanged at BBB, sparking relief there was no ratings downgrade, even though it lowered the outlook to negative from stable.

With risk gradually returning to markets, core European bonds turned lower alongside Treasuries. The dollar jumped while gold dropped. Oil fell toward $67 a barrel as traders assessed mixed supply signals.

Today's risk-on session caps a torrid month in which global stocks have lost almost $8 trillion of value, and are set for the biggest wipeout since the height of the financial crisis a decade ago on concerns ranging from peak earnings growth and the U.S.-China trade war to the end of easy money and rising rates.

As discussed last Friday, traders have slashed bet for more Federal Reserve hikes for next year, with markets now expecting less than two quarter-point increases in 2019, compared with three projected by policy makers, and a rate cut in 2020.

Emerging markets stocks were a bright spot, gaining 0.1% in their first rise in five sessions after far-right candidate Jair Bolsonaro won the second-round runoff in Brazil’s presidential election. Brazil-exposed stocks in Europe climbed as investors cheered the win. Blackrock’s Latin American Investment Trust London-listed shares gained 7.4% while a Germany-listed iShares MSCI Brazil ETF climbed 6.6%.

“Our initial assessment for the Bolsonaro administration is that it will have a pro-business stance, focused on enhancing the country’s competitiveness,” said UBS analysts.

Despite gains on Monday, investors remain wary of betting the farm on a turnaround in risk: "The only way I can summarize the core sentiment among the European investors I met is something like ‘pretty grim’," wrote Erik Nielsen, group chief economist at UniCredit, in a note to clients.

Still, the MSCI world equity index managed a 0.1% gain. The index is down 9.3% so far this month and has shed $6.7 trillion in market capitalization since its January peak: "There’s room for a bit of a downside to go, because I do see this as being largely a structural shift in markets,” Kyle Rodda, a market analyst at IG Group in Melbourne, said on Bloomberg Television. “Sentiment is still to the downside, is still quite bearish and there will be a little while for this correction to play out.”

Today is the presentation of the UK budget and it may have an impact on several sectors, with pensions and bookmakers most likely to face some pressure. Banks, retailers and homebuilders will also be closely watched.

In FX, the dollar index rose 0.2 percent to 96.553 after gaining 0.7 percent last week. The euro fell 0.2 percent to near a two-month low at $1.1381. Sterling fell 0.2 percent, holding near a two-month trough of $1.2775 ahead of Britain’s annual budget due later on Monday.  Finance minister Philip Hammond will likely urge his divided Conservative Party to get behind the government’s push for a Brexit deal, or put at risk a long-awaited easing of austerity. Mexico’s peso slumped more than 1% after a vote to scrap a $13 billion airport.

In commodities, oil also reversed early gains to dip on growing worries about Chinese growth. U.S. crude fell 58 cents to $67.01 per barrel and Brent crude slid 71 cents to $76.89.

Market Snapshot

  • S&P 500 futures up 0.3% to 2,676.50
  • STOXX Europe 600 up 0.4% to 353.69
  • MXAP down 0.2% to 146.38
  • MXAPJ up 0.2% to 463.14
  • Nikkei down 0.2% to 21,149.80
  • Topix down 0.4% to 1,589.56
  • Hang Seng Index up 0.4% to 24,812.04
  • Shanghai Composite down 2.2% to 2,542.10
  • Sensex up 1.5% to 33,838.77
  • Australia S&P/ASX 200 up 1.1% to 5,728.16
  • Kospi down 1.5% to 1,996.05
  • German 10Y yield rose 0.3 bps to 0.355%
  • Euro down 0.04% to $1.1389
  • Italian 10Y yield fell 4.6 bps to 3.074%
  • Spanish 10Y yield fell 2.6 bps to 1.541%
  • Brent futures down 0.6% to $77.18/bbl
  • Gold spot down 0.3% to $1,230.45
  • U.S. Dollar Index up 0.2% to 96.50

Top Overnight News from Bloomberg

  • Brazilian markets were set for an advance after the nation’s next president Jair Bolsonaro pledged to trim the deficit, pay down debt and reduce the size of government after results showed him cruising to victory over Fernando Haddad of the left-wing Workers’ Party
  • German Chancellor Angela Merkel will quit as head of her Christian Democratic party after nearly two decades, a person familiar with the matter said, a dramatic sign of her waning authority that will raise questions about her staying power as chancellor
  • Instability plaguing German Chancellor Angela Merkel’s fourth term was laid bare in the latest state election drubbing, with her coalition partner’s flagging support posing a growing threat to her government
  • Some leading lawmakers backing Brexit are examining plans to keep the U.K. in the European Economic Area until the government reaches as a trade agreement with the bloc, the Sunday Telegraph reported
  • Traders are paring bets on 2019 rate hikes by the Federal Reserve as disappointing corporate earnings fuel losses in U.S. stocks. Markets are now factoring in fewer than two quarter-point hikes for next year, compared with the three increases that policy makers project
  • U.S. Treasury Secretary Steven Mnuchin is set to snatch from Timothy Geithner the mantle of selling a record amount of notes and bonds as he seeks to finance America’s growing budget deficit
  • China’s economic growth continued to slow in October, a period in which the trade conflict with the U.S. has intensified and policy makers have stepped up support for businesses. That’s the signal from a Bloomberg Economics gauge aggregating the earliest- available indicators on business conditions and market sentiment
  • Bank of Japan will maintain its policy settings this week, according to economists surveyed by Bloomberg, amid a growing view that the BOJ will eventually use greater flexibility in yield movements as a tightening measure

European equities are kicking off the week on the front-foot, despite the downbeat tone in Asia. As such, Eurostoxx 50 (+0.8%) is supported mostly by the financial sector following optimistic earnings from HSBC (+4.6%), which saw the likes of Intesa Sanpaolo (+3.2%), Deutsche Bank (+1.7%) and RBS (+4.1%) higher in tandem. Elsewhere, Europe’s auto stocks index (+3.9%) rose sharply following reports that Chinese regulators are said to propose a 50% cut to car purchase tax. Subsequently, DAX 30 outperforms as the index is buoyed by shares in Daimler (+5.4%), BMW (+5.2%) and Volkswagen (+5.1%). Finally, Euronext is experiencing problems in which the CAC and AEX remain halted until the technical glitches are resolved.

Top European News

  • U.K.’s Hammond to Set Out a Budget That Brexit Talks Could Break
  • Helicopter Maker Leonardo Slips After Fatal Leicester Crash
  • Italy Stocks Outperform Led by Banks as S&P Rating Cut Avoided
  • Browder Laundering Complaint Shows $97 Million Nokia Payment

Asian equity markets began the week mixed as the region’s attempts to pick itself up following last week’s stock rout, waned heading into this week’s key earnings releases and month-end. ASX 200 (+1.1%) and Nikkei 225 (-0.3%) were both initially positive in which the healthcare sector led the broad upside in Australia, while the Japanese benchmark was less decisive as earnings dominated news flow. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (-2.1%) were subdued with the mainland worst hit following softer Industrial Profit growth and a net liquidity drain by the PBoC, while this week’s key earnings including China’s big 4 banks further added to the tentativeness. Finally, 10yr JGBs were choppy as prices reflected the indecisiveness across stocks and eventually edged higher as the risk tone in Japan deteriorated.

Top Asian News

  • Early Indicators Show China’s Slowdown Worsened Again in October
  • Hong Kong’s New-Home Sales Tumble in First Data Since Rate Rise
  • Angst Over Chinese Spending Shaves $10 Billion Off Liquor Stock

In FX, NZD/AUD/CAD - All performing well vs their US counterpart to varying degrees, with the Kiwi outpacing and  bouncing firmly from overnight lows to 0.6555 vs circa 0.6500 amidst a broad upturn in risk sentiment, while Aud/Usd struggles around 0.7100 and the Loonie pivots 1.3100. GBP/EUR - Both choppy, but the Pound relatively rangebound ahead of the UK budget and following mixed data, as Cable hovers above 1.2800 within a tight 1.2805-40 range. However, the single currency has been whippy between 1.1360-1.1415 trading parameters amidst reports that German Chancellor Merkel will not stand for re-election as CDU head after serving out the current term, but would like to remain as Chancellor in wake of another chastening regional result for the coalition. However, Eur/Usd has bounced firmly ahead of hefty option expiry interest at the 1.1350 strike (1.5 bn) and a sharp rally in EU auto stocks on China’s cut in purchase tax to 5% from 10%. CHF/JPY - Victims of the improvement in risk appetite, with the Franc just off parity-plus lows and Jpy retreating from circa 111.80 to 112.25 amidst similar reversals in cross pairings. EM- Broad gains in regional currencies vs the Usd, but with the Mxn a notable underperformer on disappointment that Mexico will not pursue plans to build a new airport. Looking ahead, it will be interesting to see how the Brl reacts to Bolsonaro’s resounding 2nd round win vs a flattish close on Friday.

In commodities, WTI and Brent are both down by around 0.3% amid concerns that global growth is slowing, particularly in China, and that ongoing market uncertainties are leading to a downward pressure on prices. Of note with the Iranian sanctions, it is imminent is that India, China and Turkey, three of Iran’s top five customers, are resisting pressure to completely end purchases; citing a lack of worldwide supply for this. Over in the metals market, gold is down by 0.2% as the yellow metal moves inversely to the USD, although still in a relatively tight USD 5/oz range as market concerns still remain over upcoming US earnings, trade tensions and a slowdown in global economic growth. Elsewhere, the head of the Japanese steel industry group stated that he is worried about the weakening Chinese economy. Copper’s gains have been cut after a slowdown in industrial profits indicate that China’s economy is losing steam, affecting demand for the metal.

US Event Calendar

  • 8:30am: Personal Income, est. 0.4%, prior 0.3%
  • 8:30am: Personal Spending, est. 0.4%, prior 0.3%; Real Personal Spending, est. 0.3%, prior 0.2%
  • 8:30am: PCE Deflator MoM, est. 0.1%, prior 0.1%
  • 8:30am: PCE Deflator YoY, est. 2.0%, prior 2.2%; PCE Core YoY, est. 1.98%, prior 2.0%
  • 10:30am: Dallas Fed Manf. Activity, est. 28.1, prior 28.1

DB's Jim Reid concludes the overnight wrap

I suspect if markets ended up this week being as boring as watching paint dry it would be a welcome relief for many investors. So that brings us to what to make of last week’s sell-off? As you’ll see later it doesn’t feel right to blame it on the current earnings season as this looks fine. However there does seem to be increasing fears that the profit outlook is going to be more challenging  than was perhaps anticipated a few weeks back. In terms of other catalysts, the sector breakdown in the sell-off doesn’t really suggest it’s about fears of higher yields but it does suggest that it might reflect fears of a weaker global economy going forward  as defensives have outperformed cyclicals (see comment below and graphs in today’s pdf). So this is probably a good buying opportunity if you think the global economy is fine for now and that earnings will hold up. It also a good time to buy if you think that October is just a freakish month that like with Halloween attracts and magnifies scare stories if there are any about. The record after mid-terms is also positive historically. However we should all know by now that US equities are valued at one of the most expensive levels in all of history assuming you mean revert all the valuation components. Anyone wanting confirmation of this should look at our long-term study from last month (see p38 from the link here )that showed that if you mean revert everything, real returns in the S&P500 will be a very weak -5.0% p.a. over the next decade vs the century plus average of +6.7% p.a.

However markets don’t often turn because mean reversion say they should. A personal view that has driven our 2018 strategy is that with the stage we’re at of the Fed tightening cycle, with global QT now in full force and the US yield curve flattening, it is the perfect breeding ground for more volatile and difficult markets even if the cycle holds. So we continue to think volatility should remain structurally higher than the 2013-2107 calm even if the global economy likely has at least another 12 months of decent  growth ahead. The area we have got wrong this year is core European yields. We still think they are completely mis-priced but wonder whether we can be right on this going into next year if our view on regular bouts of vol continues to prove correct. Bunds seem to be a lightning conductor for any risk off. A view to resolve before our 2019 outlook is published.

This morning in Asia, markets are off to a mixed start with Nikkei (+0.41%) up while, Hang Seng (-0.07%), Shanghai Comp (-1.47%) and Kospi (-0.20%) are all down. Overnight, Japanese news daily Asahi reported, without citing anyone, that the BoJ is set to discuss measures to make trading of JGBs more active at its policy meeting to be held this week as the BoJ’s current policy is causing activity to shrink. The report also added that the BoJ will consider delaying purchases of long-term JGBs until two business days after the Ministry of Finance’s auctions and will discuss reducing the frequency of mid- and long-term bond purchases.

The reaction in 10y JGB yields has been muted with yields up +0.4bps to 0.103%. Yesterday we saw the Hesse regional election in Germany where the CDU won 27.2% - down from 38.3% five years ago. The SPD won 19.8% and the Greens 19.6%, with the SPD down from 30.7% five years ago and the Greens up from 11.1%. The far-right AfD achieved 13.2% per cent (from 4.1%) - taking it into the Hesse regional assembly for the first time as expected. This is less about the AfD for now though and more about Mrs Merkel’s future and that of her national level coalition. SPD head Andrea Nahles said as the projections came in yesterday that “the condition of the government is not acceptable,” while adding the government needs a short-term policy road map and its implementation will determine whether the coalition still is “the right place for us.” According to our German political experts’ (Boettcher & Braeuninger) piece last week, this type of result seems to put us into the scenario where Merkel might come under pressure to refrain from running again as the CDU leader at the party convention on Dec. 6-8. Among the SPD, these losses might fuel even more reservations about the Groko. Thus, Merkel’s government could become even more fragile. So at a time when Europe needs a strong Germany there is much domestic political uncertainty. Chancellor Merkel is set to address the election results today while, CDU general secretary Annegret Kramp-Karrenbauer has stated that Merkel will run again for the party leadership at the CDU national convention.

After markets closed on Friday, S&P downgraded Italy’s ratings outlook to negative, but maintained their BBB status. This was a positive surprise, as the agency could have followed Moody’s in downgrading Italy to the last notch of investment grade. We mentioned on Friday that S&P could indeed keep the rating unchanged as they didn't previously have Italy on negative outlook and they’d only upgraded a year ago so a complete about turn was less likely. However a cut was still slightly more likely. Ahead of this BTPs traded in a somewhat wide range of 34bps on the week but ultimately out-performed notably given their risk profile in a risk off week to close -3.7bps lower as the EU and national authorities continue to negotiate on Italy’s 2019 budget plan.

Staying with Italy, Il Messaggero reported that the Italian Premier Giuseppe Conte is seeking to mediate between the Italian government coalition partners and the EU over the budget standoff and has indicated that among proposals for compromise Italy will place €17bn earmarked in the budget for the citizens income program and for reform of the pension system in a separate fund as a “standby,” and then the funds would be attributed to the relevant programs “only if the situation permits it.” In the meantime, the paper also reported that the Italian government is also working on a proposal for a possible “re-modulation” of the citizen’s income program which could bring Italy’s budget deficit down to 2.3% from 2.4%. So, lots bubbling up in the background.

Yesterday, in Brazil, far right candidate Jair Bolsonaro won the Presidential run-off election securing 55% of votes defeating the Worker’s party candidate Fernando Haddad who got 45% of votes. Brazilian assets should rally today as Jair Bolsonaro is viewed favourably by the markets. He is set to assume the office from January 1st.

Recapping last week now, and global equities ended the week on a down note, at or near their weekly lows. The S&P 500 was down -3.95% (-1.74% on Friday) and dipped back into negative YTD territory again by the end of the week. The index also dipped into ‘correction’ territory on Friday, briefly trading below -10% down from its all-time peak on September 20. This came despite a strong GDP print that showed the economy grew at an annualized pace of 3.5% qoq in the third quarter, beating expectations for 3.3%. All S&P 500 industry groups traded lower with losses led by energy (-7.06% on the week and -0.78% Friday) and financials (-5.24% on the week and -1.35% Friday). In the pdf today we show charts of the full sectoral performance in the US and Europe last week and over the course of the recent selloff since early October. In short defensives have notable outperformed cyclicals suggesting that the sell-off may be as much a fear about the global economy than anything else. Indeed a sell-off which might have started with higher yields, is not seeing a sector performance suggestive that this is now the main concern. Anyway see the link at the top of this piece for what are interesting charts.

All other major indices also traded lower, with the NASDAQ down -3.59% on the week to close in correction territory (-11.01% from its peak, and -2.34% Friday). The FANG index traded in a wide 6.53% range on the week, but actually closed only -0.11% on the week (-1.68% Friday). The DOW shed -2.97% (-1.19% Friday). In Europe, the STOXX 600 dropped -2.46% (-0.77% Friday) to its lowest level since 2016 and banks were down -4.10% (-3.40% Friday). Bourses across the continent traded lower as well, as flash PMIs printed softer-than-expected, with DAX underperforming down -3.06% (-0.94% Friday).

Sovereign bonds rallied across the globe, with 5-year Treasuries and 10-year JGBs rallying -13.4bps (-4.7bps on Friday) and -3.6bps (-0.4bps Friday) respectively on safe-haven flows, their best weeks since April 2017. Ten-year Treasuries rallied -11.3bps (-3.7bps Friday), while Gilts outperformed closing down -19.3bps (-5.8bps Friday) – their best week since immediately post-Brexit – after the FT reported that tax receipts will surprise to the upside ahead of today’s budget announcement, potentially resulting in a reduced government borrowing requirement. The dollar gained +0.62% on the week (-0.38% Friday), the euro shed -0.90% (+0.31% Friday), though the safe-haven yen was the best-performer among major currencies, up +0.65% (+0.54% Friday). Emerging markets were mixed, with the Brazilian real up +1.80% (+1.53% Friday) ahead of yesterday’s Presidential runoff election and the Turkish lira up +0.91% (+0.81% Friday) after the central bank held rates steady but signaled a willingness to act in the near future.

Earnings season is well underway now and was a huge focal point last week with some big swings on beats and especially misses. We’ve now seen 48% and 39% of S&P 500 and STOXX 600 companies report. US companies are actually outperforming in-spite of some big headline misses, with 82% of companies beating on earnings numbers and 58% beating on sales (versus recent historical averages of 73% and 57% respectively). Aggregate profits and revenues are up 23.7% and 8.8% yoy respectively, eclipsing expectations by 6.2pp and 0.8pp (the historical average is to beat expectations by around 3.4pp for profit and 0.3pp for revenues). The main issue for this US season is that some have started to bring their 2019 numbers down - albeit from still elevated growth rates. However this has certainly be blamed for part of the recent sell-off. In Europe, only 47.8% of companies have beaten expectations on earnings and 55% on sales, compared to historical averages of 50% and 54%.

It’s a busy Monday. In the UK, we get September net consumer credit, mortgage approvals, M4 money supply and October CBI retailing reported sales along with Italy's September PPI. There is no other data release in Europe. In the US, we get September’s PCE deflator and core PCE along with September personal income and real personal spending data releases, and October Dallas Fed manufacturing activity index. Late night, we get Japan's September jobless rate. Away from data, the Fed's Evans will be speaking at an event and the UK's Chancellor of the Exchequer Philip Hammond will present his budget. The WTO's dispute settlement body is also set to consider a US request to investigate possible violations related to China’s intellectual property  policies. In addition, Mondelez and HSBC will report their earnings.

Published:10/29/2018 6:30:39 AM
[Markets] Dow Gains 32 Points as Stocks Try to End October Rout STOCKSTOWATCHTODAY BLOG 5:42 a.m. With little in the way of market-moving news, stocks are drifting higher Monday morning. S&P 500 futures have risen 0.3%, while Dow Jones Industrial Average futures have advanced 32 points, or 0. Published:10/29/2018 5:31:22 AM
[Markets] The key reasons behind the stock market’s ugly October fall A few short weeks ago the Dow industrials were on the verge of busting through another psychological milestone at 27,000. What a difference a few weeks makes. Published:10/28/2018 3:56:30 PM
[Markets] IBM close to deal to acquire software company Red Hat: Bloomberg International Business Machines Corp. is close to a deal to acquire software company Red Hat Inc. [s:rht], Bloomberg News reported Sunday, citing people familiar with the matter. A deal could be announced later in the day, they said, although the terms were not available, according to Bloomberg. Red Hat closed Friday down 0.7% and is down about 3% on the year, while IBM has fallen about 18%. The Dow Jones Industrial Average has gained about 1% in 2018. Published:10/28/2018 1:56:34 PM
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