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[Markets] One Trader's "Simplistic Guide" To Q4: "Beware Of Wishful Thinking Mode"

Depending on where you look, Q4 has started off magnificently (Dow, Argentine Peso, BTP shorts) or dismally (US Small Caps, China, Euro) and amid low vol and high dispersion, former fund manager and FX trader Richard Breslow notes that everyone is hoping to latch on to some theme that will give a tradable trend to take us home for the year.

Actually, we should always be on the prowl for such a thing. But the need seems more acute than usual.

The problem is trends happen for a reason and don’t happen as a matter of convenience. It’s fine to think big, but you have to be realistic at the same time. And be very wary of cherry-picking the news items that suit, because the market may have a different list.

Via Bloomberg,

When in wishful thinking mode, it’s even more important than usual to ground yourself in the technicals. They are the only thing you know that won’t lie to you. And even if you are swinging for the fences, it doesn’t absolve you of the responsibility to put in the effort to take the low-risk opportunities that present themselves. You don’t have to be skint to pick up a dollar you see lying on the floor.

We’ll see what Friday’s non-farm payrolls report brings. The experts tell me not to expect any huge surprises.

And comments from Fed Chairman Jerome Powell yesterday may have made any outlier result less worthy of momentary panic than usual. His reaffirmation of everything he has been saying left us, not surprisingly, right where we have been for the last two weeks. Yet most of the people I talk to remain bearish. It’s a well-defined trade, whatever your view. May’s high yield at 3.126% is up top and 3% sits below.

If I was forced to trade it, I’d do it off my view of Italian assets. Path of least resistance versus safe haven.

Whether you look at the various dollar indexes or the component parts, the currency trades well. But it’s running into a lot of resistance levels. This may be the most interesting asset to watch because how it does up here could very well determine what happens to everything else. This is one where a breakout just might not be another false dawn like in August. I doubt we need to wait for the Treasury’s currency manipulation report to get our answer.

Equities continue to do nothing wrong. Although it’s fair to note that the S&P 500 has done nothing for two weeks. Keep an eye on the Russell 2000 which may be attempting a double bottom with today’s futures low matching that of July 30. The recent Russell sell-off may have been troubling the bigger caps but support is right here. I must say, if a decline of 5% doesn’t have broader repercussions, it’s very impressive.

Brent crude is grabbing lots of headlines for its current move. WTI looks somewhat more ambiguous. Both appear to be at a crossroads at current levels. And current prices don’t look stable. Treat these nimbly.

Italy is all about headline risk. But the Italian stock exchange’s MIB index, too, has decent technical levels.

Yesterday’s low lined up well with previous lows. Despite the news, we aren’t in uncharted territory. On the top side watch 21080, where Monday’s rally failed exactly where it should have.

The news is murky and caustic, but the charts couldn’t be clearer.

Published:10/3/2018 9:57:02 AM
[Markets] Sailing Versus Rowing: Active Versus Passive

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Investor preferences shift between active and passive investing in a cyclical manner. Periods where the market has a strong tailwind of momentum behind it tend to attract a greater demand for passive strategies especially when that momentum carries on for a prolonged period of time. Alternatively, periods of market turbulence tend to swing sentiment back to active investing as a means of avoiding the risk of large losses. In the most recent bullish cycle the combination of market direction and the availability of index-friendly instruments like exchange-traded funds (ETFs) have resulted in an unprecedented shift towards passive strategies and securities.

To clarify the difference between the two investment approaches, active investing seeks to outperform the market by beating a benchmark such as the Dow Jones Industrial Average or the Barclays Aggregate bond index. Passive investing on the other hand pursues a strategy that mimics a benchmark index and attempts to replicate its performance. It is a contrast that has been effectively described by Ed Easterling of Crestmont Research as rowing (active) versus sailing (passive). Active investors are engaged in constant evaluation of companies and their fundamentals as means of finding value investment opportunities while passive investors are at the grace (or mercy) of the winds of the market wherever they may blow.

The graph below highlights the underperformance of active strategies versus the S&P 500 index in past years which further explains the growing popularity of passive investing.

This article is primarily focused on fixed-income passive investing, however, many of the issues brought up in this article can be applied to most asset class ETFs and securities that allow ease of passive investing.

How Passive Investing Works

The mechanics of passive investing in the stock market are straight-forward. Select an equity index to which you would like to gain exposure, for example the S&P 500 or the MSCI China Index, and then buy the stocks in the proper amounts that are tracked in that index to replicate the performance. Done manually this can be a complex and cumbersome exercise especially when trying to replicate the index of a less-liquid market. As the market moves and the value of the securities underlying the index change, one must rebalance their holdings to remain aligned with the index. For a deeper understanding of the many factors that make replicating an index diffiuclut please read our article The Myths of Stocks for the Long Run Part V.

The advent of index mutual funds and more recently exchange-traded funds handle the complexities of multiple holdings, weightings, and rebalancing allowing an investor to simply pay a small fee, buy a ticker and essentially own an index. An investor’s ability to obtain general equity exposure or to build a portfolio with customized exposures has never been easier with the  proliferation of ETFs.

To offer some perspective about just how many ETFs are available, consider there are 38 ETFs available that are focused on U.S. energy stocks and over 132 ETF’s hold Exxon Mobil (XOM) shares. Looking abroad to less liquid markets, one would find ten U.S. incorporated funds holding Indian stocks. The simplicity and customizability currently offered in the market is quite powerful.

Bond Exposure

Traditionally, investors gained exposure to bonds through individual debt securities offered by brokers. Unlike stocks, the availability of most bonds, not including U.S. Treasuries, is dependent upon the inventory held by one’s broker or their ability to source a bond from another broker. As such, finding a specific bond is more challenging and comes at a higher cost for an individual investor than buying an individual stock. A similar problem can emerge in the event an investor wants to sell a specific bond. This problem results in an indirect fee called the bid/offer spread and on occasion can cost the investor multiple percentage points.

There are other considerations related to the dynamics of buying individual bonds versus acquiring bond exposure through a fund. These issue are well-articulated by Lance Roberts.

The advent of index mutual funds and ETFs relieves much of the frustration and high costs of buying and selling specific bonds.

The protocol described in selecting equity funds above is similar for bonds in that one can identify investment preferences in various major bond categories quite easily. The primary categories include:

  • Treasuries securities
  • Mortgage-backed securities, asset-backed securities and collateralized debt obligations
  • Agency bonds
  • Municipal bonds
  • Investment Grade corporate bonds
  • High yield corporate bonds
  • Emerging market bonds
  • Developed nations sovereign bonds

It is relatively easy, through these funds, to quickly gain exposure that tracks an index covering any variety of these options and specific sub-catagories of these options.

Not As Advertised

The flexibility and customizability offered through the world of index mutual funds and ETFs is remarkable. As such, there is a natural inclination by investors to assume that one will get precisely what has been advertised by these funds. However, confidence in that idea is easily challenged. Much of what has been developed over the past several years, especially with many ETFs, remains untested. The following are concerns investors should be aware of:

  • Tracking Error: ETF exposures to certain markets might not be precisely what the investor receives. For example, it has been documented that an investor who wishes to invest in an ETF for the equity market in Spain actually gets exposure to a variety of companies that although domiciled in Spain, produce most of their revenue outside that country. In that instance, and many others like it, an investor would not get the exposure to Spain he or she expects and may indeed be very disappointed in the ETFs tracking of the index for Spain.

  • Optimization: The structure of index funds and ETFs are such that in many cases the fund managers are only able to establish positions in the underlying stocks or bonds of the indexes they track with some imprecision. This means they will use creative means of gaining desirable exposures and then gradually, if possible, reposition over time in order to more closely track the index. This tends to be a much bigger problem for bond funds. Since full replication of a bond index is generally not possible, bond funds rely on “optimizing” the portfolio in order to most effectively replicate the index.

Bond offerings, like stocks, are finite so if the size of a fund grows as a percentage of the underlying index constituents, it will increasingly face the constraint of replicating the index and effectively mimicking index performance.  Optimization is imperfect so the ETF will suffer performance drift from the target index. Unfortanately, the flaws of replicating are often exagerated during periods of market stress when investors expectations are the highest.

  • Underlying Liquidity: Another related issue that arises with bond funds is that of establishing daily market value. The market price of some bonds held in a fund, especially those that are investing in less liquid markets, may not be readily available. If a bond fund holds securities that are illiquid, meaning they do not trade very often, then a realistic current price may be difficult to obtain. Many fixed income ETFs hold thousands of securities some of which do not trade daily or even weekly. This means that pricing is dependent upon estimates of the value on those bonds. These estimates of value may be derived from a third-party pricing service, surveys of bond market trading desks and internally generated models. Mis-pricing of securities is a known problem and one not typically considered until the fund is forced to sell. If the fund receives an inordinate number of redemption requests, what happens if they have bonds that do not trade very often but are nevertheless required to liquidate based upon investor requests? It is likely the sale price could vary, and sometimes significantly, from the last assumed price. Again this is most likely to occur at the wrong time for investors.

These concerns have not yet emerged as a deterent in the new age of passive investing popularity. We have only seen slight glimpses of what may be ahead in terms of challenges for the passive investor but it is fair to say this could be a major problem.

Investors naturally assume they will be able to exit as easily as they entered these funds and at the stated value seen on their statements or trading screens. In a calm market the concerns are minor but there are serious questions about that reality should a wave of selling hit bond ETFs all at once.

Although somewhat unique in its characteristics and certainly not a bond ETF, the recent debacle related to the inverse VIX ETF, XIV, seems to foreshadow some of the issues highlighted here. The graph below shows the price of XIV over the last two years. Investors unaware of how the NAV for XIV was calculated were certainly in for quite the shock.

Data Courtesy Bloomberg

Risk Analysis – The Benefit of Stress Testing

Given the importance of the issue of liquidity and what may transpire in an adverse scenario, we decided to look at the performance of a few ETFs and their related indices through the financial crisis as an indication of what a possible “worst-case” scenario might hold. In doing so, we acknowledge no two historical events are the same but the analysis seems important to consider.

From peak to trough, between April and November 2008, the Barclays Corporate Investment Grade index fell -10.8%. At the same time the LQD ETF which tracks that index fell -12.2%. The Barclays High Yield index fell -32.3%. In the same time frame the two high yield ETF alternatives, HYG and JNK, fell -29.8% and -34.5% respectively.

Today, these funds and others like them are much larger than they were in 2008. Furthermore, Bloomberg recently reported that many corporate debt funds are reaching further down the credit and liquidity spectrum in efforts to boost returns and some are even replacing high yield bond exposure with equities. As Lisa Abramowicz put it, “While this is somewhat concerning, it’s also logical. Fund managers don’t see any imminent risks on the horizon that could shake markets, and clients will penalize lower returns.

The remarkable thing about this observation is that paying too high a price for an asset is in itself an imminent risk.  One could convincingly argue that point as the most basic definition of risk. Nonetheless, it does indeed offer an accurate profile of the current character of the market. Unlike actively managed funds where the manager evaluates individual securities, there is no price discovery mechanism for index funds and ETF’s as their only consideration is whether or not they received a dollar to invest.

Summary

According to Benjamin Graham, this approach to putting money to work in the market defines the term speculation as it does not apply “thorough analysis” nor does it “promise safety of principal and an adequate return.” Although sympathetic to the idea that it is different this time as profit margins do indeed remain unusually high, the more defining characteristic is the means companies are using to sustain those profits. It is what has been referred to as corporate self-cannibalism as debt is ever accumulated as a means of buying back shares or paying dividends. The eventuality is credit downgrades and self-destruction.

Data Courtesy St Louis Federal Reserve

The cyclical nature of passive and active investing will continue to play out and that which is wildly popular today will eventually turn unpopular. The hidden risks embedded in passive vehicles will emerge and those who so enjoyed the cheap grace of effortless and exceptional market gains will end up begging yet again for mercy amid the markets’ unforgiving justice.

Published:10/3/2018 7:57:28 AM
[Markets] LIVE MARKETS BLOG Premarket U.S. futures are climbing Wednesday morning as the Dow Jones Industrial Average looks to build off of a record closing level during Tuesday's session. Dow futures are climbing 0.28%, indicating an open 76 points higher, while S&P futures are rising 0. Published:10/3/2018 6:55:36 AM
[Markets] Asia markets mixed despite Dow's record high overnight Asian markets are now focusing on the ongoing U.S.-China trade war. Asia markets were mixed on Wednesday morning following the Dow Jones Industrial Average's record high overnight on Wall Street. "If you look at Japan, the economy's sort of improving and it's not subject to the U.S. trade war right now," Kevin Leung, an executive director of investment strategy at Haitong International Securities, said on CNBC's "Squawk Box" on Wednesday morning. Published:10/2/2018 9:52:47 PM
[Markets] Asia markets set for cautious open despite Dow's record high overnight Asian markets are now focusing on the ongoing U.S.-China trade war. Asia markets were set for a cautious open on Wednesday following the Dow Jones Industrial Average's record high overnight on Wall Street. The Nikkei futures contract in Chicago was at 24,265, while its counterpart in Osaka was at 24,220. Published:10/2/2018 7:22:03 PM
[Markets] What Happened in the Stock Market Today The Dow finished at a record high. Meanwhile, Stitch Fix plummeted on growth concerns and Tesla released third-quarter production numbers. Published:10/2/2018 4:26:28 PM
[Markets] Dow Hits Record High, Small Caps Crushed, BTPs Battered, & Bullion Bid

Big Caps for the first two minutes... and then Small Caps...

 

China remains closed for Golden Week but offshore yuan was extremely active overnight, flash-crashing below key support and back...

 

And the China ETF was slammed down over 2% today...

 

Another odd day in Italian stocks - yesterday they were panic bid and slumped to unch, today panic sold and bid to unch..

 

But BTPs were blasted higher in yield to 4-year highs...

 

In the US, The Dow surged to a new record high today... but Small Caps collapsed. Powell spooked stocks very briefly at around 1245ET...rebounded, then faded... The Dow went out near HoD, Russell near LoD... (on the day, the S&P was unchanged, Dow up and the rest red)...

 

Another major divergence between big (Dow) and small (Russell 2000) stocks as the former soars relative to the latter and erases any relative performance YTD...

This is the biggest outperformance of Dow over Small Caps since Oct 2011.

Both are now up just over 8% on the year... (Trannies are worse. Nasdaq best)

This is the biggest Small Cap slump since July, and it broke below its 50- and 100-DMA...

 

Small Caps and Mid Caps have both rolled over hard, with only Big Caps holding on...

FANG Stocks are all lower today...

 

And while tech and financials were weak, the former's relative outperformance has stalled...

 

And while all this uncertainty is swirling, the spread (risk) of US HY Corporates is at its tightest since July 2007...

 

Despite gain on the Dow, UST Bonds were also bid, with yields 1-3bps lower on the day... leaving them all lower on the week...

 

10T yields fell 3.5bps, but remain above 3.00%... (though this is the lowest yield close since 9/17 when yields were below 3.00%)

 

and the yield curve flattened...back below Fed rate hike levels...

 

The Dollar ended the day higher but sold off overnight gains into the European close before bouncing in the afternoon...

The Rand and Rupiah nudged lower on the day as Argentina's Peso and Brazil's Real both surged...

 

Cryptos drifted lower on the day with Ether and Ripple holding gains on the week...

 

WTI limped lower ahead of tonight's API report, PMs and copper were higher on the day...

 

Silver briefly broke above its 50DMA and Gold broke above $1200... but notice that the moment Europe closed, the PMs were monkeyhammered lower...

 

Finally, we thought this might be interesting for some - it now costs the average worker 1164 hours work to buy The Dow (versus the average 225 hours that it costs from 1960to 1995...

Published:10/2/2018 3:21:18 PM
[Markets] Dow's triple-digit gain defies bad broad market breadth The Dow Jones Industrial Average rallied 107 points, with 23 of 30 components trading higher, but broader market internals are painting a fairly bearish breadth picture. The number of declining stocks is dominating advancers 1,765 to 1,166 on the NYSE and 1,962 to 900 on the Nasdaq. The volume of declining stocks accounted for 53.1% of the Big Board's total volume and 65.4% of the Nasdaq's total volume. Meanwhile, the S&P 500 was down 0.1%, the Nasdaq Composite shed 0.5% and the Russell 2000 index of small-capitalization stocks slid 1.1%. Published:10/2/2018 2:54:39 PM
[Markets] US stocks mostly lower as smaller companies continue to fall NEW YORK (AP) — Smaller companies are sinking again and retailers and car companies are also falling on Wall Street Tuesday. Despite the broad trend lower, gains by a handful of large companies including Boeing sent the Dow Jones Industrial Average close to another record high. Published:10/2/2018 2:32:53 PM
[Markets] U.S. Stocks Mixed as Metals Rally, Dollar Gains: Markets Wrap Italy’s budget drama drove haven demand, with Treasuries and gold rising. Most companies in the S&P 500 rose as investors looked past Federal Reserve Chairman Jerome Powell’s comments that shrugged off inflation worries and signaled continued tightening. The Dow Jones Industrial Average notched a fresh record as Caterpillar Inc. and Boeing Co. advanced, while small caps fell to a two-month low. Published:10/2/2018 1:51:47 PM
[Markets] Clovis Oncology stock rises 10% after 'breakthrough' designation from FDA Clovis Oncology Inc. shares rose nearly 10% in Tuesday morning trade after the company's cancer drug Rubraca got a "breakthrough therapy" designation from the Food and Drug Administration. The designation could expedite the development and review of Rubraca by the FDA for BRCA1/2-mutated metastatic castration-resistant prostate cancer. The company plans to present data from the phase 2 trial, called Triton2, which "served as the basis of our [breakthrough therapy designation] at the [European Society for Medical Oncology] conference later this month," Clovis Chief Executive Patrick Mahaffy said. The FDA designation "hints at efficacy ahead of TRITON2 data," RBC Capital Markets analyst Kennen MacKay said, noting that investor concerns about the data prompted the stock to sell off after earnings. (Clovis shares dropped 10.7%, 8.4% and nearly 4% in the three days after its second-quarter earnings release on August 1.) Metastatic castration-resistant prostate cancer refers to a type of cancer that has spread beyond the prostate and continues to spread in spite of treatments intended to manage the disease. Called mCRPC, it is incurable and usually associated with poor prognosis, according to Clovis. Clovis is also testing Rubraca in a number of other types of cancer, including in combination with a Bristol-Myers Squibb immunotherapy; Rubraca has not been approved in the U.S. Clovis shares have dropped 28.3% over the last three months, compared with a 7.1% rise in the S&P 500 and a 9.7% rise in the Dow Jones Industrial Average . Published:10/2/2018 9:50:24 AM
[Markets] Intel is top contributor as Dow ekes out early gain; S&P, Nasdaq lose ground Intel is top contributor as Dow ekes out early gain; S&P, Nasdaq lose ground Published:10/2/2018 9:21:26 AM
[Markets] Stocks open slightly lower as trade worries, Italy weigh U.S. stocks opened slightly lower Tuesday as some of the enthusiasm over a U.S.-Canada trade deal that sparked gains the previous session faded. Analysts said continued concerns over U.S.-China trade tensions and turmoil surrounding Italy's budget plans weighed somewhat on sentiment. The S&P 500 was off 0.1% at 2,922.78, while the Dow Jones Industrial Average traded with a minor loss of 4 points. The Nasdaq Composite was off 0.1%. Published:10/2/2018 8:49:09 AM
[Markets] US Stocks Weaken, Dollar and Oil Extend Gains, as NAFTA Sentiment Fades IMF's Lagarde cautions on global growth as PMI data from around the world suggests trade-related weakness. U.S. equity futures suggests modest opening bell declines Tuesday, with the Dow set to give back around 100 points from yesterday's 190-point USMCA surge. Global stocks retreated Tuesday, with investors citing concerns over prospects for global growth amid lingering trade tensions between the U.S. and China and the potential for Italy's budget crisis to spill over into broader European markets, as the bullish sentiment from yesterday's NAFTA re-vamp began to fade. Published:10/2/2018 4:18:17 AM
[Markets] Stocks Weaken, Dollar and Oil Extend Gains, as NAFTA Sentiment Fades IMF's Lagarde cautions on global growth as PMI data from around the world suggests trade-related weakness. U.S. equity futures suggests modest opening bell declines Tuesday, with the Dow set to give back around 40 points from yesterday's 190-point USMCA surge. Global stocks retreated Tuesday, with investors citing a concerns over prospects for global growth amid lingering trade tensions between the U.S. and China and the potential for Italy's budget crisis to spill over into broader European markets, as the bullish sentiment from yesterday's NAFTA re-vamp began to fade. Published:10/2/2018 2:17:58 AM
[Markets] US Market Large-Cap Indexes Close With Gains After Canada Trade News Dow Jones closes at 26,651.21 with a gain of 0.73% Published:10/1/2018 5:16:26 PM
[Markets] Dow industrials end up roughly 200 points, buoyed by U.S.-Canada trade deal Dow industrials end up roughly 200 points, buoyed by U.S.-Canada trade deal Published:10/1/2018 3:17:43 PM
[Markets] Dow Soars 270 Points Because Everything is Awesome…For Now The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite are climbing on a trilateral trade agreement between the U.S., Mexico, and Canada. Published:10/1/2018 11:32:47 AM
[Markets] Dow's nearly 280-point surge puts it on track for best day in more than 6 weeks The Dow Jones Industrial Average on Monday jumped more than 270 points, putting the blue-chip gauge on track for its best day in six weeks, as Wall Street rallied as the U.S. and Canada forged an 11th hour deal to revise the North American Free Trade Agreement. The Dow was up 277 points, or 1%, at 26,733, not far from a new peak for the gauge. An advance of this magnitude, if it holds, would represent the best daily rally for the Dow since Aug. 16 when the index surged 396 points or 1.6%. The S&P 500 index and the Nasdaq Composite Index also were driven solidly higher, with the S&P 500 also trading near records. President Donald Trump was set to hold a news conference in the Rose Garden to discuss the updated Nafta accord at 11 a.m. Eastern Time, coming just days after U.S. Trade Representative Robert Lighthizer told Congress that the two countries were unlikely to meet that deadline for a pact. The Nafta pact must still be approved by Congress. Published:10/1/2018 10:17:50 AM
[Markets] Dow jumps more than 250 points, Tesla and GE stocks rally as Wall Street cheers Nafta pact U.S. stock benchmarks surged early Monday after the U.S. and Canada struck a deal to revise the North American Free Trade Agreement. The Dow Jones Industrial Average traded 250 points, or 1%, higher at 26,709, the S&P 500 index climbed 0.7% at 2,934, above its Sept. 20 closing record, while the Nasdaq Composite Index advanced 0.6% at 8,091. In key corporate news, Tesla Inc. shares jumped after Chairman and Chief Executive Elon Musk settled a Securities and Exchange Commission fraud probe over the weekend, which will force the 47-year-old founder to step down as chairman, with the company and Musk paying a combined $40 million in fines. Musk also reportedly told employees in a weekend email that the electric-car maker is on the verge of making a profit. Meanwhile, shares of General Electric Co. climbed after the troubled industrial conglomerate Monday morning said its chief executive officer, John Flannery, was being replaced by H. Lawrence Culp Jr, a former CEO at Danaher Corp. Published:10/1/2018 9:47:30 AM
[Markets] Apple stock gains after Piper turns more upbeat on iPhone average selling prices Apple Inc. shares are up 1.4% in Monday morning trading and are nearing their 52-week high of $229.67. Piper Jaffray analyst Michael Olson upped his estimates on Monday, after his firm did a survey on iPhone upgrade intent. Piper Jaffray talked to more than 700 current iPhone owners and asked which iPhone they would choose if they were to upgrade this year. The survey found that 39% would choose either the iPhone XS Max or the iPhone XS, and the remainder said they'd choose one of the iPhone XR, the iPhone 7, or the iPhone 8. Olson now expects Apple's iPhone average selling price to hit $770 in fiscal 2019, up from his prior estimate of $758. Apple shares have gained 49% over the past 12 months, while the Dow Jones Industrial Average has risen 19%. Published:10/1/2018 9:14:35 AM
[Markets] Wall Street jumps at open on new NAFTA deal (Reuters) - U.S. stocks opened higher on Monday, led by industrial stocks, as a last-minute deal to save NAFTA as a trilateral pact bolstered hopes for progress in talks with other countries. The Dow Jones ... Published:10/1/2018 8:43:23 AM
[Markets] GE Jumps, Tesla Soars as Dow Gains on New Nafta The Dow Jones Industrial Average was gaining Monday after the U.S. and Canada reached a trade agreement, leaving China as the last major country without a deal. Tesla was surging after Elon Musk settled with the SEC, guaranteeing he’d remain CEO. General Electric was rising after CEO John Flannery was replaced by former Danaher CEO H. Lawrence Culp. Published:10/1/2018 8:14:06 AM
[Markets] Gartman Defies Wall Street, Goes Long US Stocks, Short Europe

With virtually every bank now urging their clients to fade the rally in US stocks, and instead take advantage of the gaping chasm that has opened up between US and European stocks to put on a pair trade that is long Europe and short the US, "renowned commodity investor" Dennis Gartman has defied the sellside again, and in his latest note writes that he "officially" bought US stocks while selling Europe "generally via the Euro Stoxx 50 Index." So far, the trade appears to be working, to wit:

The US equity market futures are soaring on [the Nafta] news with the Dow futures trading approximately 200 points higher… or about 0.7% higher… and with the S&P futures trading 17- 18 “handles” higher o4 +0.5%.

On Friday… finally… after discussing the idea at some length for some rather long while we actually and “officially” did buy US  stock indices while selling Europe generally via the EURO STOXX 50 Index and we got very, very lucky for as we write we are nearly 1% higher on the US side of the trade and nearly 1% better on the European side of the trade. The only question now is when to add to the trade and we shall wait to see how far this initial trade moves before adding to the position on the inevitable correction.

We may scoff at President Trump’s insistence that the new agreement not be called the NAFTA and must henceforth be referred to as the USMC but the fact that agreement has been reached is hugely positive news and has sent US stock index futures soaring. Canada’s stock market shall follow suit, and so too should Mexico’s.

As for our retirement account we’ve done nothing for the third or fourth day in a row, remaining long of gold and remaining long of bond and/or bond-like funds, most of which went ex-dividend on Friday. We’ll be looking to swap out of the funds we have for funds that go ex-dividend in the next week or two, but otherwise we are very likely to sit tight and do nothing else.

As an added bonus, here is Gartman discussing the SEC's settlement with Elon Musk...

Finally, the SEC has proven itself to be emasculated in its decision to fine Elon Musk and Tesla a scant $40 million… $20 million for both… and to have Tesla remove Mr. Musk from his position as Chairman but allowing him to remain as the company’s CEO. This is comically insufficient punishment as far as we are concerned given the seriousness of the offenses. Shame upon the SEC for this diminished decision.

... and his take on the ongoing Kavanaugh nomination drama:

We feel again compelled to discuss the events of last week as Judge Kavanaugh’s and Dr. Ford’s appearances made the most compelling television we’ve witnessed since the Watergate hearings nearly four decades ago. Let us be quite honest here: we were stunned by the sincerity and compelling nature of both Judge Kavanaugh and Dr. Ford. As we said here on Friday, there is no question in our mind but that something horrible happened to Dr. Ford that night in ’82. Her story was real; her appearance compelling. Her desire initially to have remained anonymous was obvious and just as obvious was the vile nature of the Left’s use of her as an attack point against Judge Kavanaugh. Initially, and before her appearance, we thought of her as a Left-wing partisan. Clearly, she was not and is not. We are convinced that was not her intention.

Shame then upon Sen. Feinstein for having rather withheld Dr. Ford’s letter to her until so late in the proceedings and nothing shall ever convince us that someone in her office… or perhaps even she…had leaked Dr. Ford’s letter to the press. That was a  shameful act of partisanship on Sen. Feinstein’s part and she should be ashamed of herself. Obviously, however, she’s not only not even slightly ashamed, and we suppose she now sees herself as an icon of the Left. We are all diminished for her actions and what we’ve been forced to witness.

Indeed, what last week and what this week shall be about was and is the fear on the part of the Left that it is about to lose control of the Supreme Court for decades into the future with the appointment of Judge Kavanaugh. The Left has viciously sacrificed Dr. Ford, her family, Judge Kavanaugh and his family for that fear and they are willing to embarrass the US in front of the world to stem that fear. Shame upon Sen. Feinstein; shame upon Sen. Booker; shame upon Sen. Coon et al. Who, after this shameful scenario forced upon us by the Left, shall ever allow his or her name to be put into the nomination process for any ranking government position? Who… really, who?

Barring some further salacious rumors regarding Judge Kavanaugh’s past this week, when this is done, Judge Kavanaugh’s nomination to the Supreme Court will pass through the Senate with more than 50 votes. When the vote counting is done, but before the vote is actually taken and when Sen. McConnell quietly reports to his fellow Senators that he has the votes to win, Senators Manchin and Heitkamp will vote for his nomination too giving the vote a clearer majority of perhaps 53-47. Judge Kavanaugh will become Justice Kavanaugh but the smell… the stench… of what the Left has done shall linger for years into the future. Again, shame upon them. We are disgusted, and we are embarrassed.

 

Published:10/1/2018 8:14:06 AM
[Markets] US and Canada Agree Trade Breakthrough; NAFTA Revamp Sends Futures Soaring U.S. stock futures surge after White House officials sign re-vamped NAFTA agreement with Canada, preventing the potential for tariffs on $1.2 trillion in annual trade. Global oil prices continue to rise despite Trump's plea to Saudi King Salman as traders prepare for next month's sanctions on the sale of Iranian crude. U.S. stock futures surged Monday, setting up the Dow for a potential 200 point gain, after White House trade officials reached an agreement with Canada to revamp the North American Free Trade Agreement in a deal that removes tariff risks from around $1.2 trillion worth of a goods each year. Published:10/1/2018 2:12:26 AM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Analysis – Set Up for Surge Over 26584 Pivot Based on Friday’s close at 2919.00 and the price action the last three sessions, the direction of the December E-Mini Dow Jones Industrial Average futures contract today is likely to be determined by trader reaction to the pivot at 26406. Published:9/30/2018 11:44:24 PM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Analysis – Needs to Hold Weekly Pivot at 26302 to Sustain Upside Momentum Based on last week’s close at 26476, the direction of the December E-Mini Dow Jones Industrial Average this week is likely to be determined by trader reaction to the minor pivot at 26302. Published:9/30/2018 10:41:08 PM
[Markets] How Executive Order 6102 Doomed America

Authored by Bill Bonner via Bonner & Partners,

Today, we woke up in Buenos Aires with a disagreeable headache... and a depressing hypothesis:

First, it doesn’t matter whether Brett Kavanaugh is on the Supreme Court or not; one more Deep State toad won’t make any difference.

Second, the Supreme Court has been derelict in its duty for the last 80 years.

For years, the Court has looked the other way as the feds robbed one class of citizen (ordinary, working people) and rewarded another (the elite).

Third, as a result, the American empire faces a catastrophic money crisis… probably accompanied by internal schisms, social breakdowns, and dangerous political scuffles.

Let’s begin by looking again at the connection between time and money.

Losing Time

If you work by the hour, the guy with money can buy your time. That’s what it really means to say someone is “rich” – he has more time because he can control not only his own, but yours, too.

The guy who had $1,000 worth of stocks in 1971 could buy approximately 250 of the average working man’s hours. Today, that $1,000 worth of stocks is worth about $28,000… which, at today’s $26-per-hour average, will buy 1,077 hours of the typical working man’s time – four times as much as in 1971.

In other words, compared to the wage earner, the capitalist is four times as rich.

Invert it, and you see about the same thing. A working man would have had to labor for 212 hours to buy the 30 Dow stocks in 1971. Today, his time is much less valuable; he has to sweat for over 1,100 hours to buy the Dow.

That’s why the liberals whine about “inequality”… and probably why Donald J. Trump was elected. Few people may have done the math, but a lot of people suspected a rat.

And they were right.

Many – including the president – pointed their fingers… but at the wrong rat!

They thought it was the foreigners who had done them dirty: the Chinese with their “unfair trade practices” and the Mexicans “pouring across the border, stealing our jobs,” was the jingo.

For their part, investors, the rich, and the cronies and insiders thought they were smart. They earned their wealth fair and square, they believed, by funding America’s enterprises… and by carefully allocating precious capital to worthy businesses run by able corporate champions.

But the fix was in.

Executive Order 6102

How exactly was the fix put in place?

In 1933, the matter first came before the Supreme Court. Franklin Roosevelt’s Executive Order 6102 made it illegal for citizens to own gold, except in the smallest of quantities.

It came to the Supremes in a series of disputes called the “gold clause” cases. “Where in the Constitution did the president get that power?” people wondered.

Back then, some investors recalled that the feds can play fast and loose with the dollar, as Lincoln had during the War Between the States.

Gold clauses in contracts protected them by insisting on gold as a means of settling up. Eliminating the gold clause meant taking away the ability to protect against inflation... and substantially altering the terms of the deal.

But the Supremes went along with it. Colleague Dan Denning tells the tale:

…First, let me quote a few brief passages from [Justice James] McReynolds’ dissent. They capture the spirit of his objection and the relationship between sound money and political liberty. McReynolds writes that:

“Just men regard repudiation and spoliation of citizens by their sovereign with abhorrence; but we are asked to affirm that the Constitution has granted power to accomplish both. No definite delegation of such power exists; and we cannot believe the farseeing framers, who labored with hope of establishing justice and securing the blessings of liberty, intended that the expected government should have authority to annihilate its own obligations and destroy the very rights which they were endeavoring to protect. Not only is there no permission for such actions; they are inhibited. And no plenitude of words can conform them to our charter.”

McReynolds went on to make the point that when you buy a bond or make a loan, “the creditor agrees to accept and the debtor undertakes to return the thing loaned or its equivalent.” Because Roosevelt’s Executive Order meant companies could be paid back in depreciated dollars instead of gold coin or gold equal to the value of the original loan, McReynolds recognized that this was a de facto default.

The gold clause guaranteeing creditors be paid back in gold or something of equal value, “prevents the borrower from availing itself of a possibility of discharge of the debt in depreciated currency.”

Congress went along with it, too. And then, still in the minority, McReynolds saw the handwriting on the wall. The feds themselves might be the main beneficiaries. Congress would be able to borrow… and then wipe out its own debt by inflation:

We are dealing here with a debased standard, adopted with the definite purpose to destroy obligations. Such arbitrary and oppressive action is not within any congressional power heretofore recognized. The authority of Congress to create legal tender obligations in times of peace is derived from the power to borrow money; this cannot be extended to embrace the destruction of all credits. […]

For the government to say we have violated our contract, but have escaped the consequences through our own statute, would be monstrous. In matters of contractual obligation, the government cannot legislate so as to excuse itself. […]

Whatever may be the situation now confronting us, it is the outcome of attempts to destroy lawful undertakings by legislative action; and this we think the Court should disapprove of in no uncertain terms. […]

Loss of reputation for honorable dealing will bring us unending humiliation, the impending legal and moral chaos is appalling.

Humiliation Afoot

With the gold clause out of the way, the coast was clear. The feds floated out one program after another, meddling in every aspect of human life.

There was now a third party in almost every transaction – the federal regulator.

By the 1950s, the fake wars had begun, too – major wars – with no declaration or funding from Congress.

By the 1960s, the Johnson team had a full-scale war in Vietnam (a country with no capacity or intention to harm the U.S.).

In addition, it launched a War on Poverty, too… intended to create a Great Society, where the lambs would lie down with the wolves and fruit would hang from every ghetto palm.

But humiliation was afoot. It was soon clear that the feds were going to run out of money.

And this time, it was the Nixon team that shirked its duty. Rather than admit that it had overspent, Nixon repudiated the last link with real money and the ability of foreign governments to exchange their dollars for gold at the promised rate.

Now, the feds had gone Full Paper. Their money was nothing but pieces of paper backed by what was soon to be the world’s biggest debtor.

And now, there was nothing stopping them… There was nothing to stop the chaos McReynolds foresaw...

Published:9/29/2018 10:32:59 AM
[Markets] Tapping the Brakes Sept. 25: Last month, we covered the opportunities in depressed industrials and select special situations rather than chase the momentum stocks so in favor. It is fortunate for investors who seek to control risk (rather than just ride the momentum) that so many quality companies are still at attractive valuations. Record highs last week in the Dow Jones Industrial Average—not seen since last January—show that the market is broadening. Published:9/28/2018 7:29:23 PM
[Markets] The Dow Had a Bad Week, but a Very Good Quarter Stocks ended the quarter mixed, with a small gain for the Dow on Friday. Yet, the past three months’ 9% jump is nothing to sneeze at, as all three indexes sit within spitting distance of their record highs. Published:9/28/2018 5:31:59 PM
[Markets] A Small Daily Gain by the Dow, but a 9% Leap for the Quarter Stocks ended the quarter mixed, with a small gain for the Dow on Friday. Yet, the past three months’ 9% jump is nothing to sneeze at, as all three indexes sit within spitting distance of their record highs. Published:9/28/2018 4:58:00 PM
[Markets] Trade Tantrums & Trump Turmoil Spark Best Quarter For US Stocks In 5 Years

Summing the quarter up nicely...

The World Is Down In 2018...

STOCKS

US stocks are outperforming the world still in 2018 with China worst...

 

US equity markets close the quarter at their most-expensive in history...

 

Best quarter for US stocks in 5 years... (S&P is up 11 of the last 12 quarters)... Dow Transports (green) and Industrials (blue) were best in Q3, Small Caps (red) were worst...

World Stocks (Ex-US) eked out a modest 1.3% gain in Q3 - the first quarterly gain since 2017 - but Chinese stocks fel lfor the 4th quarter in a row...

 

European Stocks were very mixed in Q3 with France's CAC outperforming and Italy's FTSEMIB the worst (collapsing in the last few days as budget headlines struck)...

But in September, Italy was best - despite this week's collapse - and DAX worst...

 

But September was much more mixed in the US...

But Nasdaq closed September red - breaking its 5 month win streak. Small Caps also closed red in Sept, the first down month since February. S&P, however, eked out gains in September for its 6th straight monthly gain in a row...

 

On the week, only Nasdaq closed green (notice the plunge midweek that was caught perfectly at unch)...

 

"Most Shorted" stocks ended lower in September (first monthly drop since Feb) but soared in Q3...

 

US Tech stocks outperformed financials for the 5th quarter in a row, soaring for 7 straight days (relative to financials) into month- and quarter-end...

 

Despite surging rates, banks were battered in September. Only Citi managed to hold on to any gains in September among the big banks with Wells Fargo down almost 10%...

 

FANG Stocks managed to cling to a gain on the quarter - the 7th quarterly gain in a row - and a small loss on the month, but barely...

Tesla stood out in the month and quarter...

Tesla is down 15% today...

 

US Stocks are in a world of their own...

BONDS

Thanks to a bloodbath in September, bonds ended the quarter notably higher in yield...

 

September saw the biggest 10Y bond yield spike since April...

 

The US yield curve flattened for the 7th month in a row (and 12th of the last 13)...

 

And flattened for the 17th quarter in the last 19...

 

On the week, all but 2Y ended the week lower - especially post-FOMC...

 

HY bonds outperformed IG bonds notably for the 4th month in a row (and 3rd quarter in a row)...

 

FX

The Dollar Index ended Q3 unchanged for all intents and purposes - having traded in a very narrow range basically controlled by the ECB spike in Q2 (narrowest since Q2 2014)...

 

Among the majors, Yen was weakest; cable, aussie, and loonie were strongest (marginally though), however, despite its weighting, it was yuan that warranted most attention... PBOC fixed the Yuan at its weakest since Aug 17th and offshore yuan sits right at critical support from its cycle lows...

 

Emerging Market FX fell for the second quarter in a row led by Argentine Peso, Turkish Lira, Indian Rupee, and Russian Ruble (Mexican Peso was best in Q3)...

Emerging Market FX in September was its best month since January, but was mixed under the surface with Argentine Peso worst (down over 10%) and Turkish Lira best (+7.5%)

Cryptos were mixed in Q3 with Bitcoin and Ripple managing gains and Ethereum crashing 45%...

 

Bitcoin is up on the quarter (first quarterly gain since Q4 2017) but down in September...

 

COMMODITIES

WTI dominated commodity-land in Q3 and silver was slammed (but there was some maniacal bid into the quarter-end)...

 

Gold fell for the second quarter in a row (biggest drop since Q4 2016 and first quarterly close below $1200 since Q4 2016)

 

Silver was ugly too - but bounced off its lowest levels since Jan 2009...back up near its 50DMA...

 

And as Gold and silver drop, specs have plunged to unprecedented positioning...

 

Oil headed for its longest string of quarterly gains in more than a decade as impending supply disruptions threaten to fracture a global market with little margin for error. The current front-month (Nov 18) contract is now up 5 quarters in a row...

 

On the month, Copper and Crude surged (China stimulus hopes?) and Silver spiked into the close to end green...

 

Gold/Silver was crushed on the last day on the month/quarter - the biggest daily drop since Nov 2017...

On the week, Silver and Crude were the best performers...

 

The real PhD in economics - Dr. Lumber - collapsed in Q3 - the biggest drop since 1993! (and September was its worst month since April 2011)

 

Finally, US 'hard' economic data fell for the 3rd straight quarter - but stocks don't care...

Published:9/28/2018 3:27:54 PM
[Markets] Dow, S&P 500 notch monthly gains but end Friday session mixed Dow, S&P 500 notch monthly gains but end Friday session mixed Published:9/28/2018 3:27:54 PM
[Markets] Dow Gains 64 Points Because Stocks Don’t Slide Until Late in the Day The Dow Jones Industrial Average gained 64.22 points, or 0.24%, to 26,504.15 as the S&P 500 climbed 0.12% to 2917.57. Published:9/28/2018 3:27:54 PM
[Markets] Is Oil Insulating Wall Street from a Steep Fall? On September 20–27, US equity indexes had the following correlations with US crude oil November futures: the S&P Mid-Cap 400 (IVOO): 49.9% the S&P 500 (SPY): 11.7% the Dow Jones Industrial Average (DIA): -7.9% Published:9/28/2018 10:29:39 AM
[Markets] Gritstone Oncology expects to begin trading today, prices at $15 per share Gritstone Oncology Inc. has priced its initial public offering at $15 per share, at the top of a previously-set range, and will offer 6.66 million shares, more than previous plans to offer 6.07 million shares. The cancer-focused biotech company expects to begin trading on Friday on Nasdaq under the ticker "GRTS," and now expects gross proceeds of about $100 million. The offering should close on Oct. 2, the company said. Gritstone develops cancer immunotherapies, which use the body's immune system to fight cancer, and its products are specifically geared towards solid tumors. It has four products so far in extremely early development, and hopes to submit an application in the second half of this year to move one, Granite-001, into a phase 1/2 clinical trial. This year is considered a good time for biotechnology initial public offerings, with a number of buzzy companies going public in recent months. The SPDR S&P Biotech ETF has surged 13% year-to-date, compared with a 9% rise in the S&P 500 and a nearly 7% rise in the Dow Jones Industrial Average . Published:9/28/2018 8:25:30 AM
[Markets] Asia markets set for higher open following moves higher on Wall Street U.S. markets digested the Fed's announcement to raise interest rates for the third time in 2018 while also removing the word "accommodative" from its statement. Concerns over the ongoing U.S.-China trade war continue to weigh on investor sentiment, with President Donald Trump accusing Beijing of planning to interfere in his country's congressional elections in November. Asia markets were set for a higher open on the final trading day of the week, following the rebound of the S&P 500 and Dow Jones Industrial Average on Wall Street overnight. Published:9/27/2018 7:23:10 PM
[Markets] US Market Indexes Close Higher After Four Days of Losses Dow Jones closes at 26,439.93 with a gain of 0.21% Published:9/27/2018 5:21:29 PM
[Markets] Trump Spoke To Rosenstein, Postponed Meeting Til Next Week

White House spokeswoman Sarah Sanders just confirmed to reporters that President Trump "spoke with Rod Rosenstein a few minutes ago and they plan to meet next week," adding that "they do not want to do anything to interfere with the hearing."

Deputy Attorney General Rod J. Rosenstein had arrived at the White House on Thursday morning for a previously scheduled national security meeting.

Earlier in the day, Kellyanne Conway, counselor to the president, told “Fox & Friends”, that "if it needs to get pushed a few hours or to the next day, maybe it will...But they are both committed to speaking with each other and resolving this once and for all.

Dow Jones Newswires reports that Rosenstein (for now) remains Deputy Attorney General overseeing Special Counsel Mueller's Russia Probe.

No word yet from Axios on whether he verbally or any other way, resigned again.

Published:9/27/2018 11:53:09 AM
[Markets] Dow jumps to session highs as nearly all of its 30 components climb, led by Apple's stock The Dow Jones Industrial Average midday Thursday was trading near session highs, with nearly all of its 30 components advancing. In fact, 29 out of the 30 Dow components were trading in positive territory, led by Apple Inc. , which was up $4.84, or 2.2%, contributing about 33 points to the price-weighted blue-chip index. Only shares of DowDuPont Inc. were lower. The Dow was up nearly 170 points, or 0.6%, at 26,551, with the rise coming a day after the broader market saw a late-day stumble following the Federal Reserves quarter-percentage point rate increase, which was widely expected, and after a news conference by Fed Chairman Jerome Powell at 2:30 p.m. Eastern. Thursday's rally, if it holds, would more than erase Wednesday's slide. The S&P 500 index , meanwhile, was up 0.7% at 2,925, while the Nasdaq Composite Index advanced 0.9% at 8,062. All three benchmarks were trading near all-time highs. Published:9/27/2018 11:21:49 AM
[Markets] Apple stock rises after J.P. Morgan analyst initiates with bullish rating, $272 target Shares of Apple Inc. are up 1.4% in premarket trading Thursday after J.P. Morgan analyst Samik Chatterjee initiated coverage of the stock with an overweight rating and $272 price target. That target is the second highest listed on FactSet. "While Apple's leadership position in the premium smartphone market is well understood by investors, we still see considerable upside to the stock from current levels," he wrote. Chatterjee is upbeat about the company's "faster-than-expected transformation to a services business" and he thinks Apple will continue to positively surprise when it comes to average selling prices for the iPhone. He also sees the potential for acquisition activity down the line. "Apple's interest in entering new end-markets is likely to be evaluated based on the opportunity to offer services on a large installed base," he wrote. "Certain end-markets in our view could be of interest, including gaming services, automotive services, and smart speakers." Apple shares have gained 43% over the past 12 months, as the Dow Jones Industrial Average has climbed 18%. Published:9/27/2018 7:48:47 AM
[Markets] European Markets Rocked By Last-Minute Italian Budget Turmoil

European stock markets and the euro tumbled on Thursday after an early morning report that Italy’s long-awaited budget was facing a delay added to a groggy post-FOMC global mood after the third U.S. interest rate hike of the year.

Italian bonds and stocks fell along with the euro as the Italian budget process, and its looming midnight deadline, were thrown into turmoil after League leader Matteo Salvini decided to support a last minute push by Luigi Di Maio of the Five Star Movement for extra spending in the form of a 2.4% budget deficit next year, while Finance Minister Giovanni Tria is fighting to keep the shortfall below 2%, and is reportedly ready to resign.

The nation’s benchmark stock index tumbled as much as 2%, the most in more than a month...

... and the nation’s two-year yield jumped as much as 20 basis points to 0.97 percent, after Corriere della Sera reported on Thursday morning that the meeting on the 2019 budget may be postponed owing to “the new complications” in reaching agreement on the deficit with the League said to join the Five Star Movement in seeking a 2.4% deficit target for 2019.

Italy’s populist deputy prime ministers, Luigi Di Maio and Matteo Salvini, have been pitted against Finance Minister Giovanni Tria over how far public finances in the country can be stretched to meet election pledges made by Di Maio’s Five Star Movement and Salvini’s League parties. The two demand a budget deficit of 2.4% meanwhile Italy's technocratic Finance Minister Giovanni Tria - who has been seeking to hold the deficit to 1.6% of GDP - is said to be ready to resign and is sticking to his deficit target.

“If Tria is no longer part of the project, we’ll find another finance minister,” Riccardo Molinari, head of League lawmakers in the lower house of parliament, tells RAI television according to newswire Ansa.

According to the latest news, a full cabinet budget meeting will take place at 8 p.m. local time, while a top government pre-meeting is scheduled for 4 p.m. local time, although this may change. Speaking from Tunis, Salvini says that it worth pushing the deficit beyond 2 percent to deliver for voters. "Italians’ right to work and happiness is much more important that numbers," he said.

Meanwhile, Di Maio, who leads the biggest party in the coalition, said there’s no point being in government if you can’t deliver on your policy pledges, Ansa newswire reports.

As a result of the latest Italian turmoil, the yield on 10-year bonds increased 10 basis points to 2.96%, the highest level since Sept. 17. The yield spread over German bunds climbed 10 basis points to 243 basis points.

Following the initial selloff, Italian Deputy Minister Luigi Di Maio confirmed that a cabinet meeting over budget targets was still planned for later, dismissing the Corriere newspaper which said it could be delayed, but it couldn’t soothe the markets, especially after conflicting reports that the economy ministry was forced to deny its chief Giovanni Tria, an academic who doesn’t belong to any one party, had threatened to resign.

“It is very fluid and it is changing by the minute it seems,” State Street Global Advisers’ head of EMEA macro strategy Tim Graf said. “Even if things get resolved positively today, Italy is not a situation that is going to go away,” he added, pointing to the still growing popularity of the country’s fractious anti-establishment coalition government.

The return of Italian budget turmoil weighed on the rest of Europe too. Europe's STOXX 600 index was down 0.5% while the euro skidded all the way down past $1.17.

European banking stocks dropped as much as 1.5%, making it the worst-performing sector within the Stoxx Europe 600. Italian banks lead the decline with UBI -3.3%, Intesa Sanpaolo -3%, Banco BPM -3% and Unicredit -2.9% the worst-performing stocks. The headline risk has threatened the Stoxx 600 Banks Index’s recent recovery as it is getting closer to its dominating 2018-downtrend again after leaving the bearish area just six trading days ago.

Earlier Asian markets showed a guarded response to Fed’s forward guidance with the Hang Seng index reversing gains after Hong Kong banks raised lending rates first time in over a decade. Japan's Topix index lost 0.8%, while the Shanghai Composite slips 0.4%.

The return of the Italian drama gave the dollar a boost after it had only managed a lazy gain overnight after the Federal Reserve hiked U.S. interest rates by another 25 basis points to a range of 2 percent to 2.25 percent. The dollar index rose above 94.5, while the Bloomberg Dollar Spot Index rose to the highest level in more than a week as Italian politics weighed on the euro, which managed to pare some losses on finding support from strong German regional inflation data. The greenback advanced versus all Group-of-10 peers except the yen amid stronger Treasuries and with stock markets in defensive mode. Emerging-market currencies lingered near a three-week high as commodities consolidated recent gains.

The Australian dollar seen as a barometer of global investor risk appetite and Chinese demand for goods, fell 0.4 percent to $0.7226, its lowest since Sept. 19 and not far off its 2-1/2 year lows of $0.7085 hit earlier this month. The Canadian loonie fell after Trump slams Canada trade negotiations, kiwi weakens as RBNZ keeps door open for rate cut. KRW leads Asian emerging-currency gains after BOK chief calls for less monetary easing.  The Yuan strengthened against the dollar as PBOC drained 60 billion of liquidity and refrained from following Fed hike.

The US 10-year TSY yield hovered near 3.05%, while Germany’s 10-year yield sank 2bps to 0.51 percent, the biggest drop ion more than two weeks. The spread of Italy’s 10-year bonds over Germany’s climbed 10 basis points.

In the latest Brexit news, UK PM May Spokesman said PM May and US President Trump agreed that Brexit provides a wonderful opportunity for an ambitious UK-US free trade deal. More notably, May is reportedly losing support for a no-deal Brexit if EU discussions fail, according to sources. Sources suggest there are concerns that May will stick to her promise to force a no-deal Brexit if Europe rejects her Chequers plan again.

The oil market is still in positive territory, with Brent trading around the USD 82/bbl area. Some pressure was offered to the fossil fuel, however, by source reports from Saudi Arabia saying that they are set to increase production by 200-300k BPD to make up for lost Iranian supply for the next 2 months. In the metals scope, gold is in the green and trading within a thin range after the yellow metal hit 2 week lows in the previous session. Chinese steel rebar has fallen by over 1%, hitting a two week low, with aluminium also slipping to a month long low as demand continues to dry up for the construction materials ahead of the week-long Chinese holiday,

Market Snapshot

  • S&P 500 futures little changed at 2,910.75
  • STOXX Europe 600 down 0.4% to 383.65
  • MXAP down 0.4% to 165.14
  • MXAPJ down 0.09% to 525.77
  • Nikkei down 1% to 23,796.74
  • Topix down 1.2% to 1,800.11
  • Hang Seng Index down 0.4% to 27,715.67
  • Shanghai Composite down 0.5% to 2,791.78
  • Sensex down 0.5% to 36,376.61
  • Australia S&P/ASX 200 down 0.2% to 6,181.22
  • Kospi up 0.7% to 2,355.43
  • Brent futures up 0.6% to $81.80/bbl
  • Gold spot up 0.2% to $1,196.40
  • U.S. Dollar Index up 0.3% to 94.51
  • German 10Y yield fell 2.3 bps to 0.503%
  • Euro down 0.2% to $1.1714
  • Italian 10Y yield fell 1.8 bps to 2.499%
  • Spanish 10Y yield rose 0.7 bps to 1.53%

Top Overnight News from Bloomberg

  • Italy’s government is due to decide on targets for the 2019 budget deficit, debt level and growth by midnight Thursday, but negotiations have been hit by a last-minute demand for extra spending by the coalition’s two deputy prime ministers
  • Fed Chair Jerome Powell praised the value of gradual rate increases, which have allowed the Fed to watch their policy moves play out, after the central bank raised rates by 25bps. In their statement, Fed officials dropped a reference to “accommodative” policy
  • U.S. President Donald Trump announced he has reached an agreement with Japan Prime Minister Shinzo Abe to open trade talks. The two countries have agreed that sanctions on auto exports won’t be applied while the talks take place, Abe said
  • Trump said he and Chinese President Xi Jinping might not be friends anymore after he accused Beijing of trying to interfere in U.S. congressional elections in November
  • New Zealand’s central bank held interest rates at a record low and signaled it’s prepared to cut them if the economy fails to gather pace
  • The European Union has started exploring what emergency measures it may need to take without the U.K.’s cooperation in the case of a “no deal” Brexit, according to people familiar with a meeting between the bloc’s 27 remaining governments
  • French President Emmanuel Macron said he’d welcome Britain back should its voters decide in a second referendum to stay in the European Union
  • Euro-area economic confidence slid for a ninth month, the longest streak of declines since 2011, as protectionism and political uncertainty cast a cloud over the outlook

Asian stocks were indecisive following a lacklustre lead from Wall St. where the major bourses ended the day with losses after a mixed-perceived FOMC. ASX 200 (Unch) was subdued by a pullback in commodity names, while Nikkei 225 (-0.5%) swung between gains and losses at the whim of a choppy currency. Shanghai Comp (-0.4%) and Hang Seng (-0.4%) also flip-flopped with the region somewhat cautious as it digested the FOMC and a lock-step hike by the HKMA, while the PBoC skipped open market operations again for a net daily drain of CNY 60bln. Finally, 10yr JGBs tracked US Treasuries higher with prices also supported amid the BoJ’s Rinban announcement for JPY 880bln in JGBs across the curve before hitting resistance at 150.20.

Top Asian News

  • HSBC Raises Hong Kong Lending Rate for First Time in 12 Years
  • Bank Indonesia Hikes Rates for Fifth Time to Curb Currency Rout
  • India’s RBI Announces Measures to Ease Bank Liquidity Shortage
  • Philippines Delivers Another 50 Basis-Point Rate Hike

European equities have been driven by mixed reports from Italy this morning ahead of their upcoming budget. This led equities to start the day in the red on suggestions of possible resignation of the Italian Finance Minister, and/or a delay to today’s presentation.  Some reprieve was offered by a rejection of these reports, but most major bourses are still in the red, with the FTSE MIB leading the losses. The FTSE is bucking the trend as a result of the softer GBP. Italian banks have been hit the hardest by the budget dispute reports from Italy, as the rise in Italian yields has pushed Unicredit (-3%), Banco BPM (-2.8%) and Intesa Sanpaolo (-2.7%) close to the foot of the Stoxx 600. These stocks are languishing in the red alongside Indivior (-10%), who is leading the losses in the Stoxx 600, after a guidance cut in late European trade yesterday

Top European News

  • Euro-Area Economic Confidence Slides as Global Risks Increase
  • Germany Feels the Trade-War Heat as Economic Outlook Slashed
  • AMS Drops After UBS Cuts PT on Outlook for 3D Sensing in Android
  • Mediobanca Says Bollore Group Is Leaving Shareholder Pact

In currencies, EUR was not the biggest G10 lose in the FOMC aftermath vs a broadly firm USD (DXY back above 94.500 and up to 94.645 at best), but struggling to maintain 1.1700+ status amidst more Italian fiscal bickering in Rome between Economy Minister Tria and the more anti-austerity factions of the coalition Government. The single currency has derived some underlying support from firmer than expected German state CPI reports implying an upside skew to the national print, while hefty option expiry interest at 1.1700-05 (1.35 bn) may also be keeping the headline pair afloat. GBP/AUD/CHF/CAD/NZD - The major underperformers against the Greenback, partly on Fed policy guidance reaffirming a final and 4th 25 bp hike this year, followed by 3 more in 2019 and another the year after, but also on other factors. Cable is teetering above 1.3100 as Brexit uncertainty persists, while Aud/Usd is slipping from the 0.7250 level that has been pivotal amidst the ongoing US-China trade rift. The Franc is only just holding circa 0.9700 and around 1.1350 vs the Eur, conscious that the SNB will be watching out for any Roman repercussions and ready to intervene if the Chf strengthens excessively on safe-haven grounds. Elsewhere, the Loonie has lost much of its crude traction following latest NAFTA news that suggests little prospect of a deal anytime soon, with Usd/Cad up over 1.3050 ahead of Canadian average weekly earnings data and a speech from BoC’s Poloz later tonight, while the Kiwi only got a fleeting boost from a relatively upbeat RNBZ assessment of the economy and core inflation as the OCR outlook remained neutral. Hence, Nzd/Usd has reverted to its 0.6650 axis and veering south. JPY - Holding up much better than the rest in contrast to recent sessions, even though BoJ Governor Kuroda has maintained a dovish stance with powerful easing still appropriate, and it appears that technical impulses may be impacting after the latest rejection of 113.00+ levels. The headline pair retreated towards 112.50 before finding some underlying bids ahead of a 112.35 Fib and a decent expiry between 112.50-40 (1.1 bn), while Eur/Jpy topped out in advance of 133.00 and a quadruple top just above the big figure.

In commodities, the oil market is still in positive territory, with Brent trading around the USD 82/bbl area. Some pressure was offered to the fossil fuel, however, by source reports from Saudi Arabia saying that they are set to increase production by 200-300k BPD to make up for lost Iranian supply for the next 2 months. In the metals scope, gold is in the green and trading within a thin range after the yellow metal hit 2 week lows in the previous session. Chinese steel rebar has fallen by over 1%, hitting a two week low, with aluminium also slipping to a month long low as demand continues to dry up for the construction materials ahead of the week-long Chinese holiday.

Looking at the day ahead, we get the third and final Q2 GDP (+4.2% qoq saar expected) and core PCE (+2.0% qoq saar expected) revisions, August advance goods trade balance, August wholesale inventories, preliminary August durable and capital goods orders, weekly initial jobless claims, August pending home sales and September Kansas City Fed manufacturing survey. It’s a busy day ahead for central bank speak too. Over at the BoE we’re due to hear separately from Haldane and Carney, while at the ECB we’ve got Draghi, Lane and Praet all due to speak. At the Fed Kaplan is due to speak at a minority banking forum this evening followed by Powell when he is due to make brief remarks on the US economy at a senate event. This may well all play second fiddle to Italy though depending on what happens with their budget. The 10y BTP auction just prior to this should be an interesting event to watch also to gauge appetite.

US Event Calendar

  • 8:30am: Advance Goods Trade Balance, est. $70.6b deficit, prior $72.2b deficit, revised $72.0b deficit
  • 8:30am: Wholesale Inventories MoM, est. 0.3%, prior 0.6%; Retail Inventories MoM, prior 0.4%, revised 0.5%
  • 8:30am: GDP Annualized QoQ, est. 4.2%, prior 4.2%; Personal Consumption, est. 3.8%, prior 3.8%
  • 8:30am: Core PCE QoQ, est. 2.0%, prior 2.0%
  • 8:30am: Durable Goods Orders, est. 2.0%, prior -1.7%; Durables Ex Transportation, est. 0.4%, prior 0.1%
  • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.35%, prior 1.6%; Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 1.0%
  • 8:30am: Initial Jobless Claims, est. 210,000, prior 201,000; Continuing Claims, est. 1.68m, prior 1.65m
  • 9:45am: Bloomberg Consumer Comfort, prior 60.2
  • 10am: Pending Home Sales MoM, est. -0.5%, prior -0.7%; Pending Home Sales NSA YoY, est. -1.0%, prior -0.5%
  • 11am: Kansas City Fed Manf. Activity, est. 16.5, prior 14

DB's Jim Reid concludes the overnight wrap

Today is all about the long awaited Italian budget and to a lesser extent German inflation but last night was all about the Fed. We’ll get to the Fed in a second but the latest on the Italian budget may come out just after we go to print as it often does. Before that here’s what we know at the moment on another day of conflicting headlines. Finance Minister Tria did say that the budget will include citizens’ income measures which likely pushes it above his desired 1.6%. Perhaps more notable was the comment from EU Commissioner Moscovici before that. Quoted in la Stampa, Moscovici said that Italy’s deficit must stay below 2%. So that would imply some breathing room for Tria above his 1.6% target and therefore potentially defuse the various political pressures. Just as Europe was going home though on-line editions of the main local newspapers (Corriere, Repubblica, Messaggero) reported that the M5S and the NL have actually already agreed on a 2.4% deficit, some 0.8% above Tria’s target and 0.4% above where the EU seem just about willing to tolerate. There’s been no subsequent headlines overnight but they’ve tended to come out just as we go to print so we may see a fresh round shortly. Are yesterday’s developments posturing ahead of a negotiated compromise later today? We shall hopefully see this afternoon when things all come to a head. The press has reported that the cabinet is due to meet this afternoon, with a press release with the new fiscal targets and growth projections likely to be released by this evening. Tria and President Conte may hold a press conference to present the plan as well. Yesterday, 10 year BTPs again outperformed (-1.9bps) but were comfortably off the lows for the day as a few nerves set in late in the session. Still, they remain 37.7bps off their August peaks.

Back to the Fed and as expected the FOMC raised short-term interest rates by 25 basis points and dropped the reference to monetary policy being “accommodative”. The dot plot showed firmer expectations by committee members for another rate hike in December, with 12 of 16 dots agreeing with our expectations for another hike. The committee also nudged up their median forecast for the long-run fed funds rate to 3% from 2.9%. Chair Powell also discussed tariffs, the counter-cyclical capital buffer, and another potential tweak to the IOER rate to ensure that fed funds continues to trade in its target band, but mostly avoided saying anything new and left the door open for future decisions.

At the margin, these changes could be seen as either dovish or hawkish. Dovish, because by removing the reference to “accommodative,” policymakers are implicitly suggesting that we are closer to neutral and therefore closer to the eventual end of the tightening cycle. Hawkish, because the dots moved up slightly and Chair Powell said that the neutral interest rate may be being underestimated. Net-net, the decision and subsequent press conference confirmed our expectations and did not spark much volatility in markets even if yields fell afterwards indicating the market saw it more dovishly. DB’s Peter Hooper last night confirmed that the meeting reaffirmed his view for a hike in December and then a roughly quarterly pace of rate hikes through 2019.

Fed funds futures were also marginally lower, with the implied-rate by end-2019 around 2 basis points lower. The market continues to undershoot the Fed’s median dot, with around 1.8 hikes currently priced in for 2019. The dollar vacillated after the decision and during the press conference, but ultimately closed +0.06% stronger. Yields rallied, with the 10-year Treasury yield down 4.8bps (4.2bps after the rate hike) and the 2s10s curve 2.4bps flatter. Equities shed intraday gains to close lower, with the S&P 500, DOW, and NADAQ closing -0.33%, -0.40%, and -0.21%, respectively. Interest-rate sensitive sectors led declines, with banks shedding -1.52%.

Asia has largely followed the lead from those post-FOMC declines on Wall Street last night. The Nikkei (-0.61%), Hang Seng (-0.45%), Shanghai Comp (-0.39%) and ASX (-0.05%) are all lower with only the KOSPI (+0.36%) currently holding onto gains (albeit reopening following a holiday). Futures in the US are broadly flat while Asia FX is having a stronger overnight session with the likes of the South Korean Won (+0.42%) and Taiwanese Dollar (+0.37%) advancing.

News yesterday that China was to reduce import tariffs on some products starting from November hasn’t seen much follow through in markets while the other news overnight has come from the sidelines of the UN meeting where President Trump and Japan PM Abe have reached an agreement to open bilateral trade talks. On the flip side of that Trump confirmed last night that he had rejected a one-on-one meeting with Canada PM Trudeau at the UN meeting due to dissatisfaction over trade negotiations – which clearly won’t help Canada’s NAFTA hopes.

Prior to the Fed yesterday, markets elsewhere spent much of the session treading water. The bond sell-off finally abated with  Bunds ending yesterday 1.7bps lower at 0.524% with yields elsewhere in Europe generally down a similar amount. Treasuries were also very modestly stronger going into the Fed before rallying further as noted above.

As for equity markets yesterday in Europe, the STOXX 600 settled for a +0.30% gain and the DAX a +0.09% gain. The FTSE MIB (-0.10%) actually spent the whole session in the red despite BTPs having a decent day. Comments from President Trump at the UN Security Council briefing saying that “we found that China has been attempting to interfere in our upcoming 2018 election” did little to impact markets despite the headlines looking like a reasonable ratchet up in pressure on China considering it was at a UN meeting. Elsewhere, the euro (-0.24%) – although paring heavier losses – struggled for much of the session. A  spokesman for German Chancellor Angela Merkel said that the Chancellor is not considering a confidence vote despite the defeat of her caucus leader candidate. It is however a situation clearly worth watching closely now with a potential confidence vote now being talked about a lot more in the wake of that setback.

Brexit headlines also got some more attention yesterday. Media outlets reported that the EU is intensifying work on its “no-deal” plans while simultaneously pushing back against Prime Minister May’s Chequers proposal, as they consider it to deviate too much from EU single market rules. Adding another layer of complexity was opposition leader Jeremy Corbyn, who reportedly told May that any Brexit deal must also keep the UK in the EU’s customs union.

After markets closed yesterday, Argentina and the IMF announced adjustments to the ongoing bailout program. The size of the credit line will increase from $50bn to $57bn over the next 3 years, with more front-loading of disbursements. Another $19bn will be available before end-2019, more than doubling the previously-available firepower. The authorities will allow the currency to float more, though the central bank reserves the right to intervene in response to “extreme overshooting.” They will also target monetary aggregates instead of interest rates, and it will be interesting to see how the market responds to the new regime when the Peso opens for trading at 2pm BST.

Elsewhere, the economic data that was out yesterday prior to the Fed did little to move the dial. In the US, August new home sales printed at a stronger than expected +3.5% mom (vs. +0.5% expected). In Europe, the UK’s CBI retail reported sales data for September – while down from August – still came in at a better than expected +23 (vs. +19 expected). In France, consumer confidence for September fell slightly to 94 from 97.

Finally to the day ahead, which is a busy one for data releases. This morning in Europe we’ve got the October consumer confidence print in Germany followed by the August M3 money supply reading for the euro area. September confidence indicators for the euro area follow and then in the early afternoon we get the flash September CPI reading for Germany. A +0.1% mom reading is expected which should hold the annual reading at +1.9% yoy. In the US, we then get the third and final Q2 GDP (+4.2% qoq saar expected) and core PCE (+2.0% qoq saar expected) revisions, August advance goods trade balance, August wholesale inventories, preliminary August durable and capital goods orders, weekly initial jobless claims, August pending home sales and September Kansas City Fed manufacturing survey. It’s a busy day ahead for central bank speak too. Over at the BoE we’re due to hear separately from Haldane and Carney, while at the ECB we’ve got Draghi, Lane and Praet all due to speak. At the Fed Kaplan is due to speak at a minority banking forum this evening followed by Powell when he is due to make brief remarks on the US economy at a senate event. This may well all play second fiddle to Italy though depending on what happens with their budget. The 10y BTP auction just prior to this should be an interesting event to watch also to gauge appetite.

Published:9/27/2018 6:19:31 AM
[Markets] The Dow Can’t Handle the Fed’s Truth The Dow initially added to its gains after the Federal Reserve raised rates but the good mood didn’t survive Fed Chief’s Jerome Powell’s press conference. …and explain why Alexion Pharmaceuticals soared to the top of the S&P 500. Stocks tried to break a two-day losing streak Wednesday but sank in the last hour of trading, following the Fed’s press conference. Published:9/26/2018 4:48:31 PM
[Markets] Dow industrials turn lower after Fed press conference Dow industrials turn lower after Fed press conference Published:9/26/2018 2:46:04 PM
[Markets] Dow, Nasdaq rallies belie mixed breadth The major market indexes are firmly higher, with Dow Jones Industrial Average up 54 points and the Nasdaq Composite rising 0.5%, but market breadth data is painting a more negative picture. The number of declining stocks is outnumbering advancers 1,435 to 1,390 on the NYSe and 1,463 to 1,283 on the Nasdaq. Meanwhile, the volume in declining stocks represented 57.9% of total volume on the Big Board and 50.7% of total volume on the Nasdaq. Meanwhile, the S&P 500 was up 0.5% and the Russell 2000 index of small-capitalization stock was down 0.3%. The moves come after the Federal Reserve raised its target for the fed funds rate by 25 basis points to 2.00% to 2.25%. Published:9/26/2018 2:15:19 PM
[Markets] Why Are So Many People Talking About The Potential For A Stock Market Crash In October?

Authored by Michael Snyder via The Economic Collapse blog,

It is that time of the year again.  Every year, people start talking about a possible stock market crash in October, because everyone remembers the historic crashes that took place in October 1987 and October 2008.  Could we witness a similar stock market crash in October 2018? 

Without a doubt, the market is primed for another crash Stock valuations have been in crazytown territory for a very long time, and financial chaos has already begun to erupt in emerging markets all over the globe.  When the stock market does collapse, it won’t exactly be a surprise.  And a lot of people out there are pointing to October for historical reasons.  I did not know this, but it turns out that the month with the most market volatility since the Dow was first established has been the month of October

The difference is quite significant, as judged by a measure of volatility known as the standard deviation: For all Octobers since 1896, when the Dow Jones Industrial Average was created, the standard deviation of the Dow’s daily changes has been 1.44%. That compares to 1.05% for all months other than October.

Like me, you are probably tempted to think that the reason why October’s number is so high is because of what happened in 1987 and 2008.

But even if you pull out those two months, October is still the most volatile

You might think that this difference is caused by a few outliers, such as the 1987 crash (which, of course, occurred in October) or 2008 (the Dow suffered several thousand-point plunges that month as it reacted to the snowballing financial crisis). But you would be wrong: The standard deviation of daily Dow changes is much higher in October than other months even if we eliminate 1987 and 2008 from the sample.

Once we get to Thanksgiving, the market tends to get sleepy, and it usually doesn’t wake up again until the new year begins.

So if something big is going to happen in the market in 2018, it is probably going to happen in the coming weeks.

And it is inevitable that something big will happen at some point.  As Jesse Colombo has pointed out, stocks are more overvalued right now than they were just before the great stock market crash of 1929…

In a bubble, the stock market becomes overpriced relative to its underlying fundamentals such as earnings, revenues, assets, book value, etc. The current bubble cycle is no different: the U.S. stock market is as overvalued as it was at major generational peaks. According to the cyclically-adjusted price-to-earnings ratio (a smoothed price-to-earnings ratio), the U.S. stock market is more overvalued than it was in 1929, right before the stock market crash and Great Depression

It is becoming increasingly obvious what we are heading for, and a growing chorus of market experts are issuing ominous declarations about this market.

For example, David Tice is warning that “we’re getting closer to a meltdown scenario”

According to investor David Tice, who made a name for himself in running the Prudent Bear Fund before selling it to Federated Investors in 2008, the current market is dangerous. Tice was quoted as saying he’s “nervous” because “we’re getting closer to a meltdown scenario.”

And John Hussman ultimately expects “two-thirds of market capitalization” to vanish…

I am aware of no plausible conditions under which current extremes are likely to work out well for investors. There are a few possibilities that could involve a smaller loss than the two-thirds of market capitalization that I expect to vanish, as the run-of-the-mill, baseline expectation for the S&P 500 over the completion of this cycle. Yet it’s worth recognizing that the completion of every market cycle in history has taken the most reliable valuation measures we identify (those best correlated with actual subsequent S&P 500 market returns) to less than half of current levels.

Could you imagine the chaos that would be unleashed if the stock market went down by two-thirds?

That would make what happened in 2008 look like a Sunday picnic.

And there are a lot of parallels between what happened in 2008 and what is happening today.  For example, the housing market is slowing down dramatically just like it did a decade ago.  The following comes from a Bloomberg article that I came across earlier today entitled “Builders Slump as U.S. Housing Market Shifts to the Slow Lane”

The housing market is stalling, and homebuilder stocks are feeling the pain.

The S&P Supercomposite Homebuilding Index is down 21 percent year-to-date, on track for the biggest annual drop since 2008, when it fell 32 percent. That’s even with tax cuts, unemployment near the lowest since 1969 and a real-estate developer in the White House. What gives?

Just a few days ago, I wrote an entire article about the fact that home sellers are cutting prices at the fastest rate that we have seen in eight years The housing market is clearly telling us that a big time economic slowdown is coming, but most people are not listening.

Switching gears, we have also recently learned that it looks like Ford Motor Company will soon be laying off lots of workers

Ford Motor employees are warily awaiting details of CEO Jim Hackett’s promised “fitness” plan and the serious possibility of significant job losses as the company faces pressure to improve its operations.

The company has warned of $11 billion in restructuring costs over three to five years, which could mean thousands of worker buyouts, according to analysts.

Why would they be doing that if the economy really was in “good shape”?

And let us not forget about the ongoing woes of the retail industry.  Recently, I was astounded to learn that a whopping 20 percent of all retail space in Manhattan is currently vacant

“When you walk the streets, you see vacancies on every block in all five boroughs, rich or poor areas — even on Madison Avenue, where you used to have to fight to get space,” said Faith Hope Consolo, head of retail leasing for Douglas Elliman Real Estate, who said the increase in storefront vacancies in New York City had created “the most challenging retail landscape in my 25 years in real estate.”

A survey conducted by Douglas Elliman found that about 20 percent of all retail space in Manhattan is currently vacant, she said, compared with roughly 7 percent in 2016.

New York City is one of the few areas around the country that has actually been prospering.

If things are that bad there already, what does that say about the outlook for the rest of the nation?

The truth is that the economy is not nearly as good as you are being told, and things could literally start breaking loose at any moment.

Unfortunately, as a society we have not learned very much from history, and most Americans seem to think that this bubble of artificial prosperity is going to last indefinitely.

Published:9/26/2018 2:15:19 PM
[Markets] Cheniere Energy's stock climbs to 3-year high after Morgan Stanley turns bullish Shares of Cheniere Energy Inc. rallied 1% toward a three-year high in morning trade Wednesday, after Morgan Stanley turned bullish on the liquefied natural gas (LNG) company, citing improving "export economics." Analyst Fotis Giannakoulis raised his rating to overweight after being at equal weight for the past 15 months. He boosted his stock price target to $80, which is 16% above current prices, from $63. "With Chinese tariffs raising the barriers to entry for new players, Cheniere can take advantage of its leading position and keep growing in small increments," Giannakoulis wrote in a note to clients. He said the company is benefiting from a rapid increase in global LNG demand, lower feedgas prices and the lack of liquefaction capacity growth. The stock, on track to close at the highest level since August 2015, has run up 29% year to date, while the SPDR Energy Select Sector ETF has gained 5.8% and the Dow Jones Industrial Average has tacked on 7.4%. Published:9/26/2018 10:43:51 AM
[Markets] Stocks open slightly higher ahead of expected Fed rate hike U.S. stocks edged higher in early trade Wednesday, ahead of a Federal Reserve policy decision that's widely expected to deliver a quarter-point rate increase and provide updated clues to the central bank's policy plans. The S&P 500 rose 0.1% to 2,918.25, while the Dow Jones Industrial Average rose 35.06 points, or 0.1%, to 26,527.27 . The Nasdaq Composite was up 0.2% at 8,022.53. Published:9/26/2018 8:45:49 AM
[Markets] US Futures, Global Stocks Rise With Fed Set To Hike Rates In A Few Hours

With just hours left until the Fed announces its latest rate hike (and potentially tilts even more hawkish on 2019), US futures gained 0.2% alongside higher Asian shares while European bourses were mixed amid generally thin volumes as the dollar rebounded from overnight lows and Treasuries gained.

Asian shares inched up on Wednesday, rising 0.1% outside of Japan, as Chinese stocks extended their recovery to hit eight-week highs on receding fears about the trade war as well as hopes China’s weighting in the global benchmark will be increased. Other markets were more subdued as U.S. TSY yields rose near a seven-year peak of 3.113% ahead of a widely expected rate hike by the Federal Reserve and as international oil prices rose to four-year highs.

Japan’s Topix ended just below its highest point in almost eight months, while stocks rallied in Hong Kong as traders returned from a holiday. Shanghai shares rose 0.9% to 2806.81, after global index provider MSCI said it will consider quadrupling the weighting of Chinese big-caps in its global benchmarks from 5% to 20% and also proposed adding mid-caps and shares listed on Shenzhen’s start-up board ChiNext.

The news further improved the mood of the market, where fears about the trade war have been offset by hopes Beijing’s stimulus could help the economy weather the impact of U.S. tariffs.

In Europe, the Stoxx Europe 600 Index traded sideways, holding small gains while the DAX underperformed as the auto selloff continued after BMW slashed its outlook and following news of a new CEO at Daimler. Italian BTPs rallied as risk-off hedges related to Italian budget are removed, as Tria's latest  comments appear to calm worst concerns. The Bund curve flattened, led by 5s30s.

Contracts on the S&P 500, Nasdaq and Dow all climbed ahead of the Fed. As previewed earlier, while markets have fully priced in another rate hike today, the outlook for future policy as signaled by the dot plot and any comments from Jerome Powell will be key to whether bond markets extend their recent selloff. Ten-year Treasury yields of 3.08% are just below their year-to-date peak, while two-year yields are at a decade high.

“The U.S. domestic economy is trotting along nicely; the rest of the world is not in the same place and there’s no doubt that global investor caution is continuing to increase as the trade war between the U.S. and China appears to be heating up,” wrote Nick Twidale, chief operating officer at Rakuten Securities Australia. "Analysts will be watching closely to see if the Fed acknowledges this and its potential impact on the U.S."

Meanwhile, in a sleepy FX market, the Bloomberg Dollar Spot Index steadied ahead of a Federal Reserve decision at which investors anticipate the third interest-rate increase this year. Treasuries gained while emerging-market currencies stayed in relatively tight ranges. The yen recovered after touching its lowest in almost 10 weeks against the dollar as dealers positioned themselves ahead of the Fed meeting, while the yield curve steepened ahead of the Bank of Japan’s debt purchase operation on Thursday. The euro was also steady, while the pound snapped a two-day rally after Theresa May doubled down on her Brexit stance and as U.K. investors await Corbyn’s speech after Labour said it will vote against Prime Minister Theresa May’s Brexit proposals.

Riksbank's Jansson said if the central bank moves too quickly ahead of the ECB, SEK would strengthen too quickly, while he
added the Riksbank may have to raise unemployment forecasts slightly in October.

In rates, Italy led gains among euro-area bonds ahead of the country’s coalition government announcing fiscal targets Thursday. The Bund curve flattened led by 5s30s. The yield on 10-year Treasuries fell 1bp to 3.08%.

In geopolitical news, US National Security Advisor Bolton said the enforcement of sanctions will be aggressive and unwavering and will not be undermined by Europe or anybody else. South Korean President Moon said North Korea's Kim wants a second summit with US as soon as possible. EU Commissioner Hahn rejected financial aid to Turkey.

Elsewhere, Brent oil pulled back from a four-year high of $82.55 but remains on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007, when a six-quarter run led to a record-high of $147.50 a barrel. U.S. crude futures ticked down 0.2 percent to $72.16 per barrel after hitting an 11-week high of $72.78 the previous day.

In metals, Gold is once again finding magnetism to the USD 1,200/oz level, with the yellow metal down by a dollar ahead of the FOMC rate decision. Steel futures in China have dropped for the 2nd straight session as Chinese demand falls ahead of their week-long holiday.

In addition to the Fed's decision, expected data include mortgage applications and new home sales. CarMax and HB Fuller are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.2% to 2,927.50
  • STOXX Europe 600 down 0.03% to 383.76
  • MXAP up 0.1% to 165.77
  • MXAPJ up 0.2% to 525.74
  • Nikkei up 0.4% to 24,033.79
  • Topix down 0.04% to 1,821.67
  • Hang Seng Index up 1.2% to 27,816.87
  • Shanghai Composite up 0.9% to 2,806.81
  • Sensex down 0.6% to 36,420.54
  • Australia S&P/ASX 200 up 0.1% to 6,192.28
  • Kospi up 0.7% to 2,339.17
  • German 10Y yield fell 0.8 bps to 0.535%
  • Euro up 0.03% to $1.1771
  • Italian 10Y yield fell 7.0 bps to 2.517%
  • Spanish 10Y yield fell 1.1 bps to 1.515%
  • Brent futures down 0.4% to $81.58/bbl
  • Gold spot down 0.2% to $1,198.80
  • U.S. Dollar Index little changed at 94.15

Top Overnight News

  • President Donald Trump reasserted his “America First” perspective in his address to the United Nations on Tuesday, chastising regimes in Iran and Venezuela and offering a blunt rejection of the multilateral underpinnings of the very body he addressed
  • Theresa May said she’d prefer leaving the European Union without any deal at all to the Canada-style free trade arrangement proposed by so-called Brexiteers in her Conservative Party
  • Blackstone Group LP, the soon-to-be owner of Thomson Reuters Corp’s financial-and-risk arm, is weighing a sale of FXall, a currency trading platform, according to people familiar with the matter
  • Oil slipped after President Donald Trump resumed his attack on OPEC while Goldman Sachs Group Inc. poured cold water on forecasts for $100 crude
  • Italy’s anti-establishment Five Star Movement said it will block the country’s 2019 budget unless it includes full funding for the party’s flagship plan to boost incomes for the poor. Investors shrugged off the threat, judging Five Star leader Luigi Di Maio doesn’t have the political weight to back it up
  • A global tariff tit-for-tat could boost China’s $12 trillion economy and hurt the U.S. expansion, according to European Central Bank research published Wednesday
  • French Finance Minister Bruno Le Maire said it would be “suicidal” to grant the U.K. a Brexit deal that seems better than remaining in the European Union, reinforcing the position that saw the bloc’s leaders reject May’s latest withdrawal proposal
  • Japan’s Government Pension Investment Fund gave itself more flexibility on how much it invests in the nation’s bonds, raising the prospect that it’ll trim its $387 billion stash of domestic debt

Asian equities traded mostly higher despite a mixed lead from Wall St. where the Dow and S&P closed with losses amid cautiousness ahead of the FOMC. ASX 200 (+0.1%) gains were led by the strength in commodity names amid the bounce in base metals, while Nikkei 225 (+0.4%) initially lagged but remained in close proximity to test the 24,000 level to the upside. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp (+0.9%) outperformed as trade tensions took a backseat amid reports that MSCI will consider increasing the weight of China A-shares in its indices to 20% from 5% and with bluechip energy names frontrunning the gains in Hong Kong. Finally, 10yr JGBs saw a slight rebound and printed fresh weekly highs as yields marginally declined across the curve but with gains capped amid weaker than previous 40yr auction results.

Top Asian News

  • Ex-UBS Banker Starts $100 Million Fund for Share-Backed Loans
  • MSCI Considers Boosting China A Share Weighting, Adding ChiNext
  • SPH, Keppel Said to Mull Buyout of $1.1 Billion Carrier M1

European equities have started the day directionless, with trade choppy and newsflow light ahead of the FOMC’s rate decision later on in the day. The DAX is once again the major index underperformer with BMW still near the foot of the index after yesterday’s guidance cut.  The CAC is leading the gains in the equity space, with Bouygues lifting the index after an upgrade at JPM to overweight. M&A related news was the pre-market focus, with suggestions that Unicredit may tie-up with one of Lloyds or ABN Amro; and further reports saying Deutsche Bank was looking at a theoretical merger with UBS, as according to sources; something which their CEO later downplayed.

Top European News

  • Deutsche Bank Sees Quarterly Profit Broadly Meeting Expectations
  • Bankers Get $4,700 Car Parking Spaces as Ireland Roars Back
  • GAM Names Juan Landazabal to Newly Created Head of Trading Role
  • Record Czech Rate Hike ‘Done Deal’ With Koruna Back in Focus

In FX, amidst very rangy or cagy trade in Usd/majors ahead of the FOMC, the GBP and NZD are just standing out from the
crowd as outliers,
with the former outperforming in wake of more encouraging NZ macro news overnight, as a marked improvement in the business outlook overshadowed a worse than expected trade deficit, on balance. Nzd/Usd rebounded towards 0.6700, but is now back down around 0.6650 vs Cable unable to reach 1.3200 and retreating towards 0.8950 again vs the EUR. AUD/JPY - The next best G10 currencies in terms of gains vs a still soggy Usd (DXY only just holding above 94.000), with the Aud maintaining 0.7250+ status and Jpy defending 113.00 again, even though month/quarter/Japanese half year end positioning is said to be net negative. Expiry interest may also be influential here with some decent layered run-offs from 112.95-113.00 down to 112.30-35 (1-2 bn). CAD/CHF - Marginal laggards as the Loonie continues to pivot 1.2950 amidst the ongoing NAFTA stalemate, but cushioned somewhat by elevated oil prices, while the Franc is anchored around 0.9650 and 1.1350 vs the Eur after a sharp deterioration in ZEW’s Swiss investor sentiment index that underscores SNB caution about risks to the economy. EM - The Try has taken over the mantle as main regional mover, albeit with the Zar not far behind and both firmer vs the Usd. The Lira appears to be encouraged by more assurances about CBRT independence from Turkey’s Finance Minister, while the Rand awaits an address from President Ramaphosa later today. Usd/Try at the lower end of a circa 6.2000-1000 band and Usd/Zar also nearer the base of 14.3800-2750 parameters

In commodities, oil is flat and has erased the slight losses seen following a surprise build in API crude inventories. This comes amid reports from India overnight saying they were set to cut oil imports from Iran to zero, that was later denied. Commentary on the fossil fuel came from Goldman who said the initial decline in Iran could bring prices to USD 82.50/bbl and that price risks are skewed to the upside given the elevated geopolitical tensions among oil producers and robust oil demand. The Iranian Oil Minister was also on the wires saying that if US President Trump wants oil to stop rising he should stop interfering in theMiddle  East.In the metals scope, Gold is once again finding magnetism to the USD 1,200/oz level, with the yellow metal down by a dollar ahead of the FOMC rate decision. Steel futures in China have dropped for the 2nd straight session as Chinese demand falls ahead of their week-long holiday.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 1.6%;
  • 10am: New Home Sales, est. 630,000, prior 627,000
  • 2pm: FOMC Rate Decision (Upper Bound), est. 2.0-2.25%, prior 1.75%-2.0%
  • 2pm: Interest Rate on Excess Reserves, prior 1.95%

DB's Jim Reid concludes the overnight wrap

As we hit US rate hike day, bond markets continue to be the focus for now with the last 24 hours seeing another steady selloff across the majority of core markets. It is still a very controlled sell off though with bond vol measures staying much lower than the sell-offs in Jan/early Feb and in May.

Treasuries did rally back into the close last night at 3.093% (+0.4bps on the day) but earlier traded within a whisker of the YTD (and 7-year) closing high in May of 3.112% (they did hit 3.123% intraday on May 18th however). Before the late rally, Bunds also closed 3.4bps higher at 0.541% while the rest of Europe (ex. Italy – see below) saw yields up a similar amount. Equities on the other hand were a lot more muted. The Stoxx 600 closed +0.46% but the FTSE-MIB out-performed to
close +1.54% though as the up and down Italian newsflow of late was more on an “up” yesterday.

In the US the S&P 500, DOW and NASDAQ ended -0.13%, -0.26% and +0.18% respectively. Oil is quietly driving price action in both bonds and equities, pushing up inflation breakevens and boosting energy stocks. The energy sector paced gains on both sides of the Atlantic yesterday. Brent finished last night up another +0.83% and is at the highest level ($81.87/bbl) since November 2014. Mr Trump’s comments at the UN did create some volatility though as he said OPEC nations are “ripping off the world” with current oil prices. Brent spiked down a little around the comment but held gains into the close amid reports that India plans to cut its imports of Iranian oil to zero by November to comply with US sanction, from their end-August level of 375 million barrels per day. So the oil story is one to watch especially as breakevens start to respond.

How markets fare today will likely depend on what sort of message we get from the Fed and Mr Powell this evening. With a 25bp hike in the fed funds rate as good as done, the focus will instead be on the Committee’s signal about the prospects for rate hikes in the coming quarters. DB’s Peter Hooper believes that although the market may interpret a few elements of the meeting dovishly, namely the possible change to the description of the policy stance as “accommodative” and a decline in the long-run median dot in the Summary of Economic Projections, he and the team would caution against this interpretation.

Instead, Peter expects the overall message from the meeting to be that the current gradual (i.e. roughly quarterly) pace of rate hikes remains appropriate and that, with growth expected to continue to run well above potential, the labour market beyond full employment, inflation at target, and financial conditions still accommodative, the Committee has become more confident that rate hikes should continue at least to neutral. Moreover, as Chair Powell has recently indicated, as long as income and job gains remain strong, a restrictive monetary policy stance could be needed. Peter goes on to say that this signal should reinforce elevated market pricing for the next rate hike in December and support expectations for further hikes at least through the first half of 2019. As a reminder, DB expects another 4 rate hikes in 2019 in addition to another this December.

Back to yesterday and President Trump’s speech at the UN General Assembly. He stuck a lot closer to the prepared script than we’re used to seeing of late but there were still a couple of headlines which caught the market’s attention. Trump reiterated that the trade imbalance with China is “just not acceptable” and also that China’s trade distortions “cannot be tolerated”. He  confirmed that sanctions on North Korea will stay until denuclearization occurs and also pleaded with all nations to isolate Iran’s regime. Trump cited a “breakthrough” new trade deal with Mexico but also said issues remain outstanding with Canada – an issue also highlighted by US Trade Representative Lighthizer yesterday.

Meanwhile the Mexican Peso (-0.13%) was actually a shade weaker despite Trump and Lighthizer’s comments, slightly underperforming the rest of EM currencies which advanced +0.20%. The Argentinian Peso (-2.40%) was the big underperformer though, following the news that Central Bank President Luis Caputo had resigned just three months after taking office. His decision was supposedly due to personal decisions, though 10-year yields rallied 6.6bps and the country’s benchmark equity index advanced +2.68%, possibly on optimism that a new IMF deal will be finalized soon.

Overnight, the tone in Asia has been mostly positive. Leading the way are bourses in China (Shanghai Comp +1.27%, CSI 300 +1.58%) which have been boosted by the news that MSCI is considering lifting the weight of China’s mainland shares in its global indexes from next year by lifting the cap on free-float-adjusted market value to 20% from 5% for yuan-denominated stocks.

Chinese tech stocks are also being considered. The Hang Seng (+1.64%) has also been boosted by that news while the Nikkei (+0.20%) and ASX (+0.11%) have made smaller advances. Futures in the US are also up modestly while Treasuries have largely held onto yesterday’s move. There’s not been much notable newsflow overnight other than that although it was interesting to see that the new BIS figures show non-financial debt as a percentage of GDP in China increasing again in Q1 2018 with the ratio up to 164.1%, having declined in the four quarters prior to that, hitting 160.3% at the end of 2017.

In other news, bucking the trend in bond markets again yesterday were BTPs with 10y yields falling -7.0bps and 2y yields down -5.2bps. This followed a la Stampa article yesterday shortly after we went to print which suggested that the government was heading to a compromise on the budget deficit of 1.9% of GDP. Other major newspapers, Corriere and Il Messaggero, both reported similar values in the 1.8-1.9% range as well. That’s about 0.3% higher than what was previously reported as the upper limit for Tria, but illustrates that we might be getting closer to a deal. The article also made a reference to some measures to boost capital investment with the intention of accounting them as one-off and therefore out of the computation of the deficit for EU rules according to our Italian economist Clemente DeLucia. It is unclear if this potential one-off would be included into the 1.9% or if the aggregate deficit figure would be above that level but the market will no doubt be keeping an eye on this. As you’ll see in the day ahead Tria is due to speak this morning so we’ll be watching out for any more headlines.

Here in the UK, the latest Brexit development was confirmation from PM May that she would prefer a no-deal Brexit outcome to  a Canada-style outcome, which is pushback against the Brexiteers who have been urging May to revert  to a simple FTA. Separately, at the Labour party conference, Shadow Brexit Secretary Starmer said that the opposition would be willing to vote against PM May’s Brexit deal, with an eye toward a new general election or a second referendum if necessary. Labour does not really have an incentive to articulate a clear position for now, so their leaders will likely continue to keep the party’s position ambiguous. The pound shook off the Brexit noise to close +0.49% stronger yesterday.

Staying in Europe, following on from Draghi’s comments on Monday, Peter Praet said that “I don’t think there was anything new” in Draghi’s comments and that the market was right to downplay the ‘vigorous’ headline a little later. Praet instead said that “basically what we say is price pressure remain subdued and it will take a long time before we get close to two percent”.

In Germany, the CDU’s party whip, Volker Kauder, was surprisingly replaced in favor of Ralph Brinkhaus. Kauder was a Merkel loyalist tasked with ensuring parliamentary support for the Chancellor’s policies, and his loss reflects the growing tension within Merkel’s governing coalition. It slightly raises the odds that Merkel struggles to finish her term as party leader and Chancellor, and the DAX index dropped -0.24% after the story broke, but subsequently rallied to close +0.19% higher.

On the economic data front, UK inflation expectations ticked higher in August, up 0.2pp to 2.9% for short-term expectations and up 0.1pp to 3.4% for the long-term. In France, manufacturing confidence fell slightly to 107 from 110, mirroring last week’s slightly soft PMIs. In the US, data was strong, with the Richmond Fed Manufacturing Index up to a new cyclical high of 29 from 24. The Conference Board consumer confidence index also rose, to 138.4 and its highest level since 2000.

The day ahead will almost certainly revolve around the FOMC meeting this evening and Chair Powell’s press conference. Prior to that there’s only a few data releases due with September consumer confidence in France, September CBI retailing reported sales in the UK and August new home sales in the US. Away from that keep an eye on Italian Finance Minister Tria’s comments at 9.30am BST when he speaks at an event organized by the retailers’ association. German President Steinmeier is also due to visit the ECB this afternoon, EU27 government envoys are due to meet in Brussels to discuss Brexit, the UN summit continues for another day while here in the UK Labour leader Corbyn is due to speak at the Labour Party conference.

Published:9/26/2018 6:15:25 AM
[Markets] Stocks - Dow Closes Lower as Bank Stocks U-Turn on Trade Tensions Investing.com - The Dow closed lower Tuesday on rising fears about trade after President Donald Trump warned international trade partners that the U.S. "will not tolerate" abuse on trade. Published:9/25/2018 6:11:00 PM
[Markets] Dow Drops, Silver Pops, & Bond-Sellers Stop

At today's close?

 

China was down in the early session (catching down to US markets after being closed) then flatlined in the afternoon session...

 

Italian stocks extended the outperformance as Spain lagged...

 

Futures show US equities starting to slide in the pre-market then reverse at 11amET, but Dow and S&P were unable to hold their algos bounce as Nasdaq surged... (ugly close)

 

On the week, Nasdaq remains the leader, Trannies the loser...

 

FANG stocks extended yesterday's panic-bid ramp...

 

Treasury yields popped early in but faded lower as the day wore on. 30Y ended very modestly lower and the rest of the curve slightly higher in yield...

 

10Y Yield broken above 3.11% early on ended the day almost unchanged...

 

And the yield curve flattened modestly...

At the shorter-end, we note that the eurodollar curve is no longer inverted across Dec 19 to Dec 20...

 

The Dollar slipped lower on the day reversing overnight gains...

 

Yuan slipped lower...

 

The Argentine Peso plunged after the central bank governor unexpectedly resigned...

 

Cryptos had an ugly day after headlines on Mt.Gox Trustee selling...

 

Silver surged today as gold and crude trod water...

 

Silver notably outperformed Gold...

 

Sending the Gold/Silver ratio tumbling to 3-week lows...

 

Finally, we will give Gluskin Sheff's David Rosenberg the last word - a reminder of what happened when Consumer Confidence was here before...

Published:9/25/2018 3:10:47 PM
[Markets] US STOCKS SNAPSHOT-Dow, S&P 500 end down; utilities decline The Dow and S&P 500 ended lower on Tuesday as a boost from the energy sector and strong consumer confidence data was offset by losses in chipmakers and utilities ahead of an expected Federal Reserve interest ... Published:9/25/2018 3:10:47 PM
[Markets] Dow industrials sink to Tuesday's lowest level Dow industrials sink to Tuesday's lowest level Published:9/25/2018 2:08:50 PM
[Markets] Dow Picks Up 35 Points Because Beggars Can’t Be Choosers Weak Rally. Stocks pulled off a turnaround on Tuesday after trade concerns dragged down the Dow on Monday. Short-term thrusts up have helped the S&P 500 log new highs, but whether the market has enough fuel to lock in those gains, remains to be seen. Trade concerns can’t keep this market down, for now. Published:9/25/2018 12:10:54 PM
[Markets] The Kip ETF 20: The 20 Best Cheap ETFs You Can Buy Investors can choose from literally thousands of exchange-traded funds (ETFs), which means picking the best ETFs can be daunting. More than a dozen funds track well-known basic indexes such as the Standard & Poor's 500-stock index, Dow Jones Industrial Average and Russell 2000. Scores of other ETFs try to beat those benchmarks by carving out certain types of stocks or bonds, or by emphasizing things such as value or share-price momentum - anything to give them an edge. We've picked The Kiplinger ETF 20 with an eye toward low fees, making this a list of the 20 best cheap ETFs to use to reach your investing goals. Our selections will give you anything from broad market exposure to narrow tactics meant to help you fill specific gaps in your portfolio. Read on to learn about these 20 ETF picks. SEE ALSO: The Best Mutual Funds in 401(k) Retirement Plans Published:9/25/2018 11:40:40 AM
[Markets] How A Democrat Win In The MidTerms Will Affect The Markets

Authored by Christopher Wood via Grizzle.com,

With the tenth anniversary of the Lehman bankruptcy just passed, one theme of this writer’s message to investors of late has been that politics has now become the main driver of world financial markets replacing the central banks who have played that role for most of the past 10 years. But the problem for investors is that politics is less predictable than the actions of central banks...

VOTING ON THE DONALD

It is clear that the view on the outcome of the November mid-term US Congressional elections now diverges significantly from what had been the base case here. That base case has been that the midterm vote would be a vote on Donald Trump and that the Republicans would win because of the all too evident improvement in the American economy and the stock market as a result of the dramatic impact of the Trump administration’s corporate tax cuts in terms of the surge in corporate earnings and the related surge in share buybacks.

The broadest macro measure of US after-tax corporate profits, reported in late August by the Bureau of Economic Analysis, rose by 16.1%YoY in 2Q18, the highest year-on-year growth rate since 1Q12. While taxes paid by the corporate sector declined by 33.4%YoY in 2Q18, following a 39.1%YoY decline in 1Q18 (see following chart).

S&P500 actual reported share buybacks also surged by 42%YoY to a record US$189 billion in 1Q18 (see following chart). There were another US$410 billion worth of buyback announcements in 2Q18, according to Bloomberg.

US AFTER-TAX CORPORATE PROFITS AND CORPORATE TAXES

Note: US corporate profits after tax with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) Source: US Bureau of Economic Analysis

S&P500 ACTUAL REPORTED SHARE BUYBACKS

Source: S&P Dow Jones Indices

Still, it now seems that base case could be wrong. A chart of Donald Trump’s popularity rating shows that, after many months of resilience, it broke below the 200-day moving average since early September though it has bounced back in recent days.

The average Trump approval rating declined from 43.7% in late August to a low of 40.6% in mid-September and has since risen to 42.2% on Friday, compared with a 200-day moving average of 42.0% (see following chart).

Meanwhile, perhaps more importantly, the Iowa Electronic Markets, where traders bet real money on the outcome, now shows a 64% probability that the Democrats will regain control of the House of Representatives. Still, there is only a 14% possibility that the Democrats will also win the Senate (see following chart).

PRESIDENT DONALD TRUMP’S AVERAGE APPROVAL RATE

Note: RCP averages polls published over the past 2 weeks. Source: RealClearPolitics (RCP) Poll Average

IOWA ELECTRONIC MARKETS (IEM): 2018 US CONGRESSIONAL CONTROL MARKET

Note: Implied probability of Democrat control of Congress after the mid-term elections. Source: The University of Iowa

THE EFFECT ON THE MARKETS OF THE DEMOCRATS WINNING CONGRESS

What would a complete Democratic Party takeover of the Congress mean for markets? The view here is that anybody who thinks such an electoral outcome is possible should short the American stock market ahead of the vote.

The reason the US stock market has been rallying, and the economy accelerating, is because of the frontend-loaded impact of tax reform combined with the undoubtedly pro-growth implications of Trump-style deregulation.

Democrat control of both houses of Congress would threaten a complete reversal of these policies as well as a realistic threat of an attempt to impeach the incumbent president. Still, a Democratic takeover of just the House of Representatives, which is now the base case, would also probably be somewhat stock market negative since it would likely mean renewed policy gridlock in Washington, in terms of the ability to get anything done. Impeachment proceedings would also probably be launched even if they would very likely not turn out to be successful.

WHAT IMPACT WOULD A DEMOCRATIC CONGRESS HAVE ON THE TRADE ISSUE?

What about the trade issue? In theory, a gridlocked Washington does not hamper the Donald’s ability to implement tariffs as president. So, in that sense, Trump can continue to implement his protectionist agenda. But there is another possibility investors should now consider. If Donald Trump is confident the Republicans can regain control of Congress, there is seemingly no reason for him to do a deal on trade with China ahead of the pending polls.

Still, if he becomes concerned in coming weeks that such an outcome looks increasingly unlikely, then the temptation will grow for the incumbent president to do a deal with China so that he can present a “win”. This is why it was interesting that it was reported in mid-September that Treasury Secretary Steven Mnuchin had invited Chinese officials headed by Vice Premier Liu He for another round of bilateral trade talks in the coming weeks (see The Wall Street Journalarticle “US seeks new trade talks with China to avoid tariffs”, September 13, 2018). But yesterday it was reported that Beijing has now cancelled the trade talks which were scheduled for the coming days (see The Wall Street Journal article “China pulls out of trade talks with US”, September 22, 2018).

Meanwhile, none of this has stopped Trump from following through on his further 10% tariff on US$200 billion worth of Chinese exports, which will take effect on Monday. Still, it is interesting that some high profile consumer electronic items, such as smartphones, were excluded from the tariffs, suggesting that the Trump administration is concerned about the negative reaction of the American electorate to higher consumer prices.

The conclusion must be that a Trump U-turn on trade becomes more likely the closer to the November elections. This is a point worth making since the reality, at least until today, is that market action, particularly in Chinese stocks, suggests investors have given up on a trade deal. The other point is that Trump’s psychological make-up suggests he will want to do a deal and declare a “win”.

Published:9/25/2018 11:40:40 AM
[Markets] Peter Schiff Warns "Trump Tariff Put" On The Stock Market Is Worthless

Via SchiffGold.com,

The Dow Jones pushed into record-high territory again late last week. As Peter Schiff pointed out in his latest podcast, Pres. Trump was out there pointing out the record run on Wall Street and claiming responsibility for this bull market. Just turn on Fox News and hardly a segment will go by that somebody isn’t reminding you about how great the economy is. Peter said it reminds him how people were talking up George W. Bush before the Great Recession.

Just because you’re a Republican, you don’t have to claim that anything that’s done by another Republican is great in order to make the Democrats look bad. Because ultimately that comes back and bites you because you lose all credibility when the economy turns down and you’ve been gushing over how great it is and how successful the Republican president is. And when it turns out it was just a bubble, it was just an illusion and when the bubble bursts and the illusion is replaced with a harsh reality, well you’ve got nothing and it makes it easier for the other side to scapegoat capitalism for the problems and hold out more government as the solution.”

Nevertheless, the markets are going up. One of the reasons is the so-called “Trump tariff put.” The idea is that Trump will keep an eye on the stock market and the economy, and if the tariffs actually start to have a negative impact, he can just soften his stance and perhaps even lower the tariffs. That will rescue the stock market and everything will be fine.

In other words, there’s this put. So, it’s heads the market wins, tails, nobody loses, right? Because as long as the tariffs aren’t doing any damage, the markets keep going up, but if the tariffs turn out that they do damage, well they get rid of them and the market resumes going up, even if it has temporarily gone down. So, that is the ‘Trump put,’ just like the ‘Greenspan put’ we had, which became the ‘Bernanke put’ and the ‘Yellen put,’ whether or not there is a ‘Powell put’ beneath the market - the idea was, hey, if the market ever falls, the Federal Reserve is going to slash rates to make it go up again. So, you can’t lose. Even if the market goes down, you’re going to get bailed out, whether it’s by the Federal Reserve or whether it’s by Donald Trump.”

But Peter said he thinks this is just wishful thinking.

It’s the kind of attitude you get during a bubble - a mania. And wishful thinking won’t change reality.

If the stock market really starts to fall, it’s not going to matter if we call off the tariffs. Because if the market is falling, chances are it’s falling not simply because of the tariffs. I mean, the tariffs might be one element that is a problem for the markets, but it may simply be one of a number, and just getting rid of the tariffs isn’t going to be enough to turn around a bear market in stocks, which is long overdue.

Actually, the whole “Trump put” thing may work exactly opposite. Let’s say Trump does surrender in the trade war. A lot of people have priced a trade war win into the market. The tariffs are a stick Trump is using to beat the Chinese over the head. The payoff is the US is supposedly going to get these fantastic trade deals when the Chinese finally give in.

But if Trump has to take the tariffs away because he has to admit that we’re losing because the market is going down, maybe the market is already pricing in all of these promised benefits that are waiting for us at the other side of this trade war, and if the trade war is over and we surrender, if the benefits have already been priced into the market, well now we’ve got to price those benefits out, whatever they were. So, it’s even possible that if the market is falling and then Donald Trump’s reaction to a falling market is to back away from the tariffs, the market could actually fall even more. It could accelerate the decline.

Peter also offered an interesting analysis of cannabis stocks. There is a great deal of volatility in that market right now. Peter said it reminds him of the dot-com era. It’s not that cannabis is a bad industry. But there is a lot of speculation there right now. He said it’s indicative of what you see overall during periods of market mania.

Make sure you listen to the whole podcast. Peter also gets into home sales, the impact of tariffs on consumer prices here in the US, and a GQ article on Puerto Rico.

Published:9/25/2018 9:39:35 AM
[Markets] Walmart using blockchain technology to track leafy greens Walmart Inc. said Tuesday that it will begin using a blockchain-enabled system to track the path of leafy greens like lettuce back to its farm of origin over the next year. The retail giant has been working with International Business Machines Corp. and 11 food companies over the past year to develop the technology. "While leafy greens are overwhelmingly safe to eat per capita, there have been several high profile recalls over the past decade and Walmart believes the current one-step model of food tractability is outdated and we can do better," the company said in a statement. Walmart shares are down nearly 4% for the year so far while the Dow Jones Industrial Average has gained 7.5% for the period. Published:9/25/2018 8:37:38 AM
[Markets] "The Slowing Is Widespread" - US Home Price Growth Slowest In 11 Months

The US housing market just took another hits as Case-Shiller reported that homeprices (in July) rose at the slowest pace since August last year, missing expectations notably.

20-city property values index increased 5.9% y/y (est. 6.2%), least since Aug. 2017, after rising revised 6.4%

 

This was the biggest miss since May 2016

July marked the fourth consecutive month that annual price gains in the 20-city index decelerated. That’s in sync with other reports indicating housing is stalling as buyers shy away from higher prices amid mortgage rates near the highest since 2011, in addition to a lack of choice among affordable properties. At the same time, steady hiring and elevated confidence are supporting demand.

“Rising homes prices are beginning to catch up with housing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

"The slowing is widespread: 15 of 20 cities saw smaller monthly increases in July 2018 than in July 2017. "

But despite slowing home price appreciation, all cities saw prices rise faster than income growth.

Sales of existing single family homes have dropped each month for the last six months and are now at the level of July 2016. Housing starts rose in August due to strong gains in multifamily construction. The index of housing affordability has worsened substantially since the start of the year. 

This really should not be a huge surprise given the collapse in US housing macro data and homebuilder stocks...

Probably time for some more rate-hikes...

 

 

 

Published:9/25/2018 8:13:05 AM
[Markets] Global Stocks Jump As Trade, Political Fears Fade; 10Y Yield Hits 3.11%

One day after the US-China trade war entered "phase II", with another $200BN in US tariffs slapped on Chinese imports  sending global stocks lower, markets found their footing, and stocks in Europe traded higher after a mixed session in Asia as investors put trade war and political jitters on the backburner and turned their attention to tomorrow's FOMC rate hike and 2019 dot plot.

Europe's Stoxx Europe 600 rebounded from Monday's drop, rising 0.3% as most European bourses traded in the green, while U.S. index futures pointed to a mixed open, with S&P 500 futures slightly firmer even as the Nasdaq hugged the flatline after Instagram’s founders said they were leaving Facebook .

After a one-day holiday, China and Japan returned to the market with diverging reactions: Japanese stocks climbed to the highest since February as the Nikkei closed at session highs, some 0.3% higher, a function of the ongoing decline in the yen...

... while Chinese shares headed in the opposite direction after a long weekend. Meanwhile, Hong Kong where stocks dropped on Monday due to escalating trade tensions, and South Korea were shut.

Italian bonds rallied as the country crept closer to a budget compromise. According to La Stampa, Italy would propose a 1.9% budget deficit, which while somewhat wider than previously expected, would include budget cuts and 36 billion-euro investment package. Five Star leader Di Maio suggested Italy should copy France with a 2.8% deficit-to-GDP but later backtracked and said the gap should be narrower than that. Even with a budget deal imminent, Goldman strategist George Cole remained skeptical, warning that the extra premium investors demand to hold Italian debt over its German equivalent is unlikely to shrink to levels seen before May anytime soon. That’s even if Italy’s leaders project a deficit below the bank’s forecast of 2% and the European Union limit of 3% in their 2019 budget targets, which must be published by Thursday.

Specifically, Cole predicted a difficult outlook over the medium term, due to the “upcoming fiscal expansion, coupled with the weakening in higher frequency indicators” in Italy, should result in only a limited and temporary fall in Italian yields. If the deficit comes in as Goldman expects or lower, the spread could tighten to 210 basis points, but will be hard to narrow beyond 200 basis points

However, the main driver behind global sentiment remains the trade showdown between the US and China, as the two nations dig in for what BBG called "could be a long and bruising trade war, after China's decision to call off planned talks after the latest round of tariffs. China's Vice Commerce Minister said China was willing to promote US-China trade in a fairer fashion and is hoping US takes more positive steps as well, although he added trade talks with the US are hard to proceed as US has  abandoned mutual understanding and the restart of trade talks depends completely on the US.

Separately, China's NDRC Vice Chairman said China is able to offset trade risks through expanding domestic demand and that China will give more support for Chinese firms to expand into international markets including EU, Japan and Africa, while he reiterated the domestic economy is resilient.

Political fears also emerged overnight, following conflicting reports that U.S. Deputy Attorney General Rod Rosenstein may be poised to leave his post - although it remains unclear if he will quit or be fired - while the nomination of Brett Kavanaugh to the U.S. Supreme Court continues to be mired in controversy.

With just one day until the Fed's latest decision, in which the FOMC is expected to hike another 25 bps and feature fresh projections for the next few years, traders are gearing for further strength in the dollar and more bond weakness. According to JPM portfolio manager Iain Stealey, "what will be more interesting will be to find out the number of rate hikes anticipated for next year. Inflation is above target, so they can keep going on this sort of slow normalization. I don’t see them stopping unless we see a pickup in trade rhetoric which actually does impact the overall economy."

Meanwhile, speaking of the dollar, it swung between gains and losses amid choppy price action in most major currencies.

The euro edged higher against the dollar after earlier reversing gains and bunds trimmed losses after ECB Chief Economist Peter Praet said he didn't believe President Mario Draghi intended Monday to send a new signal when he said the pickup in underlying euro-area inflation is "relatively vigorous." Elsewhere in FX, the pound swung between losses and gains as the U.K. opposition Labour Party said it will vote against Prime Minister Theresa May’s exit deal with the European Union, and is keeping all options open on Brexit including a second referendum and the choice to stay in the bloc. The yen fell to a two-month low against the dollar as markets note the BOJ's reluctance - and impossibility - to tighten financial conditions. Sweden’s krona held steady against the euro even as the country’s parliament voted to oust Prime Minister Stefan Lofven.

Treasuries remained in their recent defensive mode, with the 10-year yield rising close to its year-to-date high, pushing above 3.11%. 

In commodities, Brent continued its ascent after OPEC+ nations defied Trump's demands for a production boost, and traded above $81 a barrel, the highest in 4 years, while most metals fell.

In the latest Brexit news, UK PM May said it was always clear there would come a critical point in Brexit negotiations and now is the time to hold nerve, while there were separate reports the UK cabinet is said to give PM May's Brexit plan 2 weeks for progress. May was also said to meet US President Trump on Wednesday to discuss Brexit and a post-Brexit trade deal, according to a British official.

On today's calendar, expected data includes FHFA House Price Index and Conference Board Consumer Confidence. Aurora Cannabis, IHS Markit, Nike are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,929.25
  • STOXX Europe 600 up 0.3% to 383.08
  • MXAP up 0.07% to 165.27
  • MXAPJ down 0.2% to 523.04
  • Nikkei up 0.3% to 23,940.26
  • Topix up 1% to 1,822.44
  • Hang Seng Index down 1.6% to 27,499.39
  • Shanghai Composite down 0.6% to 2,781.14
  • Sensex down 0.4% to 36,175.40
  • Australia S&P/ASX 200 down 0.02% to 6,185.88
  • Kospi up 0.7% to 2,339.17
  • German 10Y yield rose 1.4 bps to 0.524%
  • Euro down 0.02% to $1.1746
  • Italian 10Y yield rose 11.6 bps to 2.586%
  • Spanish 10Y yield fell 0.9 bps to 1.515%
  • Brent futures up 1% to $81.99/bbl
  • Gold spot down 0.1% to $1,200.24
  • U.S. Dollar Index little changed at 94.19

Top Overnight News from Bloomberg

  • World’s two biggest economies are digging in for what could be a long and bruising trade war, testing the resilience of the strongest global upswing in years
  • President Trump didn’t bring up any new areas of contention in his Monday meeting with French President Emmanuel Macron, and the two found areas of agreement over Iran and Syria, French officials said
  • U.K. opposition Labour Party is preparing to vote down any deal with the EU that Theresa May brings to Parliament, adding to pressure on the beleaguered premier
  • German Chancellor Angela Merkel says U.K.-EU exit deal “might already be achievable in October,” ahead of EU summit likely in November
  • European Union will establish mechanism to protect European companies’ financial dealings with Iran from the effect of U.S. sanctions in a bid to keep Iranian nuclear agreement alive
  • Unwinding central bank quantitative easing shouldn’t have a material impact on the economy, according to Bank of England policy maker Gertjan Vlieghe
  • Euro bears are holding tight, setting the common currency up for a potential short squeeze that could turbocharge a burgeoning rally
  • The extra premium investors demand to hold Italian debt over German peers shrunk as La Stampa reported that the budget deficit would be 1.9 percent, below the European Union limit of 3 percent. The coalition needs to publish its 2019 budget targets by Thursday
  • The Federal Reserve will raise interest rates this week and continue its quarterly drumbeat of 25-basis-point increases straight through to June 2019, according to economists surveyed by Bloomberg
  • Swedish PM Lofven was voted out in a confidence vote in parliament as the center-right opposition and the nationalists joined forces to end four years of Social Democratic rule
  • Oil held a gain above $72 a barrel as banks and trading houses became bullish on prices after OPEC and allies rebuffed President Trump’s call to boost production

Asian stocks traded mixed with the region indecisive following a lacklustre lead from Wall St. where both S&P 500 and Dow slipped from all-time highs on trade related concerns. ASX 200 (flat) losses were initially led by weakness in the financial sector but the index recovered later in the session. The Nikkei 225 (+0.3%) was choppy in lock-step with an indecisive currency. The Shanghai Composite (-0.6%) underperformed on the return from the long weekend and took its first opportunity to react to China’s cancellation of trade discussions, while the PBoC conducted a net liquidity drain and China was also reportedly to create a national system to monitor government spending. Elsewhere, Hang Seng and KOSPI are closed due to public holidays. Finally, 10yr JGBs were marginally lower in which prices tested the 150.00 level to the downside coinciding with weakness in T-notes, while the BoJ’s Rinban announcement was for a relatively reserved JPY 475bln.

Top Asian News from BBG

  • Amarin’s 475% Rally Boosts Japanese Supplier of Fish-Oil EPA
  • Japan Stocks Erase This Year’s Loss on Seven-Day Winning Streak
  • Japan Court Clears Reactor Restart in Win for Nuclear Push
  • China Stocks Fall as Trade Spat Deepens; Developers Lead Retreat
  • Defaulting Shadow Lender Is Said to Face India Insolvency Filing

European equities have started the day higher with the FTSE MIB the marked outperformer as reports suggest the Italian Government are set to announce a deficit/GDP under 2%. Next are leading the gains in the FTSE and the Stoxx 600 after the UK retailer reported inspiring earnings and upwardly revised FY guidance for profits by GBP 10mln. Evonik shares are languishing close to the foot of the Stoxx 600 after RAG-Stiftung reduced its holding in the co. to 64.3%. The energy sector is extending on the gains seen yesterday and is the outperforming sector off the back of rising oil prices.

Top European News

  • Praet Says Draghi’s Inflation Comments Didn’t Reveal Any News
  • Telecom Italia Board Is Said to Discuss Nextel Bid
  • Goldman Sees Choppy Waters for Italy’s Bonds Even After Budget
  • Labour Sees Second Referendum as Tool to Avoid No-Deal Brexit

In FX, the dollar index is clinging to recovery gains just above the 94.000 level as the clock begins to tick down to  Wednesday’s FOMC meeting, but largely due to dovish/bearish impulses from the BoJ and resultant JPY weakness vs the Greenback alongside other major counterparts on a cross basis. Indeed, Usd/Jpy looks poised to probe 113.00 as Governor Kuroda effectively endorsed further upside potential given ongoing easy policy in Japan vs more normalisation in the US. Technically, 113.24 forms the 200 WMA, and the 2018 high so far is 113.40, assuming the big figure is surpassed and that  could be down to the Fed via September’s SEP and/or the tone of the accompanying statement given that another 25 bp hike seems baked in. GBP/EUR - The Pound is in pole position among G10s, partly due to the aforementioned lack of yen for the Jpy and perhaps positive sounding Brexit deal vibes from German Chancellor Merkel amidst all the divergence at home. Cable is retesting offers/resistance around 1.3150 and bids/support circa 0.8950 vs the single currency as ECB’s Praet plays down hawkish inflation comments from President Draghi, or at least perceptions and the rather ‘vigorous’ market reaction. Eur/Usd has eased back towards 1.1750 vs 1.1800+ yesterday, and from a chart perspective has retreated through a key Fib again (1.1780). CAD/AUD/CHF - All extending losses vs the Greenback, or perhaps shouldering the weight of the Dollar’s partial revival, with the Loonie slipping further from recent highs to circa 1.2960 and still mainly contingent on NAFTA instead of still  bid/rising crude prices, the Aud capped below 0.7250 and hampered by the lack of US-China trade talks, and the Franc  underperforming around 0.9650 and down through 1.1350 vs the Eur amidst latest Italian fiscal reports suggesting compliance with EU budget rules.

In commodities, the oil market added to gains seen yesterday, with the fossil fuel hitting over 4 year highs, and Brent breaking USD 82.00 to the upside in European trade as the production-shy rhetoric from OPEC remains fresh in traders minds. In the metals scope, gold is uneventful and trading within an exceedingly thin range of USD 3/oz with the yellow metal consolidating around the USD 1200/oz, as traders look ahead to tomorrows anticipated hike from the FOMC. Copper is seeing further weakness, with the construction material down over a percent, as market participants express demand concerns amid continued US-Sino trade tensions.

Looking at the day ahead, the focus in markets may well be on any headlines which come from the General Debate of the UN General Assembly. President Trump is to due address the Assembly (time 10:15 EST/ 15:15 BST) while Japan PM Shinzo Abe is also due to meet Trump on the sidelines to discuss trade while EU Trade Commissioner Malmstrom is due to meet with US Trade Representative Lighthizer as well as Japan’s Economy Minister Seko on the subject of trade and the WTO. Outside of that the data releases are mostly second tier. In Europe we’ll get September confidence indicators in France while in the US we get the July FHFA house price index and S&P CoreLogic house price index, along with September consumer confidence data and the September Richmond Fed manufacturing index.

US Event Calendar

  • 9am: FHFA House Price Index MoM, est. 0.25%, prior 0.2%
  • 9am: Case Shiller 20-City MoM SA, est. 0.1%, prior 0.11%; YoY NSA, est. 6.2%, prior 6.31%
  • 10am: Richmond Fed Manufact. Index, est. 20, prior 24
  • 10am: Conf. Board Consumer Confidence, est. 132.1, prior 133.4; Present Situation, prior 172.2; Conf. Board Expectations, prior 107.6

DB's Jim Reid concludes the overnight wrap

Draghi’s comments yesterday (see below) led to a rates selloff that pushed 10yr yields up 3-6bps across most of Europe yesterday – BTPs +11.9bps due also to politics – with Bunds in particular closing at 0.507% (+4.9bps) and to the highest since 23 May just before Italy’s politics took a turn for the worse. Yields are now up 32.2bps from the intraday May lows and 20.8bps from the August lows. 10yr Treasuries out-performed but still closed 2.6bps higher at 3.090%.

Draghi spoke in the early afternoon to the European Parliament in Brussels and said that “underlying inflation is expected to increase further over the coming months as the tightening labour market is pushing up wage growth” and also that “domestic price pressures are strengthening and broadening”. There was also plenty of excitement when Draghi said that he sees a “relatively vigorous” pickup in underlying inflation however this language was used in reference to ECB staff projections of a pickup in future underlying inflation offsetting slowing non-core components so it was a little misleading that this got all the initial attention. Draghi also endorsed current market pricing with respect to forward guidance and downplayed any conditionality of an end of asset purchases by year end. DB broadly agrees with Draghi’s comment, and we expect core inflation to hit 1.3% by year-end and to average 1.5% next year, enough to justify our call for a September 2019 rate hike.

The euro also rose sharply post the comments, though it subsequently pared back the move into the close to end the session flat versus the dollar. That initial Euro strength seemed to partly weigh on equity markets in the region although to be fair they were already weak going into the headlines. The STOXX 600 eventually ended -0.56% and the DAX and CAC -0.64% and -0.33% respectively. In the US it was much the same with markets also dealing with the news (per Bloomberg) that Deputy Attorney General Rod Rosenstein will meet with President Trump on Thursday to possibly resign – adding to the political volatility around the Russia investigation. The S&P 500 and the DOW closed -0.35% and -0.68% lower, respectively, while the NASDAQ advanced +0.08%. If you were wondering which assets actually had a good day yesterday then the Oil complex ticks that box with Brent (+3.05%) and WTI (+1.84%) both rallying. The key driver was the weekend news that OPEC and its allies seemingly are in no rush to raise output. Talk of $100/bbl Brent is now becoming more frequent. That would certainly flush out inflation.

This morning in Asia sentiment is a lot more mixed. The Nikkei (+0.17%) is slightly higher – albeit for the seventh session in succession - having reopened from a long weekend however bourses in China (Shanghai Comp -0.76%) are much weaker and clearly impacted by the weekend trade news. Vice Commerce Minister Wang Shouwen has also reiterated overnight that trade talks have stalled and that China won’t talk under when the US is “putting a knife on China’s neck”.

The ASX (+0.02%) is more or less flat while markets in Hong Kong and South Korea are both closed. Futures in the US are slightly in the red while the rate selloff has continued across much of the Asia region – with 10y yields in the likes of Australia 4.6bps higher.

Moving on. With just two days until the 2019 budget deadline in Italy, there’s an unsurprising steady stream of daily headlines for markets to digest. After Messaggero reiterated that Finance Minister Tria was aiming to fix the deficit at 1.6%, Repubblica reported that Five Star were pushing for 2.6%. As seen above BTPs were a bit nervous yesterday in light of the week ahead. Headlines from Italian newswires tend to come out just as we go to print so expect more shortly. In other markets yesterday, it was a relatively soft day for EM FX (-0.24%) and EM equities (-0.86%). Argentina’s assets generally sold off, with 10-year bond yields 21bps higher, the Peso -0.22% weaker, and benchmark equities down -3.39% after the news that the country was in talks for an increase to its $50bn credit line with the IMF. Argentina’s President Mauricio Macri actually said yesterday in an interview with Bloomberg TV that there is “zero chance” of Argentina defaulting again. Given that Argentina has defaulted on its sovereign debt a total of 8 times since independence in 1816, history would suggest slightly more prudence here.

On the economic data front, surveys were relatively strong in Germany and the US. The German IFO business confidence survey printed at 103.7 from 103.8. Both the current assessment and the forward-looking expectations sub-indexes beat expectations. In the US, surveys from the Chicago and Dallas Federal Reserve Banks both printed in expansionary territory. Overall yesterday’s data continued to signal growth near the top of its post-recession range.

Looking at the day ahead, the focus in markets may well be on any headlines which come from the General Debate of the UN General Assembly. President Trump is to due address the Assembly (time 10:15 EST/ 15:15 BST) while Japan PM Shinzo Abe is also due to meet Trump on the sidelines to discuss trade while EU Trade Commissioner Malmstrom is due to meet with US Trade Representative Lighthizer as well as Japan’s Economy Minister Seko on the subject of trade and the WTO. Outside of that the data releases are mostly second tier. In Europe we’ll get September confidence indicators in France while in the US we get the July FHFA house price index and S&P CoreLogic house price index, along with September consumer confidence data and the September Richmond Fed manufacturing index. Outside of that, BoJ Governor Kuroda is due to speak just after we go to print, while the ECB’s Praet and Coeure also speak at various stages today. It will be interesting to hear after Draghi yesterday.

Finally look out for the Brexit debate at the U.K. Labour Party conference today. It may start to shape their policy going forward which will be especially important if a general election is the only way out of the current Brexit impasse. Some kind of second referendum may start to gather momentum in the opposition party after today although not necessarily an in/out one which may disappointment many in the party. Bloomberg reported last night that Labour is also planning to vote down PM May’s Brexit deal.

Published:9/25/2018 6:07:11 AM
[Markets] Dow Industrials Fall as Hopes for Trade Truce Fade The Dow Jones Industrial Average retreated from its Friday record, as heightened trade tensions stoked cautiousness among investors on Monday. The Dow and the S&P 500 began the week on a downbeat note after China pulled out of trade talks with the U.S. The move came after the two countries announced new tariffs on each other’s goods last week, escalating a conflict that has kept many investors on edge this year. The broad S&P 500 dropped 10.30 points, or 0.4%, to 2919.37, while the Nasdaq Composite edged up 6.29 points, or 0.1%, to 7993.25. Published:9/24/2018 7:34:19 PM
[Markets] Asia markets poised for lower open following US political uncertainty Reports surfaced on Monday regarding the uncertain future for U.S. Deputy Attorney General Rod Rosenstein. It came as U.S.-China trade tensions escalated, with new tariffs between the two economic powerhouses going into effect on Monday. Asia markets are set for a lower open on Tuesday, following the Dow Jones Industrial Average's fall overnight amid political uncertainty in the U.S. Published:9/24/2018 7:04:42 PM
[Markets] Stocks - Dow Delivers Triple-Digit Loss Amid Washington Turmoil, Trade Concerns Investing.com - The Dow posted a triple-digit loss Monday as turmoil in Washington and trade tensions reined in investor appetite for stocks. Published:9/24/2018 6:34:15 PM
[Markets] US Market Indexes Close Mostly Lower Monday Dow Jones closes at 26,562.05 with a loss of -0.68% Published:9/24/2018 5:40:45 PM
[Markets] Dow ends down over 180 points as latest round of U.S.-China tariffs take effect Dow ends down over 180 points as latest round of U.S.-China tariffs take effect Published:9/24/2018 3:33:51 PM
[Markets] GE's stock tumbles toward first sub-$12 close in over 9 years Shares of General Electric Co. dropped 3.7% in midday trade, putting them on track to close below the $12 mark for the first time in over nine years, as the selloff in the wake of an "issue" with a gas turbine forced a shutdown of an Exelon Corp. facility continued for a third session. Volume ballooned to 78.5 million shares, already more than the full-day average of 52.2 million shares, and enough to make the stock the most actively traded on the NYSE. It has tumbled 8.9% over the past three sessions, putting the stock on track for the lowest close wince July 22, 2009. The stock has tumbled 33% year to date, while the SPDR Industrial Select Sector ETF has gained 3.9% and the Dow Jones Industrial Average has advanced 7.4%. Published:9/24/2018 12:06:23 PM
[Markets] Dow falls 150 points as investors fret over tariffs and await Rosenstein news Dow falls 150 points as investors fret over tariffs and await Rosenstein news Published:9/24/2018 10:33:48 AM
[Markets] McDonald's chief restaurant officer to retire McDonald's Corp. said Monday Chief Restaurant Officer Doug Goare will retire after 40 years with the company, and announced a number of organizational changes. The fast-food giant said the U.S. will continue to operate under Chris Kempczinski, president of McDonald's USA, international operated markets will be led by Joe Erlinger and and international developmental licensed markets will led by Ian Borden. "This new organisational structure provides us the opportunity to continue building on our progress, making sure McDonald's remains positioned to run great restaurants and better serve our customers," said Chief Executive Steve Easterbrook. The stock fell 1% in morning trade. It has gained 3.0% over the past 12 months, while the Dow Jones Industrial Average has climbed 19%. Published:9/24/2018 10:33:47 AM
[Markets] Rod Rosenstein Resigns As Deputy Attorney General

After Friday night's blockbuster NYT report in which, according to Andrew McCabe's personal files, Deputy Attorney General Rod Rosenstein offered to record President Trump (whether in jest or not) and proposed invoking Article 25, speculation has intensified that President Trump may fire Rosenstein imminently. And while many of Trump's allies have urged caution, fearing a trap, moments ago Axios reported that Rosenstein has decided to preempt that step by verbally resigning to Chief of Staff John Kelly in anticipation of being fired by President Trump, according to a source with direct knowledge.

Per a source close to Rosenstein: "He’s expecting to be fired," so he plans to step down.

Moments after the Axios headline hit the tape, CNN followed it up with a report that Rosenstein expects to be fired, and ABC and the AP reported that Rosenstein is on his way to the White House in the expectation that he will be fired.

Separately, Bloomberg reports that the White House has accepted Rosenstein's verbal resignation.

The exact timing of the resignation is unclear, but he isn’t expected to be in job after Monday, according to another person familiar with the matter. The move comes after reports that Rosenstein suggested to colleagues last year that he would secretly record conversations with President Donald Trump.

Trump, meanwhile, is in New York City for the United Nations General Assembly.

Meanwhile MSNBC is reporting that Rosenstein will not resign, as he will "have" to be fired.

Bloomberg is reporting that Rosenstein's resignation letter has been accepted by the White House.

 

The news sent the S&P and the Dow to fresh session lows, perhaps due to concerns the latest departure will lead to more political volatility as Trump seeks to end the Mueller probe.

Dow

Published:9/24/2018 10:04:31 AM
[Markets] Dow down 130 points after 90 minutes of Monday trading Dow down 130 points after 90 minutes of Monday trading Published:9/24/2018 10:04:31 AM
[Markets] Global Stocks Slide As Trade War Enters New Phase; Oil Surges

U.S. stock futures followed European and Asian shares lower in thin volume after China called off planned trade talks with the U.S. and the Trump administration imposed another $200 billion in "Phase II" China tariffs just after midnight; oil jumped 2.4% as OPEC+ member defied Trump’s calls for lower oil prices, refusing to boost output.

Asia set the downbeat tone as Hong Kong stocks fell, while thinner than average volumes across Asia due to holidays in China, South Korea and Japan.  "Given that the trade talks are off, investors will be watching what happens after the implementation of the tariffs and particularly whether the U.S. will move to the next phase, which would be tariffs on a further $267 billion of Chinese goods," said Dushyant Padmanabhan, a currency strategist at Nomura in Singapore. White House trade adviser Peter Navarro said on NPR’s Morning Edition that “the president was crystal clear in his statement: if China retaliates, the process will move forward on the additional amount.”

European stocks followed lower, with miners and carmakers, both sectors heavily exposed to global trade, among the biggest decliners in the Stoxx Europe 600 Index, while futures on the S&P 500 and Dow pointed to a weaker open. Randgold Resources and bucked the trend to rally on merger news following news of a merger with Barrick, creating the world's largest gold miner; Sky also rose after Comcast beat Fox in the auction for the broadcaster with a $39 billion bid, a deal that has been two years in the making. Comcast will start buying Sky shares in the market in order to reach the 50% threshold before the Oct. 11 deadline. Current shareholders just got an extra 9% for their patience as Comcast will pay 1,728p for the shares. What Fox will do with its 39% stake is still unknown. Elsewhere, Carrefour denied it approached Casino Guichard-Perrachon only hours after the rival grocer said its board rebuffed a proposal for a possible merger.

Surprisingly, with a new round in the trade war now live and with the Fed set to hike rates in just a few days, the dollar initially pushed higher, but failed to sustain an early-London advance. Pound volatility was the highlight in options space for another day as Brexit headlines were in focus, while the euro advanced after stronger than expected German IFO data beat across the board, and ahead of a Mario Draghi speech Monday.

As the dollar declined, the Chinese yuan dipped even more, weakening over 200 pips to as low as 6.87 as traders were unable to trade the Shanghai Composite which was closed on Monday.

Elsewhere in overnight FX trading, the euro reversing earlier losses to edge higher in early London session. The pound strengthened on increasing talk of a second U.K. referendum on the final Brexit deal, recovering above $1.31 as some traders took profit on short positions; as Bloomberg notes, the premium to protect against losses in the pound versus the dollar over the next three months has widened to the most since January 2017 after U.K. Prime Minister Theresa May said Friday that Brexit negotiations had reached an impasse.  The Australian and New Zealand dollars declined, leading losses among the Group-of-10 peers, with the offshore yuan as China canceled trade talks with the U.S. and $200 billion of American tariffs on Chinese goods took effect after midnight Washington time.

As noted last night, JPMorgan said it was starting to factor into its strategy a growing potential for a “Phase III” of the tariff war next year affecting all Chinese imports, which would lead to weaker growth in the country and hit U.S. stocks. While the escalation in cross-Pacific trade tensions are proving a new test for global stocks which have posted two strong weeks of gains, today's decline was virtually negligible in the context of the recent sharp move higher.

And with trade war progressing, attention now turns to the Fed's policy meeting that will see rates increased for the third time this year, with markets pricing in another hike in December.

Elsewhere, market jitters continued in Indian shares where the rupee slid as cracks appeared in Asia’s best-performing stock market this year amid concerns about troubles in the shadow banking sector after IL&FS announced several defaults on Friday following by key management resignation.

Emerging-market shares and currencies initially weakened but have since recouped many of their losses as the dollar rally fizzled. The rupee and rupiah led a drop in Asian currencies; Hong Kong stocks fell the most in the region on a day when most North Asian markets were closed for holidays.

Treasuries declined with European sovereign bonds: the 10-year TSY yield gained 2 bps to 3.08%, hitting the highest in more than four months with its fifth straight advance. Germany’s 10-year yield increased two basis points to 0.48%.

Crude oil hit a fresh cycle high, as Brent rose above $80/barrel, a 4 year high, after OPEC shunned U.S. President Donald Trump’s calls to increase supply. Looking at the oil rally, traders are looking increasingly convinced the it has more juice, while the OPEC meeting on Sunday showed its members clearly have no urgency to boost their output.

Switching to gold, the bullion is still holding around its $1,200 level. Credit Suisse strategists have now abandoned their bearish view on the precious metal, while BofAML sees gold topping $1,300 on fiscal deficit. What’s in it for gold miners? Their valuation level is near an all-time low, the rand is weak and GEM stocks have underperformed their U.S. peers.

In the latest Brexit news, UK PM May’s aides have reportedly begun contingency planning for a snap election in November to save the Brexit talks and her job after EU leaders rebuffed the PM’s Chequers plan. Strategists have begun “war-gaming” an autumn vote to win public backing for a new plan, according to the Times. However, there were also reports UK Brexit Secretary Raab dismissed claims of a snap general election in Autumn, while playing down the chances of the government pivoting towards a Canada-style deal and EU officials are also thought to be working on a counter-proposal to Chequers, which is likely to appear in early October, the Guardian reported. Meanwhile, Telegraph said that a majority of the UK cabinet is now supporting moves towards a Canada-style Brexit deal. As such, May will now be asked to reassess her approach and opt for a free trade agreement that represents a ‘clean Brexit’. UK Cabinet Ministers will be required to grant limitless access to European Union migrants for more than two years after a “no-deal” Brexit, according to the Times. Such a move proposed by Home Secretary Javid will likely anger Brexiteers.

In central bank news, ECB's Dolenc said that ECB's interest rates will remain low through the summer of 2019, says he can't comment on when they will change.

On the geopolitical front, there was a shooting at a military parade in Iran that was claimed by anti-government group as well IS militants, while Iranian President Rouhani criticised the US and Gulf states as having enabled the attack. Iran revolutionary guards threatened retaliation for the attack on the Iranian military parade; although it is not clear who they will retaliate against.

Data include Chicago Fed National Activity and Dallas Fed Manufacturing Activity. Amalgamated Bank and Ascena Retail are reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.2% to 2,928.25
  • STOXX Europe 600 down 0.2% to 383.38
  • MXAP down 0.6% to 165.18
  • MXAPJ down 1% to 524.49
  • Nikkei up 0.8% to 23,869.93
  • Topix up 0.9% to 1,804.02
  • Hang Seng Index down 1.6% to 27,499.39
  • Shanghai Composite up 2.5% to 2,797.49
  • Sensex down 1.7% to 36,221.78
  • Australia S&P/ASX 200 down 0.1% to 6,186.87
  • Kospi up 0.7% to 2,339.17
  • German 10Y yield rose 1.1 bps to 0.473%
  • Euro up 0.1% to $1.1763
  • Brent Futures up 2.2% to $80.56/bbl
  • Italian 10Y yield fell 5.1 bps to 2.47%
  • Spanish 10Y yield rose 0.2 bps to 1.497%
  • Brent futures up 2.6% to $80.86/bbl
  • Gold spot down 0.1% to $1,198.99
  • U.S. Dollar Index down 0.1% to 94.15

Top Overnight News

  • China dashed hopes for a near-term resolution to the trade war with the U.S., warning Trump that his threats of further tariffs are blocking any potential negotiations. The response, which came just over an hour after the U.S. imposed new duties on $200 billion in Chinese goods on Monday, underscores a deepening gulf between both governments
  • ECB should consider tightening monetary policy sooner than originally planned, ECB Governing Council member Ewald Nowotny said Sunday on Austrian television
  • Theresa May’s fiercest critics spelt out their Brexit demands on Monday, just as the embattled Conservative leader heads into a potential showdown with her top ministers; The Sunday Times reported that May’s aides have discussed the possibility of a November general election, in which she would seek a public endorsement of a harder Brexit stance
  • Bank of England policy makers have the chance this week to share their thoughts on interest rates now that Governor Mark Carney has said he’s staying for longer
  • Donald Trump’s demand that OPEC take rapid action to reduce oil prices received a tepid response, with the group saying it would boost output only if customers requested it
  • All signs point to Prime Minister Stefan Lofven losing the first round in his battle to remain in power as Sweden seats its new parliament
  • Brett Kavanaugh’s nomination to the U.S. Supreme Court is at risk of unraveling after new sexual misconduct allegations emerged, just as the Senate Judiciary Committee prepares to hear testimony from a woman claiming he assaulted her in high school
  • The European Central Bank should consider tightening its monetary policy sooner than originally planned, ECB Governing Council member Ewald Nowotny said Sunday on Austrian television
  • The European Union’s trade chief heads to New York this week to continue negotiations with the U.S. and Japan, as the three parties seek a way to end what they see as China’s unfair commercial policies and dial down global tensions

Asian stocks traded lower with South Korea, Japan, Taiwan and mainland China away due to public holidays, with risk sentiment dampened after China cancelled trade talks with the US. In addition, fresh US-tariffs took effect from today with 10% US tariffs on USD 200bln worth of Chinese goods and China had previously announced a retaliation of 5-10% tariffs on USD 60bln of US goods. ASX 200 (-0.1%) losses were led by weakness in the metals sector, while healthcare and financial names also weighed on the index. Hang Seng (-1.6%) extended on losses from the open as trade concerns remained in focus and amid continued increases in money market rates in Hong Kong with the 3-month HIBOR at its highest in 10 years. China cancelled upcoming trade talks with the US. (WSJ) In related news, there were comments from US President Trump stating the US have a lot more tariffs if China retaliates. (Newswires)

Top Asian News

  • China Says Talks Can’t Happen Under U.S. Tariff Threat: Xinhua
  • China Beige Book Says Manufacturers Stressed Even Before Tariffs
  • Tiny Maldives Boots Out Pro-China President in Election Surprise
  • China Firms May Face Strains on 364-Day Dollar Bonds: Law Firm
  • India Said to Plan Raising $2.8 Billion by Merging Power Firms

European equities have started the day on the back foot as trade concerns have come back into the fray after US-China sanctions have taken effect and China cancelled US trade talks. The automotive sector is struggling in the wake of this, with weakness in Daimler (-1.3%) and Volkswagen (-1.0%) pressuring both the DAX and consumer discretionary sector into underperformance. This is being further exacerbated by The German Government and carmakers failing to strike a deal on hardware retrofits for older diesel vehicles. The energy sector is the outperformer and benefitting from higher oil prices as market participants digest commentary from the JMMC meeting in Algiers over the weekend. The 2 year takeover saga of Sky (+9.0%) has reached a conclusion as the Co. have accepted Comcast’s bid of GBP 17.28/share made in a blind auction over the weekend. Comcast beat out 21st Century Fox and value the UK broadcaster at over GBP 30bln. Randgold Resources (+4.9%) and Barrick Gold have confirmed they are in late stage discussions regarding a merger valued at USD 18bln.

Top European News

  • ECB on Runway to Rate Liftoff Considers What Should Happen Next
  • German Business Sentiment Slid Amid New Round in Trade Spat
  • The Secret Plot to Tie the Hands of Italy’s Populist Government
  • Italian Bonds Extend Drop Amid Budget-Deficit Concerns
  • Drax in Talks to Buy U.K Power Generation Plants From Iberdrola

In FX, the Pound has regained some composure after last week’s fall from grace, and its recovery is perhaps even more impressive given weekend UK press reports full of talk about a snap election. Moreover, some market observers are pinning the rebound on latest remarks from Raab striking a defiant message amidst all the growing criticism of and opposition to PM May’s Chequers plan as he maintains that this is the best formula for a deal with the EU, but M&A flows also look supportive given Comcast’s conquest in the battle for Sky. Cable has reclaimed 1.3100+ status, and techs are also noting the fact that a daily cloud base around 1.3055 has held on a couple of occasions, while Eur/Gbp is back below 0.8900 even though the single currency looks more solid around 1.1750 bs the Dollar. In fact, Eur/Usd is trying to probe higher towards 1.1800 in wake of Germany’s Ifo survey that saw a clean sweep of beats vs consensus and only minor moderation in components from the previous month. However, a 1.1780 Fib still needs to be breached from a chart perspective and there is decent option expiry interest from 1.1740-50 (1.4 bn) exerting a gravitational pull.  EM - In contrast to the Cad, Brent’s outperformance vs WTI and further advances towards $81/brl have boosted the Rub to test sub-66.0000 peaks vs the Usd, while the Try has resumed its recovery momentum vs the Usd and bounced off 6.3300+ lows to sit just off 6.2150.

In commodities, the oil sector is benefitting from commentary over the weekend where OPEC stated that they would only boost production should customers require it, with Saudi Energy Minister Al-Falih also saying that the “market is well supplied”, and that demand will increase in October. This commentary disregarded US President Trump’s calls to markedly increase output to reduce oil prices, and also came amid the OPEC world outlook that stated demand is expected to continue growing at a healthy rate in the mediumterm. This has seen Brent up over 2% today and with it finding a firm footing above USD 80/bbl in European trade. In reaction to this markets are gearing up for higher oil prices in the medium-term, with Bank of America Merrill Lynch revising their 2019 oil price forecasts. This has gone from USD 75/bbl to USD 80/bbl for Brent and USD 65/bbl to USD 67/bbl for WTI.  In the metals space, gold is essentially unmoved after declining over a percent on Friday, with the yellow metal trading within a thin USD 5/oz range. London copper has fallen from 10 week highs as trade concerns hit the market, with the construction material trading around USD 6,330/T in Monday’s session.

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, est. 0.2, prior 0.1
  • 10:30am: Dallas Fed Manf. Activity, est. 31, prior 30.9

DB's Jim Reid concludes the overnight wrap

The Fed (Wednesday) is the main event although Italy’s draft 2019 budget (Thursday) could grab the global market spotlight away from Washington if the recent run of better political headlines proves illusory. So, Wednesday will likely see the widely anticipated 25bps rise to 2.25% (upper bound) in the Fed Funds rate but the statement and press conference will be the main market mover. A reminder that DB continue to expect 5 more hikes after this one out to the end of 2019. Thursday is the deadline for Italy's draft 2019 budget. As has been the case of late expect daily newsflow leading up to this. Will the more market-friendly Finance Minister Tria’s recent rhetoric win out or will the populist Deputy Prime Ministers Salvini and Di Maio influence be felt? The former favours a deficit target of around 1.6% of GDP, while the latter have pushed for a target above 2%. Our economists believe that any target below 2.3% will be enough to maintain debt sustainability for now and satisfy the market, but the European Commission may be more demanding. We’ll also be attentive to any one-off measures that may act as a backdoor way of raising the deficit without affecting the headline number.

Meanwhile the main data highlights this week revolve around the inflation prints in the US and Europe. On Friday we'll get the August PCE report in the US where the consensus expects a +0.1% mom print which would be enough to hold the annual rate at +2.0% yoy. In Europe we'll get the September CPI report for the euro area on Friday too with the consensus expecting no  change in the +1.0% yoy core reading. Country level data in Europe is also due out in Germany (Thursday), France (Friday), Italy (Friday) and Spain (Friday).

Brexit might also grab the headlines after a turbulent end to last week which we detail below. The U.K. Labour Party (the opposition) have their annual conference this week and there’s every chance that the membership might recommend a second EU referendum which may start to shape the opposition’s actual policy on the issue. Party leader Corbyn suggested over the weekend that he would respect the membership’s vote (Tuesday) but he would prefer a general election. Talking of which, the Sunday Times reported that aides of PM May have been preparing the grounds for a snap election in November to try to break the Brexit deadlock. This was flatly denied but it shows how fluid this situation is at the moment. The FT also reported that Shadow Chancellor John McDonnell was pushing for a policy whereby every large British company would be forced to hand over 10% of the company’s equity to workers within a decade. If Labour were to get elected and if they enacted this it would be a monumental upheaval to capitalism in the U.K. There are so many permutations possible before Xmas on both Brexit and who leads the country into 2019. See the link later for the latest DB Brexit view and fresh Sterling short recommendation.

Kick starting the week, the 10% tariffs on $200bn of Chinese goods by the US took effect overnight with China set to retaliate with tariffs on $60bn of US goods imminently. Over the weekend China called off trade talks which were planned with US officials with Bloomberg reporting a source as saying that talks are unlikely to resume until after the US mid-term elections now. So any hopes of de-escalation any time soon appear low. Markets-wise, a number of holidays in Asia today means it’s been a fairly thin session for volumes although of the bourses that are open the Hang Seng (-1.25%), ASX (-0.07%), Jakarta Comp (-0.96%) and Nifty (-0.52%) are all in the red. Futures in the US are also lower along with most EM currencies.

As for last week, equity markets advanced amid mostly positive data, though PMIs in Europe disappointed slightly. The S&P 500 (-0.04% Friday) and DOW (+0.32% Friday) have hit new all-time highs during last week, though only the DOW closed at its peak. The NASDAQ (-0.51% Friday) shed -0.29% amid another tough week for the tech sector- the IT-heavy index is now down -1.51% this month versus the S&P 500’s +0.97% rally. The Euro Stoxx 600 rallied +1.70% last week, its best performance since March, with Italian stocks leading gains (FTSEMIB +3.12%).

In the US, jobless claims fell to a fresh 48-year low, while regional business surveys from the New York and the Philadelphia Federal Reserve Banks printed firmly in expansionary territory. In Japan, August CPI beat expectations at 1.3% yoy, sparking a 1.5bps selloff in JGB – not much a move in absolute terms, but it makes last week the sharpest selloff since July. Digging into the European data, the highlight was a 2pt miss for Germany’s manufacturing PMI, which fell to 53.7 from 55.9, dragging down the composite PMI as well. The new export orders sub-index dipped to 48.2, its lowest level since June 2013. Services held up though and the overall Euro Area composite PMI printed at 54.2 from 54.5 last month, consistent with still above-potential growth. The employment sub-index stayed flat at 55.3, its highest level in over a decade.

Government debt mostly soldoff last week, with Treasury yields up 6.7bps to 3.063%, their highest level since May. That marks the 4th consecutive advance for US yields, the longest streak since January-February. In Europe, yields had traded higher for most of the week, but partially retraced after Friday’s softer PMIs. German bund yields rose 1.1bps on the week, while BTPs continued to rally. Italian 10y yields are 40.6bps lower this month (-15.3bps last week), on track for their best month since July 2015 and their second-best month since 2013.

Despite the divergence in US and European yields last week, the Euro rallied +1.07% and the DXY index shed -0.74%. Both moves came off their peaks/ troughs after the softer European data caused the euro to partially retrace. Emerging market currencies mostly rallied, with the EM FX index up +1.30% on the week. The Turkish Lira retreated -1.93%, as investors were not impressed with the governments new macro plan, while the Argentine Peso (+6.91%), South African Rand (+4.27%) and Russian Ruble (+2.49%) all advanced.

The sharpest FX mover of the week was the pound, which erased gains of +1.76% to end the week virtually flat after Brexit headlines exploded on Friday. Prime Minister May declared that negotiations with the EU are “at an impasse” and reiterated that “no deal is better than a bad deal.” This follows an acrimonious EU summit on Thursday and comes ahead of the Conservative party conference on 30 Sep-1 Oct. Our economists believe that it will be hard for May to maintain her strength into the conference while simultaneously negotiating a compromise with Brussels. They still think a deal by November is possible, but downgrade the odds that Parliament approves one to 50%. There is likely to be more rhetoric and volatility ahead. Full note here.

Finally, oil markets whipped around last week amid competing reports about Saudi Arabia and OPEC’s production plans. Early in the week, reports like Bloomberg suggested that Saudi Arabia was comfortable with oil at $80/barrel, and Brent crude oil  futures duly tested that level, which has held since 2014 without breaking. On Friday, however, various reports have suggested that OPEC may support a 500k barrel per day expansion in production. After trading as much as +2.60% higher on the week, Brent retraced to close +0.91% higher. Over the weekend OPEC and its allies suggested that output would only be
increased should customers demand it.

It's a quiet start to the week for data. In Europe, we get the September IFO survey in Germany along with September CBI Trends total orders and selling prices data for the UK. In the US, we'll get the August Chicago Fed national activity index and  September Dallas Fed manufacturing activity index. Away from that, ECB President Draghi is due to speak in Brussels. Away from that, German Chancellor Angela Merkel will speak in Hanover, France will unveil its 2019 budget and French President Emmanuel Macron will meet US President Donald Trump in New York.

Published:9/24/2018 6:00:54 AM
[Markets] Futures, Yuan Slump At Open After China Cancels US Trade Talks

Having rallied 800 points last week on hopes that US-China trade tensions were on a path to de-escalation, Dow futures are opening down just 100 points (and Yuan is lower) after China escalated and canceled two planned trade talk visits.

After President Trump slapped a fresh round of tariffs on Chinese goods, targeting 10 percent duties on $200 billion of goods; the two camps were scheduled to meet in order to dial back tensions.

That was what sparked hope that this was just a trade skirmish (as Jamie Dimon attempted to play down), sending stocks soaring all week.

However, that is all over now.

The Journal  just reported on Friday that, according to sources, China has rescinded the proposals to send two delegations to Washington.

Chinese officials have said such pressure tactics wouldn’t induce them to cooperate.

By declining to participate in the talks, the people said, Beijing is following up on its pledge to avoid negotiating under threat.

“Everything the U.S. does hasn’t given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang said at a press briefing Friday.

“We hope that the U.S. side will take measures to correct its mistakes.”

And the result at the Sunday night futures open... Dow futures are opening down...

 

As are the rest of the US equity futures markets...

And Yuan is down modestly also after ramping for four days on trade hopes...

Meanwhile, WTI futures are up over 1% following OPEC's tepid response to President Trump's demands to lower the oil price...

The timing of this trade tension news, after the exuberant equity week, is also noteworthy as it follows Ray Dalio's, founder of Bridgewater, warnings that the current trade tensions mirror those of the 1930s:

"I think that the 1935-40 period is most analogous to the current period and that it is worth reflecting on what happened then when thinking about US-Chinese relations now. 

To be clear, I’m not saying that we are on a path to a shooting war, but I am saying that we have to watch what path we are on, given these cause-effect relationships that history has taught us and that are described in the template. This excerpt describes how the economic and political conditions of the late 1930s evolved into the wars that followed. "

Read more here...

We have discussed this case-effect relation before...

 

 

Published:9/23/2018 5:29:27 PM
[Markets] The Burden Of The American Worker

Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum,

Happy Destiny

There’s great elation flowing from the various economic bureaus down through President Trump. They bring us good tidings. If you haven’t heard, here in the USA, we live, work, and play in the dazzle and delight of an economy in which GDP growth exceeds the unemployment rate.

The president has clearly had a hand in job creation. :) Seriously, there can be no doubt that aggregate economic activity has increased as a result of the measures the government has implemented, including deregulation, tax cuts and increased deficit spending. Note that the latter is offsetting the salutary effects of the other measures in the long run, even though government spending is added to GDP and therefore provides a near term boost to official “growth”. It is just difficult to tell how much of this growth consists of genuine wealth creation and how much of it is simply masking capital consumption. [PT]

The last time we drank of elation this cool and sweet was in the pre-iPhone stone ages. Back when George Dubya was President. And when Lehman Brothers was still one of the titans of Wall Street.

Indeed, getting back to this agreeable place has been a long, hard trudge along the road to happy destiny.  But step by step, day by day, a paradise lost has been returned to Eden. Thank you, Ben Bernanke.

By all official accounts, things have never been better.  GDP, according to the Bureau of Economic Analysis, is growing at an annual clip of 4.2 percent.  The unemployment rate, as reported by the Bureau of Labor Statistics, sits at just 3.9 percent.  But that’s not all…

Pot stocks have become the new bitcoin.  The Dow Jones Industrial Average, after a six month hiatus, is marking new all-time record highs.  And, most importantly, the Dodgers are tops in their division going into the final week of the regular season.  What’s not to like?

Potting it – marijuana stock Tilray rises to a price/sales ratio of 846 intraday. Such moves have  become a regular occurrence in bubble-land. [PT]

Another recent standout is this 5-day move from $1.50 to $10 in the stock of NBEV on the mere announcement that it may begin offering drinks spiked with marijuana additives. There is actually an important takeaway from this for investors. Such moves happen only in the final stage of major bubbles. This means that a) yes, it clearly is a bubble, b) it is on borrowed time and c) you can be certain the unwinding phase will be harrowing. [PT]

Discrepancies

The panoramic vantage from the present summit is both extraordinary and astonishing.  Here, standing at the heights of a quasi-centrally planned economy, we see distortions and discrepancies. There are pie charts and bar graphs displaying contrived and downright fabricated economic data. The garbage outputs are very much at odds with the reality of the situation.

The results are bizarre evidence of the determination of the central planners to depict a world that’s unfolding in accordance with an intelligent plan. A supposed reality where not only does your neighbor get rich… but you do too. Truly, it’s a laugh and a half, the whole thing.

A succinct summary of the situation. [PT]

For starters, the growth is being extracted from the future via massive infusions of corporate, consumer, and government debt. To dismiss this, is to stretch the truth considerably. To understand that GDP is, in effect, a measurement of the rate at which we’re all going broke, makes the spectacle of a 4.2 percent rate of GDP growth an absolute howler.

On top of that, the 3.9 percent unemployment rate is downright ludicrous, if one is in the mood for statistics without any common decency. What good is a 3.9 percent unemployment rate when the labor participation rate is at a 40 year low?If the unemployment rate is really at a record low, why are wages stagnating?

These discrepancies help explain the outlandish circumstances all but the crème de la crème of the wealth spectrum find themselves in. It is nothing less than a charade. What to make of it?

Middle class problems emerge from all sides. [PT]

The Burden of the American Worker

The general burden of the American worker is the daily task of squaring the difference between the booming economy reported by the government bureaus and the dreary economy reported in their biweekly paychecks.

There is sound reason to believe that this task, this burden of the American worker, has been reduced to some sort of practical joke.  An exhausting game of chase the wild goose.

How is it that the economy’s been growing for nearly a decade straight, but  workers have on average seen no meaningful increase in their income?  Have workers really been sprinting in place this entire time?  How did they end up in this ridiculous situation?

Some workers have permanently vacated the official statistics. They are not considered to be unemployed, but they are certainly not working. There is a whole host of reasons for this which aggregate statistics cannot tell us anything about, but it is a good bet that e.g. the vast skills mismatches that have emerged in the labor market can be largely blamed on the previous boom inter alia spurring malinvestment in human capital. [PT]

The fact is, for the American worker, America’s brand of a centrally planned economy doesn’t pay. The dual impediments of fake money and regulatory madness apply exactions which cannot be overcome. There are claims to the fruits of one’s labors long before they have been earned.

The economy, in other words, has been rigged.  The value that workers produce flows to Washington and Wall Street, where it is siphoned off and misallocated to a cadre of officials, cronies, and big bankers. What is left is spent to merely keep the lights on, the car running, and food upon the table.

Should a lowly wage earner expect or deserve any more? Certainly, they deserve the rewards and dignity of hard work, saving money, and paying their way. But what do we know?  We still cut our own grass with a push mower, drink our coffee black, and pay our utility bills with hand written checks.

Published:9/22/2018 4:51:25 PM
[Markets] Stock records aren’t enough to make investors feel bullish on the market The U.S. stock market is back at record levels, but investors aren’t in a celebratory mood. According to the weekly survey of sentiment conducted by the American Association of Individual Investors, market participants are feeling somewhat tepid about the market, despite a lengthy move higher that took both the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) to records on Thursday, a move that represented the first such milestone for the Dow since January. Published:9/22/2018 9:23:11 AM
[Markets] Dow posts back-to-back records, but tech woes weigh on broader market The Dow Jones Industrial Average on Friday notches a second straight all-time high, but a slump in megacapitalization technology and internet-related stocks weigh on the broader market, pressuring the Nasdaq. Published:9/21/2018 9:47:21 PM
[Markets] Dow Hits Record Amid Global Stock Rally Any doubt that human progress continues ever onward and upward surely was dispelled last week by the wondrous devices that (AMZN) unveiled to a wide-eyed world, including a microwave oven that responds to spoken commands via Wi-Fi. In contrast, the steady advance of the stock market seemed irresistible last week, as the Dow Jones Industrial Average and the Standard & Poor’s set fresh records, while global markets joined in the fun. Published:9/21/2018 8:17:35 PM
[Markets] Market Snapshot: Dow posts back-to-back records, books best weekly since July as broader market lags The Dow Jones Industrial Average on Friday notches a second straight all-time high, but a slump in mega-capitalization technology and internet-related stocks weighs on the broader market, pressuring the Nasdaq.
Published:9/21/2018 7:46:29 PM
[Markets] Dow Keeps on Chugging to Another Record High The Dow Jones Industrial Average held onto its gains to notch a fresh high, but the S&P 500 and Nasdaq fell into the red as Friday drew to a close Published:9/21/2018 4:46:15 PM
[Markets] Dow ends at record high but tech pressures broader market Dow ends at record high but tech pressures broader market Published:9/21/2018 3:34:37 PM
[Markets] Markets Right Now: Dow inches to another all-time high Stocks are closing mixed on Wall Street even as the Dow Jones Industrial Average crept up to another all-time high. Chipmaker Micron fell 2.9 percent after saying its profits would be hurt by tariffs on Chinese imports that go into effect on Monday. The Dow Jones Industrial Average rose 86 points, or 0.3 percent, to 26,743, thanks largely to big gains in Boeing and McDonald's. Published:9/21/2018 3:34:37 PM
[Markets] US STOCKS-S&P 500, Dow hit new highs ahead of index reshuffle The S&P 500 and Dow reached record highs on Friday ahead of Monday's major sector reshuffle, capping a week that largely shrugged off trade worries. Trading volume was expected to spike in anticipation of the S&P 500 sector change, when telecom will be folded into a new sector called communications services, along with heavy-hitting stocks such as Amazon.com, Facebook Inc and Walt Disney Co. Published:9/21/2018 1:44:53 PM
[Markets] US STOCKS-S&P, Dow hold on to record highs, Nasdaq dips The S&P 500 and the Dow touched record highs for the second straight day, while the tech-heavy Nasdaq dipped in heavy trading on Friday, largely related to Wall Street's sector reshuffling and "quadruple witching" expirations. Telecoms major AT&T was set to form the heart of a new powerhouse communications services sector, which would also include Facebook, Google parent Alphabet and Twitter. AT&T rose 1.8 percent, pushing the S&P telecommunications sector higher by 1.42 percent. Published:9/21/2018 12:45:45 PM
[Markets] Dow and S&P 500 Extend Their Record Rallies At last check the Dow was up 69 points, or 0.26%, to 26,725. The record closing highs on Thursday, Sept. 20, for the Dow, the index's first since January, and the S&P 500 came amid improved global risk sentiment and a lull in the U.S.-China trade war. Published:9/21/2018 11:45:36 AM
[Markets] Is Oil Pushing Wall Street Higher? On September 13–20, US equity indexes had the following correlations with US crude oil November futures: the Dow Jones Industrial Average (DIA): 16.5% the S&P 500 (SPY): 0.1% the S&P Mid-Cap 400 (IVOO): -13.1% Published:9/21/2018 10:44:28 AM
[Markets] This Important Index May Be the Next to Break Out All of the major equity indices closed higher Thursday with positive internals on higher trading volume from the prior session. The S&P 500 (see below) and Dow Jones Industrial Average both closed above short-term resistance to new closing highs. While the rest of the indices advanced as well, there were no other violations of resistance or changes in trend on their part. Published:9/21/2018 9:44:56 AM
[Markets] Friday gains put Dow industrials on track for best week since July Friday gains put Dow industrials on track for best week since July Published:9/21/2018 9:13:33 AM
[Markets] Stocks Extend Records as Dow and S&P 500 Move Higher Stocks rose on Friday, Sept. 21, with Wall Street extending its record run. The record closing highs on Thursday, Sept. 20, for the Dow, the index's first since January, and the S&P 500 came amid improved global risk sentiment and a lull in the U.S.-China trade war. Published:9/21/2018 8:48:47 AM
[Markets] Oil Prices Pause before OPEC and Non-OPEC Members Meet On September 20, US crude oil November futures fell 0.6% and settled at $70.32 per barrel ahead of OPEC and non-OPEC members’ meeting. On the same day, the Energy Select Sector SPDR ETF (XLE) was unchanged. The S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 0.8% and 1% on September 20. Mute energy stocks might have helped these indexes rise. In Part 3 of this series, we’ll analyze US crude oil’s relationship with these equity indexes. Published:9/21/2018 7:43:19 AM
[Markets] The Dow logged its first record since January, powered by a surge in Apple’s stock The Dow Jones Industrial Average marks its first intraday all-time high since January, the resumption of a record run for the blue-chip index that had taken a nearly eight-month pause. Published:9/20/2018 8:11:00 PM
[Markets] Asia markets set for higher open after record highs on Wall Street Asia markets are poised to open in positive territory following record highs in U.S. markets overnight. On Thursday, the Dow Jones Industrial Average surged to its first record high since January 2018, while the S&P 500 also rose 0.8 percent to an all-time high. China's commerce ministry has said it hopes the U.S. would take steps to correct its behavior, the comments coming after both countries slapped new sanctions on each other's goods this week. Published:9/20/2018 7:11:14 PM
[Markets] Stocks at records; Dow beats all-time high from January Wall Street delivered another set of milestones Thursday as a wave of buying sent U.S. stocks solidly higher, driving the Dow Jones Industrial Average above the all-time high it closed at in January. The S&P 500, the benchmark for many index funds, also hit a new high, eclipsing the peak it reached last month. A weaker dollar, which helps U.S. exporters, and a mix of mostly encouraging economic reports helped put investors in a buying mood, a turnaround from earlier in the week when the U.S. and China each announced a new round of tariffs on each other's goods, triggering a sell-off. Published:9/20/2018 5:11:30 PM
[Markets] Stocks at records; Dow beats all-time high from January Wall Street delivered another set of milestones Thursday as a wave of buying sent U.S. stocks solidly higher, driving the Dow Jones Industrial Average above the all-time high it closed at in January. Published:9/20/2018 4:43:49 PM
[Markets] The Dow just logged its first record since January powered by surge in Apple’s stock The Dow Jones Industrial Average marks its first intraday all-time high since January, the resumption of a record run for the blue-chip index that had taken a nearly eight-month pause. Published:9/20/2018 3:38:50 PM
[Markets] Market Extra: The Dow just logged its first record since January powered by surge in Apple’s stock The Dow Jones Industrial Average marks its first intraday all-time high since January, the resumption of a record run for the blue-chip index that had taken a nearly eight-month pause.
Published:9/20/2018 3:38:50 PM
[Markets] Stocks Surge To New Record Highs As Investors Dump Dollar & Bonds

Seemed appropriate...

China stocks went nowhere overnight...seems like the panic buyers from Tuesday have left (cough National Team cough)

 

The Dow finally broke above its January record highs and there were record highs all around for stocks as trade wars are now a buying opportunity (so the narrative goes - if stocks drop, then Trump will pull out of trade war, so buy stocks, durr!!)

US Equity markets gapped up at the cash open and never looked back, but Trannies underperformed...

 

Futures show the week's incessant bid at the cash opens...

 

The rise in yields prompted renewed buying in financials...though we note the decoupling today...

 

Regional Banking Index broke back above all its key DMAs...

 

Defense stocks sank as North Korea denuclearization headlines hit and Russia didn't bomb Israel...

 

FAANG stocks are notably decoupled this week ahead of tomorrow's index reclassification...

 

Sonos was hammered back below its IPO price (47 days after going public) after AMZN announced enhanced features for its Alexa products...

 

Tilray tumbled - almost erasing its gains from yesterday...

 

Treasury yields saw modest rises today...

 

But the bond rout is well off the day's high yields...

And the dramatic steepening of the yield curve this week has ended...

 

The Dollar Index was dumped early, bounced, then dumped again (intraday, the dollar hit its lowest since July 9th)...

 

We note that the dollar found support at the lower-end of the ECB range...

 

The Loonie was the best performer along with Cable as JPY bucked the trend...

 

Most cryptos were relatively calm today (ignoring the chaos in TLRY today) but Ripple continued to explode...

 

Despite USD weakness commodities went nowhere (with WTI lower)...

 

Gold futures had a mini flash crash at 3amET and WTI rolled over...

 

Finally, with record highs all around, we thought this might be of interest...

Published:9/20/2018 3:08:41 PM
[Markets] Dow Jones Industrial Average closes at a record, beating the all-time high set in January; S&P 500 also at record NEW YORK (AP) — Dow Jones Industrial Average closes at a record, beating the all-time high set in January; S&P 500 also at record. Published:9/20/2018 3:08:41 PM
[Markets] Dow Jones Industrial Average closes at record high, topping January mark Dow Jones Industrial Average closes at record high, topping January mark Published:9/20/2018 3:08:41 PM
[Markets] Nasdaq on track for best daily gain in 7 weeks amid broad stock-market rally The Nasdaq Composite Index Thursday afternoon was showing sharp gains, putting the index that is normally associated with the technology and internet-related industry, on pace for its best day since Aug. 2, according to FactSet data. The Nasdaq was up 1% at 8,032 and trading near session highs as the Dow Jones Industrial Average was set for its first record close since Jan. 26 and the S&P 500 index was on track for its first all-time closing high since Aug. 29. Technology and internet-related shares have lagged other sector of late, weighed by volatility in large-capitalization chipmakers, but the markets have been in a decided uptrend, of late. Investors have shaken off worries about trade spats, even as President Donald Trump earlier this week reiterated his hard-line stance on China and said the U.S. had "no choice" but to levy another $267 billion in duties on China. China responded with an announcement of 5% to 10% tariffs on $60 billion in U.S. goods. Those tariffs are set to go into force on Sept. 24. Wall Street investors, however, have instead focused on the health of the domestic economy and a strong run of quarterly earnings in the second quarter. Published:9/20/2018 2:08:15 PM
[Markets] Dow Gains 235 Points and May Finally Close at a New High The S&P 500 and Dow Jones Industrial Average were both trading in record territory on Monday as all remained quiet on the trade front. Treasury yields finally stopped rising, but that didn’t stop the rally in rate-sensitive financials. Walt Disney’s ESPN+ hit a subscriber milestone, while Viacom got a boost from an upgrade. Published:9/20/2018 1:41:46 PM
[Markets] Dow regains record territory as trade concerns ease The blue-chip index, which had lagged the Nasdaq and the S&P in its recovery, jumped 1 percent to surpass the level touched on January 26. "The new record territories for the Dow and the S&P are fueled by lesser trade worries and just general enthusiasm about the economy," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. At 12:43 a.m. ET the Dow Jones Industrial Average was up 252.90 points, or 0.96 percent, at 26,658.66, the S&P 500 was up 21.86 points, or 0.75 percent, at 2,929.81 and the Nasdaq Composite was up 73.02 points, or 0.92 percent, at 8,023.06. Published:9/20/2018 1:08:12 PM
[Markets] Dow, S&P 500 trade at records as stock market rallies broadly U.S. stocks rally Thursday, with both the Dow Jones Industrial Average and the S&P 500 climbing to records, on the back of strong economic data, which helped to alleviate concerns over escalating U.S.-China trade tensions. Published:9/20/2018 12:08:13 PM
[Markets] Apple surge ushers Dow to record territory for first time since January Apple surge ushers Dow to record territory for first time since January Published:9/20/2018 12:08:13 PM
[Markets] Technical Indicator: S&P 500 and Dow industrials tag all-time intraday highs Technical Indicator: S&P 500 and Dow industrials tag all-time intraday highs Published:9/20/2018 11:08:10 AM
[Markets] Dow’s first record since January powered by surge in Apple’s stock The Dow Jones Industrial Averaged just marked its first intraday all-time high since January, marking a resumption of a record run for the blue-chip index that had taken a nearly eight-month pause. Published:9/20/2018 11:08:10 AM
[Markets] Market Snapshot: Dow jumps to record, ending lengthy drought, as stocks rally broadly U.S. stocks rallied on Thursday, with both the Dow and the S&P 500 climbing to record levels as the market’s uptrend continued on the back of strong economic data, which overshadowed escalating U.S.-China trade tensions.
Published:9/20/2018 10:07:51 AM
[Markets] Tesla Model 3 gets top safety rating from regulators Tesla Inc.'s 2018 Model 3 has earned a five-star safety rating from the National Highway Traffic Safety Administration. NHTSA bestowed the sedan five stars each in frontal crash, side crash, and rollover resistance scenarios. Shares of Tesla extended gains on Thursday, up 0.2% to bring the weekly advance to 1.3% so far. The stock has lost 4% this year, versus advances of 9% and 8% for the S&P 500 index and the Dow Jones Industrial Average . Published:9/20/2018 10:07:51 AM
[Markets] Twenty-nine of 30 components in the black as Dow stretches gain to 200 points Twenty-nine of 30 components in the black as Dow stretches gain to 200 points Published:9/20/2018 10:07:51 AM
[Markets] Dow, S&P Enter Record Territory Want to know why the Dow Jones Industrial Average is doing what it’s doing? 10:25 a.m. The S&P 500 rose 0.5% on Thursday to 2,922 points, passing its highest closing level of 2,914, a record set in August. The Dow Jones Industrial Average also passed its record high of 26,616 points, reached in January. Published:9/20/2018 9:38:03 AM
[Markets] Apple price target boosted at BMO BMO Capital Markets analyst Tim Long upped his price target on shares of Apple Inc. to $219 from $199, though he kept his market perform rating on the stock. Shares closed Wednesday at $218.37 and are up 1% in premarket trading. "While the continued move higher in ASPs [average selling prices] is encouraging, as is growth in Services and new products, we would like to see better iPhone unit growth," Long wrote. He thinks that ASPs are Apple's "sole driver of growth" and that the latest iPhone lineup won't lead to an upgrade cycle. "We believe the risk/reward is balanced after the move in the stock over the past year," Long said. Shares are up 40% over the past 12 months, while the Dow Jones Industrial Average has gained 18%. Published:9/20/2018 8:08:08 AM
[Markets] World Stocks, 10Y Yields Rise As Trade Tensions Ease; Dollar Slides

World stocks and US equity futures continued to rise on Thursday in thin trade amid relief that the latest U.S. and Chinese tariffs on were less harsh than feared despite concerns about next steps in the US-Sino trade war, helped by a dollar which slid to 3 week lows even as Treasury yields approaching their highest level this year.

The MSCI World index rose 0.2%, supported by gains in Europe and Asia, but Chinese equities dipped back in the red after a strong 2-day rally on expectations of government stimulus to limit the economic damage of new trade barriers and after reports that Beijing was planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. Japan’s Nikkei ended little changed, barely moving after a well-anticipated win by Japanese Prime Minister Shinzo Abe in a ruling party leadership vote.

In Europe, the Stoxx Europe 600 Index rose 0.2% led by the auto sector with the Stoxx 600 Automobiles & Parts index rising over 1.0%, the best-performing sector on wider European stock gauge; the seventh consecutive increase marked its best winning streak since Nov. 2017. Kepler Cheuvreux strategists raised the recommended exposure to autos back to neutral from underweight as they "envisage a series of late-year bounces within Europe’s depressed value universe in segments that have been largely abandoned by investors."

In the US, S&P 500 E-mini futures were little changed following strong gains on Wall Street on Wednesday.

The yield on 10-year Treasuries, which on Wednesday touched its highest level since May 18, rose to 3.07% ahead of what is expected to be a hawkish Fed meeting next week.

The greenback remained weaker after a report said the U.S. and Canada are unlikely to reach a deal on Nafta in Washington this week, while the pound strengthened after August retail sales came in higher than expected.

In an otherwise quiet session, Markets watched the ongoing European Union summit where PM Theresa May appealed to fellow EU leaders on Wednesday to drop Brexit demands that she said could rip Britain apart.

After the initial knee-jerk negative reaction to the new tariffs announced by Washington and Beijing on Tuesday, markets have been speculating that an immediate escalation could be averted. To wit: President Trump has not made fresh threats that he would seek to extend tariffs to all Chinese imports. “Making forecasts on Trump is always a risk but it’s a fact that at the moment the escalation has taken a break,” said Anthilia Capital fund manager and strategist Giuseppe Sersale. Meanwhile, as reported yesterday, Chinese Premier Li Keqiang said this week he would not would not weaken the yuan to boost exports.

Ahead of the Fed meeting next week, other central banks topped the agenda, with Norway’s policymakers raising interest rates for the first time in seven years as the SNB kept deposit rates unchanged.  Despite the hike, the Norwegian crown slumped versus the euro the most in six months as the central bank lowered its policy rate forecasts. The crown fell 0.9 percent versus the euro to 9.5990.  The Swiss franc weakened after the SNB kept policy unchanged and maintained its “highly valued” description on the currency.

The rally in global stocks was accompanied a drop in demand for safe-haven assets, boosting U.S. bonds yields and sending the dollar lower while the Japanese yen has remained been under pressure. Volumes in currency trading were subdued as the dollar slipped to a three-week low: the Bloomberg Dollar Spot Index fell a second day to touch the lowest level this month while the 10-year yield was up 1 bps at 3.07%.

Risk-off trades stayed under pressure, with the Aussie and the Swedish krona rising a fourth day and as European stocks moved higher.

Elsewhere, emerging-market assets continued to rally off the lows seen earlier this month. In commodities, news of another drawdown in U.S. crude inventories and signs that OPEC may not raise output enough to compensate for the loss of Iranian exports hit by sanctions, lifted benchmark Brent crude 0.11 percent at $79.49. Base metals rose, buoyed by relief over trade and a shortage of the metal in top consumer China, with London Metal Exchange zinc hitting its fortnight before paring some gains and trade up 0.50 percent at $2,446 a tonne.

In geopolitical news, the US was said to be ready to immediately resume negotiations with North Korea on nuclear disarmament, while Secretary of State Pompeo said he invited his North Korean Foreign Minister Ri to talks in New York next week amid UN general assembly.

Expected data include jobless claims and existing home sales. Darden and Micron are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,918.25
  • STOXX Europe 600 up 0.2% to 380.75
  • MXAP up 0.2% to 164.39
  • MXAPJ up 0.2% to 522.09
  • Nikkei up 0.01% to 23,674.93
  • Topix up 0.1% to 1,787.60
  • Hang Seng Index up 0.3% to 27,477.67
  • Shanghai Composite down 0.06% to 2,729.24
  • Sensex down 0.5% to 37,121.22
  • Australia S&P/ASX 200 down 0.3% to 6,169.50
  • Kospi up 0.7% to 2,323.45
  • German 10Y yield fell 0.2 bps to 0.485%
  • Euro up 0.2% to $1.1700
  • Italian 10Y yield rose 6.0 bps to 2.491%
  • Spanish 10Y yield fell 1.7 bps to 1.51%
  • Brent futures little changed at $79.35/bbl
  • Gold spot down 0.1% to $1,202.38
  • U.S. Dollar Index down 0.2% to 94.36

Top Overnight News from Bloomberg

  • China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers as a trade war with the U.S. deepens
  • European and U.K. leaders exchanged warnings at a summit in Salzburg, that time is running out to seal an agreement on Brexit and offered no indication they can break the deadlock less than two months before the deal is due to be completed
  • President Donald Trump plans to nominate Nellie Liang, a former Federal Reserve economist, to the central bank’s Board of Governors, the White House announced Wednesday
  • New Zealand’s economy grew at the fastest pace in two years in the second quarter, prompting markets to pare bets on an interest-rate cut. The currency rose to a three-week high
  • Liftoff may finally have arrived for yields in the world’s biggest debt market. That’s good news for the fast-money crowd that’s rarely been more bearishly positioned on 10-year Treasury futures
  • Russia’s crude production has jumped to a new post-Soviet record as it prepares for talks with OPEC on further cooperation, according to a government official
  • Iran said it will veto any OPEC decision that harms the Islamic Republic and warned that some oil producers are trying to create an alternative suppliers’ forum that supports U.S. policies hostile to the government in Tehran
  • Raw materials are regaining their importance as a marker for where the emerging world is headed. That matters because they may help bolster prices if or when there’s a rebound
  • Japanese Prime Minister Shinzo Abe won his third straight three-year term as head of the ruling Liberal Democratic Party on Thursday, taking him a step closer to becoming the country’s longest-serving premier.

Asia equity markets eventually traded mixed despite the early tailwind from US where strength in blue chip financials fuelled the outperformance in the DJIA and with the S&P 500 just about kept afloat by gains in materials and energy. ASX 200 (-0.2%) lagged after it fell short of the 6200 level and Nikkei 225 (+0.4%) extended on 8-month highs as participants awaited the LDP leadership vote where PM Abe and in turn Abenomics, are widely expected to be prolonged for another 3-year term. Elsewhere. Hang Seng (Unch.) and Shanghai Comp. (-0.1%) were choppy amid a lack of fresh drivers and after PBoC liquidity efforts still amounted to a net daily drain, while focus in Hong Kong was on Hong Kong’s 2nd largest tech IPO this year Meituan Dianping which rose around 7% on its debut. Finally, 10yr JGBs were marginally higher after prices found support ahead of the 150.00 level and which also coincided with a mild overnight recovery in T-notes, although price action was restricted amid a 20yr auction which showed weaker results across all metrics.

Top Asian News

  • Meituan Rises on Debut in Hong Kong After $4.2 Billion IPO
  • China Fintech Firm Soars as IPO Trade Frenzy Jumps to U.S
  • Tencent Pact With Novartis Shows Big Pharma’s Ambitions in China
  • Najib Faces 25 Charges Linked to $681 Million in 1MDB Case

Top European News

  • Oaktree’s Marks Says U.K. Too Risky to Invest Due to Brexit: FT
  • Five Star Demands Bold Italy Budget as Conte Frets on Investors
  • U.K. August Retail Sales Unexpectedly Gain in Summer Heatwave
  • Norway Raises Benchmark Rate for First Time in Seven Years

In FX markets, the greenback was lacklustre with the DXY stuck around the 94.50 level. This kept trade in EUR/USD uneventful and GBP/USD also struggled for direction amid a lack of progress and standstill following PM May’s Salzburg dinner address. Elsewhere, high-beta currencies held on to most their recent gains with AUD/USD flat and USD/CAD near a 1-month low, while NZD/USD outperformed after New Zealand GDP for Q2 topped estimates and grew at the fastest pace in 2 years.

Commodities traded higher in which WTI crude futures extended on the prior day’s strength despite the narrower than expected draw in DoE headline inventories as it still showed a decline in inventories as opposed to the surprise API build. Elsewhere, gold prices saw modest gains amid a lacklustre greenback and silver eyed weekly high, while copper also conformed to the mild upside in the complex.
 

 

On today's calendar, the early focus should once again be on the UK with August retail sales data due to be released. This afternoon in the US there’s a steady stream of largely second tier releases including the September Philly Fed PMI, weekly initial jobless claims, August leading index and August existing home sales. The advanced September consumer confidence print for the euro area is also out this afternoon. Away from that we’ve got the second and final day of the informal EU leaders meeting in Salzburg, while the Bundesbank’s Weidmann and ECB’s Praet are slated to speak. Finance Ministers in the euro area are also due to meet and discuss Greece, the EMU and budgets ahead of the next eurogroup meeting.

US Event Calendar

  • 8:30am: Philadelphia Fed Business Outlook, est. 18, prior 11.9
  • 8:30am: Initial Jobless Claims, est. 210,000, prior 204,000; Continuing Claims, est. 1.71m, prior 1.7m
  • 10am: Existing Home Sales, est. 5.36m, prior 5.34m; Existing Home Sales MoM, est. 0.37%, prior -0.7%
  • 12pm: Household Change in Net Worth, prior $1.03t

DB's Jim Reid concludes the overnight wrap

Yesterday brought about a fairly bumper inflation report out of the UK which added to the quiet but notable fixed income sell-off of late. Indeed, on an otherwise quiet day for newsflow the highlight was the stronger-than-expected +2.1% yoy August core U.K. CPI print, an increase of two-tenths from July and also beating expectations for a small decline to +1.8%. Headline inflation also rose two-tenths to +2.7% yoy (vs. +2.4% expected) while RPI (+3.5% yoy vs. +3.2% expected) also came in higher than expected. Big climbs in prices for recreation, transport and furniture and clothing were blamed for the jump.

10 year Gilts ended last night 4.0bps higher at 1.606% and are now at the highest since February 15th. Yields are also up an impressive 38.4bps from the August lows of 1.223% all of a sudden. Meanwhile 10y Treasuries ended yesterday 0.7bps higher following a bit of a rally back into the close but have consolidated above 3% for the second day – as a reminder the last time that happened was back in May and we’ve only closed above 3% for 12 days this year and 13 days since July 2011. So, these are elevated levels relative to the last several years. 10y Bunds are also back to the highest since May after rising another 0.7bps yesterday and so taking the move since mid-August to +18.4bps. The rest of Europe was also broadly 1-2bps higher and even BTPs sold off +6.3bps following another day of headline leaks (more on that shortly).

So, some impressive moves for bonds of late but the MOVE index (Treasury volatility) – which closed yesterday 0.83pts higher at 48.8 - is still hovering around its YTD lows (closing low being the 45.3 level in July with the YTD average 53.3). In the February and May sell-offs we climbed above 70 and 60 respectively. So it’s been a fairly orderly sell-off for bonds of late.

Elsewhere it was a fairly directionless day for equities. The STOXX 600 closed +0.33% in Europe but was playing some catch up to the Wall Street gains from the previous evening, while in the US the S&P 500 limped to a +0.13% gain but was slightly held back by another down-day for the NASDAQ (-0.08%) which continues to dictate the tempo across the pond. Gains for banks and large-cap industrials nevertheless supported the DOW (+0.61%). EM FX (+0.60%) continues to edge higher with the asset class all of a sudden up on six of the last seven sessions. Overnight in Asia we’ve seen a similarly directionless session.

Leading the way is the Kospi (+1.03%) seemingly after US Secretary of State Mike Pompeo indicated last night in a statement that the US was seeking a new round of talks with North Korea with the end goal of denuclearizing North Korea by the end of  President Trump’s first term. Elsewhere the Nikkei (+0.19%) is higher for the fifth consecutive session (the LDP leadership decision should be out just as this hits your email with Abe widely considered to be re-elected), while the Hang Seng (-0.02%), ASX (-0.19%) and Shanghai Comp (-0.12%) are all in the red.

Futures in the US are broadly flat and bond markets in Asia also quiet. The other news worth flagging overnight is from the Fed with Bloomberg reporting that President Trump is planning on nominating former Fed economist and financial stability expert Nellie Liang to the Board of Governors and policy setting Open Market Committee. As we go into print headlines on Bloomberg have also just come through suggesting that China is planning to cut the average tariff rate that it charges on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said.

Back to yesterday, where outside of the UK inflation data the other story which caught some attention was the Times  reporting that PM Theresa May was preparing to reject Michel Barnier’s improved Brexit offer surrounding the Irish border issue. After trading as high at $1.3215 (+0.51%) post the CPI data, the Pound fell to a low of $1.3099 (-0.38%) following that story. It then rallied back before additional Brexit headlines pressured it lower again. The second round of negative headlines were from the EU’s Juncker who said they were still “far away” from a Brexit deal and Irish PM Varadkar who said that negotiations are no closer to conclusion than they were in March. The pound ended the day broadly flat. As a reminder, the EU leaders meeting continues in Salzburg again today so worth watching out for any closing headlines.

Meanwhile in Italy the daily budget headlines yesterday consisted of Corriere della Sera reporting that Deputy PM Di Maio was calling for an increase in the deficit to 2.5% of GDP. Di Maio was quoted as saying that “we will have to rely on a little bit of extra deficit, so that we’ll be able to stimulate growth, which will help us cut the debt ratio of GDP in the long run”. Since then PM Conte, on the sidelines of the EU summit, has said that Italy’s budget deficit won’t exceed 2% next year. While we’re on Italy, it’s worth noting that our European economists published a report yesterday entitled “Rome vs Brussels”. They warn that the market is becoming too complacent about the upcoming budget and particularly the degree of tension after the publication which could reveal something about Rome/Brussels relations. This in turn could affect how the market perceives the hurdles to ESM support (and OMT, if necessary). See the link here for those interested.

As far as the latest trade developments are concerned, there wasn’t much to report yesterday with the focus instead turning to NAFTA with Bloomberg headlines once again hitting the wires in the afternoon suggesting that a USCanada deal is unlikely to be reached this week. Speaking of trade, it’s worth highlighting a note from our FX team yesterday which focuses on the “winners” from the US-China trade war using micro-level trade data to assess the scope for US consumers to swap Chinese products for imports from the rest of the world. It was interesting to see Europe as a potential beneficiary. See the link to the report here .

Elsewhere, some influential central bankers made speeches yesterday but did not signal any market-moving changes in policy. ECB President Draghi used a speech in Berlin to call for deeper European integration, especially with regards to a common fiscal backstop and deeper financial and capital markets integration. BoE Chief Economist Haldane defended forward guidance, saying it has effectively signalled interest rate hikes to consumers and businesses, even if it was not precise enough to satisfy financial market participants.

Finally, on the data front, US housing activity was generally strong. Housing starts increased 9.2% mom in August, though building permits fell -5.7%. This might reflect some catch-up after activity had been depressed earlier in the summer from wildfires. The Atlanta Fed GDPNow model showed a slight increase in its estimate of third quarter residential investment, but their headline GDP forecast remained steady at 4.4% qoq saar, which would be the fifth-highest pace since the financial crisis.

In terms of what to watch out for today, the early focus should once again be on the UK with August retail sales data due to be released. This afternoon in the US there’s a steady stream of largely second tier releases including the September Philly Fed PMI, weekly initial jobless claims, August leading index and August existing home sales. The advanced September consumer confidence print for the euro area is also out this afternoon. Away from that we’ve got the second and final day of the informal EU leaders meeting in Salzburg, while the Bundesbank’s Weidmann and ECB’s Praet are slated to speak. Finance Ministers in the euro area are also due to meet and discuss Greece, the EMU and budgets ahead of the next eurogroup meeting.

 

Published:9/20/2018 6:08:07 AM
[Markets] US Stocks Edge Higher, Oil and Bond Yields Rise, Amid Trade War Headline Lull Oil prices should support early gains for the Dow, with futures pointing to a 33-point opening bell gain, with the S&P 500 and the Nasdaq looking little-changed from last night's close. Global stocks sputtered Thursday, with modest gains in Asia and a weaker European open, as investors assessed the risk landscape amid rising bond yields and crude prices that could offset the week's bullish sentiment built from a solid U.S. economy and a weakening dollar. Trade tensions, of course, continue to hang over the markets as well, but with smaller-than-expected tariffs unveiled this week from both Washington and Beijing, and no new headlines from either side during the overnight trading session that escalated the standoff, investors were instead left to spy other corners of the market to take their cues on equity direction. Published:9/20/2018 3:05:44 AM
[Markets] US Stocks Pop, Stop, & Drop As Global Bond Bloodbath Reaches 5-Year-High Yields

Bond Bears are back...

 

The momo ignited by Tuesday's National Team liftathon carried through into Wednesday and Chinese stocks stormed higher still...

European stocks were all higher.

Take your pick in US equity land - Stocks surged (Dow), Stocks did nothing (S&P), Stocks dumped (Nasdaq, Small Caps).... then Nasdaq was panic bid into the close as TLRY collapsed...

 

Futures show the chaotic divergence best...

 

FANG Stocks started exuberantly (erasing Monday's losses) but quickly faded to end the day unchangedish...

 

This is the fourth day in a row that a STOCK-PLUS-BOND portfolio has had a losing day...

 

But the big story is the surge in global bond yields which reached the highest in 5 years today...

 

US Treasury yields lifted again...

 

With 30Y Yields testing their four-year highs around 3.25%...

 

And 10Y Yields testing seven-year highs around 3.09%...

 

The yield curve steepening slowed today, stalling once again at a critical level...

 

The Dollar Index zig-zagged modestly lower on the day...

 

Offshore Yuan ended the day unchanged, dropping back below the CNY Fix...

 

EM FX rallied notably on the day led the Lira, Rand and Argentine Peso

 

Cryptos faded late in the day...

 

PMs gained on the dollar weakness but copper faded. Crude gained after the inventory draw...

 

Gold futures managed to hold above $1200 once again..

 

Finally, as if one didn't need to be told, this dash-for-trash rally just continues to surge as hedge funds' favorite holdings are getting crushed by the most-hated stocks out there...

But none of that matters.. because all you need to do is buy weed stocks!!

From $17 to $300 in 2 months... Just Doobie It.

And then everything went pear-shaped...from $300 to $150 in minutes and then back up to $220

Someone's gonna need a smoke after that!

Just look at the relationships between TLRY, Bitcoin, and Nasdaq Futs...

Published:9/19/2018 3:08:27 PM
[Markets] Dow industrials end up over 150 points as financials rally Dow industrials end up over 150 points as financials rally Published:9/19/2018 3:08:26 PM
[Markets] US STOCKS SNAPSHOT-Dow, S&P 500 gain; financial stocks a boost The S&P 500 and the Dow Jones Industrial Average rose on Wednesday, with the Dow hitting its highest closing level since late January, as rising Treasury yields boosted financial stocks and trade worries ... Published:9/19/2018 3:08:26 PM
[Markets] US STOCKS-Financials boost S&P 500, Dow; tech drags on Nasdaq The S&P 500 and the Dow Jones industrial average rose on Wednesday, with the Dow hitting its highest level since late January as rising Treasury yields boosted the financial sector and trade jitters abated. Technology stocks offset the gains, dragging on the markets and pulling the tech-heavy Nasdaq into negative territory. Published:9/19/2018 2:02:32 PM
[Markets] Dow Gains 200 Points Because Records Are Made to Be Broken The S&P 500 is one more breakout away from erasing a previous bearish trading pattern. The Dow Jones Industrial Average rallies on. Published:9/19/2018 1:02:39 PM
[Markets] Financial stocks in broad rally, with J.P. Morgan leading the Dow's gainers Financial stocks traded broadly higher, with the group the biggest gainer among the S&P 500's 11 sectors, as the jump in Treasury yields helped provide a boost to the banks. The SPDR Financial Select Sector ETF ran up 1.5% toward a six-month high, with 62 of 68 equity components trading higher. Among the Dow Jones Industrial Average's financial components, J.P. Morgan Chase & Co.'s stock was up 2.5% to be the Dow's biggest gainer and Goldman Sachs Group Inc.'s stock climbed 2.3%. The combined price gains of those stocks adding about 55 points to the Dow's price, which was up 212 points. Elsewhere, shares of Bank of America Corp. rallied 2.3%, of Citigroup Inc. hiked up 2.6% and of Wells Fargo & Co. rose 1.2%. The yield on the 10-year Treasury note rose 3.7 basis points to a four-month high of 3.085% after better-than-expected housing starts data. Higher Treasury yields can give a boost to bank earnings, because that can increase the spread between what the banks make on longer-term assets and what they pay for shorter-term liabilities. Published:9/19/2018 10:32:10 AM
[Markets] Equal-weight S&P 500 ETF hits record for second straight session An exchange-traded fund that tracks the S&P 500 but weights each of the index's components equally hit a record on Wednesday, in the latest sign that the market's uptrend has been fairly broad-based. The Invesco S&P 500 Equal Weight ETF rose 0.2% on Wednesday and was on track for its second straight record close. The fund is up 7% thus far this year, below the 8.7% rise of the unadjusted S&P 500 , where the influence of each individual component on the overall index is dictated by their market capitalization. The S&P overall has been supported in large part by the outperformance of large-cap technology and internet stocks, a group often referred to as the FAANG stocks. The concentration of those gains have had some investors concerned about market breadth, but the rally in the equal-weighted ETF suggests a good deal of the market is participating in the rally. Since the start of July, 10 of the 11 S&P 500 sectors are in positive territory. Recent gains in the market have come as investors shrug off signs of escalating tensions between the U.S. and China on trade policy, focusing instead on strong corporate profits and improving economic data. The Dow Jones Industrial Average rose 0.6% on Wednesday while the S&P rose 0.1%. The Nasdaq Composite Index fell 0.3%, pressured by weakness in tech stocks. Published:9/19/2018 10:02:09 AM
[Markets] Early gain Wednesday puts Dow industrials within 1% of all-time high Early gain Wednesday puts Dow industrials within 1% of all-time high Published:9/19/2018 9:14:25 AM
[Markets] Dow finishes with 185-point gain as trade-war fears ease Dow finishes with 185-point gain as trade-war fears ease Published:9/19/2018 3:11:52 AM
[Markets] Stubborn Market Refuses to Quit, Pessimists Notwithstanding Overbought technical conditions, negative seasonality and the likelihood that tariffs will be imposed on Chinese goods this week are not stopping the indices. Both the S&P 500 and the Dow Jones Industrial Average (DJIA) enjoyed five straight days of gains last week and are sitting close to all-time highs. The positive price action is preventing market players from embracing the pessimistic arguments that are quite logical, compelling and easy to make. Published:9/17/2018 7:58:12 AM
[Markets] Trump Threatens More Tariffs, Boasts "Jobs And Dollars" Are Flowing Back To US

With investors already nervous about the prospect of President Trump slapping the next round of tariffs on Chinese goods as soon as Monday (US stock futures, which have so far internalized these trade tensions with surprising equanimity, were down slightly in early trade), President Trump boasted on Twitter that his trade war has produced only positive results, including boosting jobs and revenues while "cost increases" have been negligible (even though we could name more than a few CEOs who would beg to differ).

According to Trump, "tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country - and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be 'Tariffed!'"

Dow future crept lower following Trump's latest tweetstorm, which also featured rants about Obama's ineffectual economic policies...

...While the president asserted that the US steel industry is already benefiting from Trump's tariffs on aluminum and steel.

Remember, as President Trump prepares to slap tariffs on another $200 billion in Chinese goods entering the US (tariffs that, as Deutsche Bank recently pointed out, will likely have a material impact on US supply chains and consumers, particularly when China retaliates)...

China

...This will become the most important chart in the world as President Trump has repeatedly cited the divergence of US stocks from ex-US as evidence that he is winning the trade war.

Chart

And as a reminder, here's a handy timeline of the trade dispute.

China Trade

Published:9/17/2018 6:17:43 AM
[Markets] US Market Indexes Close With Weekly Gains Dow Jones closes at 26,154.67 on Friday Published:9/15/2018 3:22:21 AM
[Markets] US Market Indexes Report a Fourth Day of Closing Gains Dow Jones closes at 26,145.99 for a gain of 0.57% Published:9/13/2018 6:23:58 PM
[Markets] US STOCKS-Wall St rises with Apple, easing trade concerns Apple led a rebound in technology shares and boosted all three major U.S. stock indexes on Thursday, while trade worries eased after China welcomed new talks with the United States. The Dow inched closer to its all-time high hit on Jan. 26, closing at its highest since Feb. 1 and just 1.8 percent below the Jan. 26 close. Published:9/13/2018 3:51:57 PM
[Markets] Dow ends up over 140 points; S&P 500 finishes higher for fourth straight day Dow ends up over 140 points; S&P 500 finishes higher for fourth straight day Published:9/13/2018 3:13:13 PM
[Markets] US STOCKS SNAPSHOT-Wall St rises with Apple, easing trade fears Apple led a rebound in technology shares and boosted all three major U.S. stock indexes on Thursday, while trade worries eased after China welcomed new talks with the United States. The Dow Jones Industrial ... Published:9/13/2018 3:13:13 PM
[Markets] Stocks Rise, S&P 500 Heads for Fourth Day of Gains Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average has risen for two straight sessions, while the S&P 500 has closed higher for three. Apple Inc. rose 3.2% after the tech giant unveiled three new iPhones. Published:9/13/2018 11:26:08 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens higher on tech rebound, easing trade worries U.S. stocks opened higher on Thursday, as technology stocks bounced back and trade worries eased after China said it was open to new trade talks with the United States. The Dow Jones Industrial Average ... Published:9/13/2018 8:41:04 AM
[Markets] IRhythm's stock selloff unwarranted as Apple Watch not a threat, analyst says The record selloff in iRhythm Technologies Inc. on Wednesday, after Apple Inc. said its Series 4 Watch was cleared by the Food and Drug Administration as a heart monitor, has created a "buying opportunity, said analyst Robbie Marcus at J.P. Morgan, because the new could actually be seen as a win for the maker of heart monitoring devices. IRhythm's stock had tumbled 6.6% on Wednesday, the biggest one-day decline since it went public in October 2016. "We don't see Apple turning the iWatch into a regulated medical device approved for clinical diagnosis; to be clear, Apple Watch is approved for over-the-counter (OTC) use and is not a continuous monitor," Marcus wrote in a note to clients. "Attaining an approval with a similar label to iRhythm's Zio would significantly slow the rate of innovation and put the consumer device at the whim of the FDA." If anything, Marcus said more patients will be able to check their own heartbeat, and then go visit a doctor to be prescribed Zio in order to get a more comprehensive analysis of their heart health. IRhythm's stock, which was still inactive in premarket trade, has soared 81.8% over the past 12 months, while Apple shares have climbed 38.5% and the Dow Jones Industrial Average has rallied 17.3%. Published:9/13/2018 7:38:24 AM
[Markets] S&P 500 Gains Amid Trade Hopes The S&P 500 edged higher for the third straight session Wednesday, with gains in consumer-staples and trade-sensitive sectors offsetting declines in financial and technology firms. After the U.S. and Mexico reached a deal on trade recently, some investors are waiting to see if potential agreements with Canada, the European Union and China could boost global growth later in the year. The S&P 500 and Dow Jones Industrial Average eked out gains following a Wall Street Journal report that the U.S. is reaching out to China for a new round of trade talks. Published:9/12/2018 9:32:49 PM
[Markets] US Market Indexes Close Higher, Nasdaq Retreats Dow Jones closes at 25,998.92 for a gain of 0.11% Published:9/12/2018 6:03:07 PM
[Markets] Piper Jaffray says new iPhone lineup should drive 'improving upgrade rates' Piper Jaffray analyst Michael Olson penned an upbeat note on Apple Inc. late Wednesday, following the company's iPhone launch event. Olson expects "improving upgrade rates" thanks to the company's new iPhone lineup, which he thinks provides consumers more choice, as well as more reasons to upgrade to the new "X" form factor. He is optimistic about the company's "wide range of pricing," as the iPhone XR starts at $749 and the iPhone XS Max can cost as much as $1,449. Olson upped his expectations for Apple's fiscal-year 2019 average selling prices to $758 from $735 previously. He projects an ASP of $739 for this fiscal year. He has an overweight rating and $250 price target on shares. Apple shares closed down 1.2% in Wednesday's session, and they've risen 37% over the past 12 months. The Dow Jones Industrial Average , of which Apple is a component, has gained 18% in that time. Published:9/12/2018 5:35:46 PM
[Markets] Stock market logs mostly muted gain as tech lags in choppy session U.S. stocks close mostly higher on Wednesday, with the S&P 500 and the Dow bouncing back from lows. However, the Nasdaq’s effort to build on its recent gains hit a wall. Published:9/12/2018 3:59:15 PM
[Markets] Dow, S&P 500 end slightly higher; Nasdaq finishes in the red Dow, S&P 500 end slightly higher; Nasdaq finishes in the red Published:9/12/2018 3:26:55 PM
[Markets] Dow, S&P 500 drop despite bullish NYSE internals Although the Dow Jones Industrial Average and the S&P 500 are losing ground, breadth data on the NYSE is painting a bullish picture. The number of advancing stocks outnumbered decliners 1,549 to 1,248, and the volume of advancing stocks represented 64.5% of total volume. The Dow was down 15 points and the S&P 500 slipped 0.1%. Meanwhile, the NYSE Composite Index gained 0.3%. On the Nasdaq exchange, however, decliners outnumbered gainers 1,583 to 1,173, and advancing volume was just 43.7% of total volume. The Nasdaq Composite declined 0.5%. Published:9/12/2018 1:59:45 PM
[Markets] Fitbit stock sinks upon announcement of Apple Watch Series 4 Shares of Fitbit Inc. are down nearly 6% in midday trading Wednesday after Apple Inc. announced its new Apple Watch Series 4. The Series 4 line comes in 40-millimeter and 44-millimeter screen sizes, and they feature edge-to-edge screens. The watches also support the ability to take an electrocardiogram from the wrist. Apple said the watch received a classification from the Food and Drug Administration for such a feature. The Series 4 has a new accelerometer and gyroscope. Apple shares are down 0.9% in Wednesday trading, while the Dow Jones Industrial Average is down 0.1%. Published:9/12/2018 1:32:53 PM
[Markets] Stocks - Wall Street Flat Amid Trade Jitters The S&P 500 was flat at 2,887.91 as of 9:41 AM ET (13:41 GMT), while the Dow increased 31 points, or 0.12%, to 26,002.39 and the tech-heavy Nasdaq Composite lost 24 points, or 0.31%, to 7,947.56. Published:9/12/2018 12:00:49 PM
[Markets] Dow up 170 points as U.S. blue chips ride intraday surge Dow up 170 points as U.S. blue chips ride intraday surge Published:9/12/2018 11:30:10 AM
[Markets] Boeing's stock jump gives the Dow a 59-point boost Shares of Boeing Co. rallied 2.5% to pace the Dow Jones Industrial Average's gainers in midday trade Wednesday, as hopes for an easing in trade tensions with China gave the aerospace giant a boost. Boeing's stock price gain was adding about 59 points to the Dow, which was up 60 points. The Wall Street Journal reported Wednesday that the U.S. has reached out to China for a new round of trade talks. And Boeing Chief Executive Dennis Muilenburg said at an industry conference Wednesday that the company continues to have "very healthy" relationships with Chinese customers, according to a transcript provided by FactSet. He said Boeing has "a voice at the table" of the U.S.-China trade negotiations, and there's a certain "co-dependency that I think is well understood." Boeing's stock has lost 4.5% over the past three months, while the Dow has gained 2.8%. Published:9/12/2018 11:30:09 AM
[Markets] What ‘the most important chart in the world’ says about stocks going forward The Nasdaq Composite Index has been the standout index in 2018, as massive gains in large-capitalization technology and internet stocks have powered it past the Dow and S&P 500, which have themselves been performing notably better than overseas indexes. Published:9/12/2018 10:27:46 AM
[Markets] Nasdaq Tumbles As Slumping Chip Stocks Break 200-DMA

While the Dow is hanging by a thread to unchanged, the formerly untouchable Nasdaq is getting hammered again...

... with the FANG block down on the day, but the biggest victims are chip stocks, which are getting crushed after a pair of downgrades by both Goldman and Stifel, which threw in the towel on a variety of names both large and small in the computer memory space, traditionally an advance proxy for the state of the Chinese economy which as we discussed over the weekend is set for a lot of pain as a result of the collapsing credit impulse. Telecom stocks were also among Wednesday’s worst performers.

One of the names hit the most has been former hedge fund darling Micron, the worst performing stock in the S&P, which is down another 6% today to $41, and a whopping 37% from its $64.66 highs set in late May.

The downgrades sent the has the SOX index tumbling as much as 3%, among the worst sector decliners in the early going, and also pushing the index below its 200DMA.

Semis are "a key indicator for the broader technology sector, and for the general stock market going forward," Miller Tabak's said. "If the semis do indeed break-down from here as we move through the rest of September, it could/should lead to investors to rotate away from the tech stocks in a more meaningful fashion than they did last week."

Not everyone is convinced a breakdown is imminent however: Bloomberg's Andrew Cinko notes that the SOX remains stuck in the sideways range writes that "the reason the SOX's range-bound trading continues is that the companies with the most influence on the index are in bull mode this year and some of them (QCOM, TSM, AMD) are outperforming the index today."

  • Qualcomm: 10% weighting; +12.7% ytd
  • Nvidia: 8.7%; +39%
  • Texas Instruments: 7.6%; -0.3%
  • Broadcom: 7.4%; -11.4%
  • Intel: 6.5%; -3.6%
  • AMD: 6%; +191%
  • Taiwan Semi: 4.6%; +11.4%

As Cinko adds, to knock the index down substantially, QCOM, NVDA, TXN and AMD are going to have to take substantial hits.

Until that happens, the SOX's weightings, combined with the individual stock performance, suggest this closely-watched sector will continue to churn.

Elsewhere, in addition to the slump in the information technology and financial sectors, which are the biggest losers in the S&P 500, energy companies and miners are among the biggest winners in the Stoxx Europe 600 Index as the Bloomberg’s Commodity Index rose.

Meanwhile, as noted earlier, the MSCI Asia Pacific Index was on course for a 10th consecutive decline, the longest losing  streak since 2002.

Finally, following today's unexpectedly weak PPI print, which showed the first monthly decline in 18 months, Treasury yields eased and the dollar turned down, helping crude oil surge.

Published:9/12/2018 10:27:46 AM
[Markets] Tobacco stocks rally as FDA considers banning all flavored e-cigarettes Tobacco company shares rose in active Wednesday morning trade after the Food and Drug Administration chief said that the agency might ban all flavored e-cigarettes due to their popularity among teenagers, which he said had reached "an epidemic proportion." British American Tobacco shares rose 6.3% in extremely heavy Wednesday trade, Altria Group Inc. shares rose 7% in extremely active trade and Philip Morris International Inc. stock rose nearly 5% in heavy trade. FDA Commissioner Scott Gottlieb said earlier this year that though many smokers may use e-cigarettes to smooth the quitting process, he was concerned about young people using the products, particularly the popular brand Juul, which sells such flavors as "crème brulée" and "cool cucumber." Though one Juul pod is roughly equal to a pack of cigarettes when it comes to nicotine strength, only a minority of young people who were familiar with or had recently used the Juul knew that it contained the addictive stimulant, according to one peer-reviewed study. The regulator said on Wednesday that it has asked Juul and others to respond with sufficient plans to reduce teen use, warning them that they chance a ban. The FDA had previously requested information about marketing practices and youth use from Juul's manufacturer and makers of similar products in early June. British American Tobacco shares have dropped 24.6% year-to-date, Altria shares dropped 10.8% and Philip Morris shares dropped 23.5%, compared with a 7.9% year-to-date rise in the S&P 500 and a 5.2% rise in the Dow Jones Industrial Average . Published:9/12/2018 9:56:29 AM
[Markets] Dow industrials teeter on brink as S&P and Nasdaq slump early Wednesday Dow industrials teeter on brink as S&P and Nasdaq slump early Wednesday Published:9/12/2018 9:41:11 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens flat as energy gains offset tech losses The Dow Industrials and the S&P 500 opened flat on Wednesday as a rise in shares of energy companies helped offset losses in technology stocks, which weighed on the Nasdaq. The Dow Jones Industrial Average ... Published:9/12/2018 8:46:34 AM
[Markets] Asian Stocks Suffer Longest Selloff In 16 Years; US, Europe Mixed

Summary:

  • Asian stocks slumped for the 10th consecutive day, the longest losing streak since 2002.
  • European and US stocks reversed Asian losses, trading modestly in the green
  • Oil extended previous sessions gains post API’s as Hurricane Florence approaches the Carolinas
  • CAD extends overnight gains NAFTA nears a perfect storm on dairy access
  • Dark clouds clearing for UK PM May as ERG downplays overthrow but presents an alternate Brexit deal
  • Looking ahead, highlights include, DoEs, Fed’s Brainard & Bullard and supply from the US

The "alligator jaws" chart presented by Jeff Gundlach during his Double Line conference call on Tuesday, which showed the unprecedented divergence between the US stocks and the rest of the world...

... was on display overnight, when Asian markets slumped once again, defying repeated calls for a rebound, as the MSCI Asia Pacific Index ex-Japan posted its 10th consecutive decline, the longest losing streak since 2002...

... although European stocks advanced modestly on Wednesday while US stock futures were once again in the green.

MSCI’s all-country equity index inched up marginally, looking to extend two sessions of modest gains that had snapped six straight days of losses. But emerging equities retreated to new 15-month lows, while fresh sparring between Washington and Beijing over trade kept world stocks close to three-week lows on Wednesday, and a slight dollar pullback gave little respite to emerging markets; the Indian rupee plumbing new record lows. Treasury yields edged lower after climbing a day earlier.

Meanwhile, as Bloomberg notes, central banks are back in the spotlight this week, with market participants increasingly preparing for the Fed to raise rates twice more in 2018, and policy meetings on the schedule for the European Central Bank and Bank of England, as well as Turkish and Russian central banks. Meanwhile, investors will be gauging the potential for extreme weather to disrupt economic activity, as threats from trade tension and Brexit negotiations linger.

"What the market needs is a signal of some relaxation in trade rhetoric, a bit of climb down," said Lombard Odier's Salman Ahmed. "That should be enough as fundamentals are strong. But you do need a trigger point and so far we have not seen it." Another catalyst could be signals from the U.S. Federal Reserve that it could slow the pace of rate rises but given the torrent of strong U.S. data, that looks unlikely: data this week showed U.S. small business optimism at the highest level on record.

As a result of these two trends, Asian equities excluding Japan hit their lowest since July 2017 as the Shanghai Composite dipped below the 2016 closing low and most regional currencies declined.

Japan also closed in the red, down -0.3%, as the Yen halted a three-day drop against the dollar, pressuring stocks: "equities, particularly the Nikkei, are not having a good day and as a result USD/JPY has given back some of Tuesday’s gains,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney.

Emerging currencies also stayed under pressure, with the yuan slipping to a two and a half week lows against the dollar leading Asian peers lower and keeping the Australian dollar heavily linked to Chinese trade, close to its lowest since February 2016.

Australia’s dollar fell toward a more-than two-year low, dropping as low as 0.7094 after the Westpac consumer confidence fell 3% m/m in Sept, after dropping 2.3% in August and as declines in Asian stocks, the offshore yuan and iron ore sapped demand for the currency.  As discussed yesterday, emerging markets have been the biggest victims of the trade spats and rising U.S interest rates. The MSCI index of emerging currencies is down over 8% this year.

Emerging markets’ woes are being exacerbated by heavy dollar-denominated borrowing over the past decade, with Societe Generale analysts noting that “the misallocation of capital following a decade of cheap money is starting to be exposed”

Meanwhile, while the Turkish lira and Argentine peso have steadied off record lows, the Indian rupee continues to plumb new lows, taking year-to-date losses versus the dollar to more than 12%. “The rupee ... is symptomatic of the overall situation in emerging markets, but it also embeds some idiosyncratic problems - with the fiscal deficit growing and the current account deficit widening on back of rising commodity prices,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

European stocks shook off Asia's woes on Wednesday and were modestly in the green, led by energy companies and miners who were among the biggest winners in Europe as Bloomberg’s commodity index rose. Futures on the Dow, S&P 500 and Nasdaq advanced even as America’s East Coast battened down for Hurricane Florence.

The dollar dipped 0.2% lower against a basket of currencies as hopes grew of concessions by Canada that would resolve disputes over reworking the North American Free Trade Agreement. The euro slipped and German bonds rallied after the news that ECB is to cut its growth outlook for the euro area while euro-zone industrial production fell 0.8% m/m in July vs est. 0.5% drop; the pound fluctuated after comments by European Commission President Jean- Claude Juncker who said he would work “day and night” for a divorce deal with the U.K. on Brexit though Britain can’t stay in “parts” of the bloc’s single market; it also slipped off five-week highs hit this week against the dollar, following the latest news from ITV about a Brexiteer plot to oust Theresa May.

Two-year Treasury yields held near a decade high and the dollar edged lower. Long-dated U.S. bond yields stayed just off the one-month highs hit on Tuesday after data showing sustained strength in the jobs market and the Treasury started a record debt sale amounting to almost $150 billion. The rise in U.S. TSY yields has hit Italy. It has been one of the bright spots in world markets in recent days, as fears have receded of a government spending binge. But Italian 10-year yields rose 2 bps off six-week lows.

BoE Governor Carney warned against complacency in the 10th anniversary of the GFC, while he outlined risks to the UK  economy including high levels of household debt, no-deal Brexit, high debt for China's economy and a catastrophic cyber-attack.

In geopolitical news, US, North Korea and South Korea mull October for the 2nd summit between US President Trump and North Korean Leader Kim.

In the neverending Brexit drama, a source report noted that Brexit deal summit said to be likely by mid-November, with UK and EU preparing for meeting with leaders to sign deal and that a plan will likely be announced at September 19th-20th meeting in Austria. Downing Street is reportedly drawing up secret plans and has 2 escape options if the EU rejects PM May's Chequers proposal. The first option would see Chequers parked until talks resume after Brexit day for a loosely-worded fudge on the future relationship instead. The second, is to abandon it altogether and return to a more basic Canada style free trade agreement - but only if the EU gives way on its Irish border hardline.

Elsewhere, cryptocurrencies extended their collapse from a January high to 80 percent, surpassing the Nasdaq’s peak-to-trough bust in the 2000s.

Oil prices extended Tuesday’s $2 surge, with Brent futures closing in on $80 a barrel as Hurricane Florence advanced and U.S. sanctions started weighing on Iran’s exports.

Scheduled economic publications include mortgage applications, PPI data and Fed’s Beige Book. Hudson’s Bay, Pivotal Software are due to report earnings, while Apple is set to unveil its latest iPhones.

Market Snapshot

  • S&P 500 futures up 0.2% to 2,894.00
  • STOXX Europe 600 up 0.4% to 376.94
  • MXAP down 0.2% to 158.57
  • MXAPJ down 0.09% to 507.44
  • Nikkei down 0.3% to 22,604.61
  • Topix down 0.5% to 1,691.32
  • Hang Seng Index down 0.3% to 26,345.04
  • Shanghai Composite down 0.3% to 2,656.11
  • Sensex up 0.7% to 37,682.00
  • Australia S&P/ASX 200 down 0.06% to 6,175.92
  • Kospi down 0.01% to 2,282.92
  • German 10Y yield fell 1.1 bps to 0.419%
  • Euro down 0.05% to $1.1600
  • Brent Futures up 0.2% to $79.24/bbl
  • Italian 10Y yield rose 3.3 bps to 2.581%
  • Spanish 10Y yield unchanged at 1.466%
  • Brent Futures up 0.2% to $79.25/bbl
  • Gold spot down 0.2% to $1,196.35
  • U.S. Dollar Index down 0.2% to 95.08

Top Overnight News

  • European Commission President Jean-Claude Juncker says in annual State of the Union address that the union should propose measures for strengthening the status of the euro
  • Japanese Economy Minister Toshimitsu Motegi and U.S. Trade Representative Robert Lighthizer will likely hold second round of trade talks in U.S. on September 21, Reuters reports, citing unidentified source familiar with the matter
  • The U.K. and the EU are preparing for a special summit to sign the Brexit deal in November and the meeting could be announced within days, according to people familiar with the matter
  • Luigi Di Maio, one of Italy’s two deputy prime ministers, renewed his push for a so-called citizen’s income, saying abandoning the key pledge would threaten the government
  • Russian President Vladimir Putin rejected British allegations that the Russians suspected of carrying out a nerve- agent attack on a former spy in the U.K. are intelligence agents and called on them to go public, making his first official comments on the charges
  • Chancellor Angela Merkel offered implicit support for military action against Syria, upbraiding her coalition partner for ruling out German participation in a response to an offensive in the country’s last rebel stronghold
  • On Sept. 21, China will ask the Geneva-based organization to sanction trade retaliation against certain U.S. products, according to a Tuesday statement from the WTO. China asked the WTO to approve annual retaliatory trade measures against $7 billion in U.S. goods, according to a separate release
  • The Canadian government is poised to release a blueprint to reform the World Trade Organization as countries adjust to a newly protectionist America that has threatened to leave the organization entirely
  • After one of the most tumultuous elections in modern Swedish history, the country’s future may now depend on the content of about 200,000 ballots that were just added to a recount
  • Oil futures in New York advanced beyond the session’s 2.5 percent jump after the American Petroleum Institute was said to report an 8.64 million-barrel drop in domestic inventories last week. Supplies also declined at the important storage complex in Cushing, Oklahoma, the API was said to disclose, a strong signal of tightening markets
  • Islamic State claimed responsibility for an attack on the headquarters of Libya’s main oil company in Tripoli and said oil fields in the North Africa nation are a “legitimate target” for its militants

Asian equity markets were lower across the board after the region failed to sustain the early momentum from US, where the Nasdaq outperformed as Apple shares were lifted ahead of its special event and with energy names boosted by a rally in oil prices. ASX 200 (flat) was subdued as losses in telecoms and financials overshadowed the upside in energy stocks and with Myer shares hit after it reported a full-year loss, while Nikkei 225 (-0.3%) slipped amid a pullback in USD/JPY. Elsewhere, Hang Seng (-0.3%) delved deeper into bear market territory and Shanghai Comp. (-0.3%) also conformed to the downbeat tone despite the PBoC’s first open market operation after a 15-session hiatus, as trade uncertainty lingered and amid Chinese commodity losses. Finally, 10yr JGBs were flat with trade kept in a very tight range as prices failed to benefit despite the risk averse tone and BoJ’s presence in the market in the belly to super-long end.

Top Asian News

 

  • Indonesia Wants Tighter FX Rules for Exporters to Bolster Rupiah
  • Rupee Rallies as India Considers Steps to Support the Currency
  • India Measures Likely on Rupee, Oil After Modi Reviews Economy
  • Hikvision Slumps on News U.S. May Sanction China on Muslim Camps

 

Core European bourses trade mostly higher (Euro Stoxx 50 +0.2%) despite the negative lead from Asia. UK’s FTSE 100 lags its peers as the index is weighed on by currency effects and weakness in utility names following a profit warning from SSE (-7.6%), dragging the sector (-1.0%) and fellow utility names such as Centrica (-3.7%) and National Grid (1.6%) in sympathy. In terms of individual movers, FTSE 100 heavyweight Rolls-Royce (-3.0%) rests near the foot of the index, while traders cite reports of an emergency landing made by an Iberian flight with Rolls-Royce XWB engines.

Top European News

  • Swedish Establishment Mulls Collaboration to Block Nationalists
  • Inditex Says Revenue May Accelerate After Four-Year Lull
  • Playing With Fire in Europe’s Powder Keg as Balkan Tensions Rise
  • Goldman Sees ‘Meaningful Upside’ in European Bank Stocks

In FX, focus was on cable, where more positive EU Brexit vibes, and this time from EC President Juncker have given Sterling another boost, with the pount back on the 1.3000 handle after a dip below on more reports about Tory plots against UK PM May, while EUR/Gbp slips back towards 0.8900 irrespective of the single currency’s rebound vs the Usd to retest 1.1600 before dipping again amidst ECB ‘source’ reports suggesting downgrades to staff GDP forecasts and downside risks to the growth outlook tomorrow. EM - Some comparative calm across the region ahead of what could well be another storm or at least volatile session on Thursday when the CBRT decides on policy and needs to deliver given aggressive/hawkish market expectations. However, reports about potential intervention from India have lifted the Rupee pre-emptively and to the benefit of others to a degree. AUD/NZD - Narrowly mixed vs their US rival with the Aud recovering quite well from another 0.7100 downside probe given deteriorating Aussie consumer confidence overnight, and the Kiwi also keeping its head above a big figure (0.6500), albeit just.

In commodities, WTI and Brent futures took a breather following yesterday’s rally amid hurricane concerns, which was exacerbated by a larger than expected draw API crude inventories. Inventories showed a draw of 8.636mln barrels against the expected draw of 800k barrels. WTI futures retreated back below USD 70/bbl in recent trade. The latest from the NHC states Hurricane Florence heading towards the US East Coast and is expected to bring life-threatening storm surge and rainfall to portions of the Carolinas and mid-Atlantic states. While there are only a few refineries in Florence’s path, the hurricane poses problems in terms of cargo shipping. Laden energy cargos have not been heading towards the North/South Carolina region ahead of the hurricane. Elsewhere, gold is uneventful while copper outperforms following the recent decline in the red metal.

On today's calendar, the main focus in the US should be on the August PPI report where a +0.2% mom print is expected for both the headline and core readings. The Fed’s Beige Book is also out this  evening while St Louis Fed President James Bullard speaks at 2.40pm BST and then Governor Lael Brainard will speak at 5.45pm BST.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -0.1%
  • 8:30am: PPI Final Demand MoM, est. 0.2%, prior 0.0%;
    • PPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%; PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.3%
    • PPI Ex Food and Energy YoY, est. 2.7%, prior 2.7%; PPI Ex Food, Energy, Trade YoY, prior 2.8%
  • 2pm: U.S. Federal Reserve Releases Beige Book

DB's Jim Reid concludes the overnight wrap

Today is the day where every year I wake up completely happy with my current phone but go to bed completely dissatisfied with it and the day I have to justify to my wife why I need a new phone while realising after listening to myself that I don’t. However, since having children this conversation has gotten easier as the camera usually gets ever so slightly better each year and I can persuade my wife that the photos of the kids will be enhanced. So yes, it’s the annual Apple iPhone launch day. Given their status as the world’s biggest company it does matter for markets as well as for personal curiosities. They’ve added $160bn of market cap since the start of August which to put in some context that amount would equate to the 35th biggest S&P 500 company and the 13th biggest STOXX 600 company.

Talking of Apple, a weak early European session and US open was reversed as tech rebounded from recent weakness with Apple (+2.53%) firm ahead of its big day. The S&P 500, DOW and NASDAQ closed +0.37%, +0.44% and +0.61% after hitting lows of -0.36%, -0.40% and -0.55% respectively just after the open. Europe also fought back from earlier losses of as much as half a percent or so with the STOXX 600 finishing -0.05%. The early dip seemed to be sparked by a WTO news release suggesting that China was to ask the WTO to sanction trade retaliation against the US over failure to comply with a dispute ruling from last year which found that parts of the US anti-dumping regime had proven to be illegal. This was slightly stale news though and as such was downplayed somewhat but nevertheless did have a bit of an impact on markets.

Meanwhile bond markets continued to climb after last week’s bumper US earnings number and additional positive data yesterday (more below) with Treasury yields climbing +4.4bps to 2.976% and to the highest since August 2nd, while yields in Europe were broadly 2-3bps higher following a busy day for supply. EM FX had been fairly calm for much of the session until currencies in Latam started trading with the Argentine Peso (-1.58%) and Brazilian Real (-1.60%) leading losses, though the broader EM FX index was more or less flat as the Russian Ruble (+1.66%) and South African Rand (+0.90%) bounced.

Brazilian assets had a fairly tough day all round with the IBOVESPA tumbling -2.33% and hard and local currency 10 yields rising +11.6bps and +12.0bps respectively.This followed the latest polls (Datafolha) ahead of the October 7th Presidential election, which showed steady support for the right-wing candidate Jair Bolsonaro at 24%. Potentially worrying for markets, two centre-left, marketunfriendly candidates – Ciro Gomes and Fernando Haddad – were looking towards second place on 13% and 9%, and the poll indicates that either candidate would defeat Bolsonaro in the second round runoff.

Elsewhere, bucking the recent trend of late was the slightly more subdued performance for Italian assets. The FTSE MIB ended -0.31% while 10y BTP yields rose as much as +9.5bps from the intraday lows and closed higher for only the second time this month. To be fair there wasn’t a great deal of newsflow and it’s hard to really attribute the move to Finance Minister Tria’s comments. He said at an event in Rome that the government was committed to reducing taxes on personal income in the hotly anticipated 2019 budget but that “it remains to be seen whether this is compatible with budget limits” and also that any cuts might come after eliminating existing tax breaks in other areas. After Italian markets closed, Deputy Prime Minister and head of the League Salvini said in an interview that Italy will respect the 3% deficit limit and that new fiscal policies will be implemented over a 5-year program. Our economists believe that the highest deficit that would still allow the debt to remain sustainable is around 2.3%, and they published a report yesterday focused on the interaction between the budget and macroeconomic growth.

As far as markets overnight have fared, that positive tone from the US session appears to have ended within the first few minutes of Asia trading with bourses back in the red.The Hang Seng (-0.44%) in particular has fallen further into the bear market it entered yesterday while the Nikkei (-0.50%), Shanghai Comp (-0.33%) and Kospi (-0.33%) are also down. It’s worth noting that the Shanghai Comp at one stage traded below its December 2014 closing this morning, meaning its now also down over 25% from its YTD peak. Futures markets in the US and Europe are also lower while Oil (+0.94%) has continued to rise following the +2.53% rally yesterday over supply fears related to Hurricane Florence. Meanwhile the main news overnight came from Reuters suggesting that a second round of trade talks between the US and Japan could take place on September 21st, following a summit between Abe and Trump on the sidelines of the UN General Assembly General Debate. With similar positive headlines about the US and EU this puts the spotlight firmly back on the China trade war situation. Away from that it’s quiet but remember we’ve got super Thursday tomorrow with the ECB, BoE and CBT all meeting and with US CPI also out. So we could easily see a livelier end to the week than the start.

Back to yesterday. In terms of data, in the US the NFIB small business optimism reading jumped to the highest in August  (108.8 vs. 108.0 expected) since data started getting collated in 1974. Capital spending plans were also reported as being the highest since 2007 and inventory investment intentions the highest since 2005. If that wasn’t enough, then the net 26% of owners (on a seasonally adjusted basis) planning to increase employment was also the highest ever. Separately, the monthly jobs openings and labour turnover survey showed several indicators of labour market tightness: there are only 91 unemployed people per 100 job openings, the lowest ever, and the quits rate is at its highest level since 2001. Both series suggest that inflationary wage pressures will continue.

In Germany the September ZEW survey for current conditions jumped an unexpected 4.4pts to 76.0, far exceeding expectations for a small decline to 72.0, while the survey component also improved to -10.6 from -13.7. Both components are well off their recent highs but clearly the positive momentum is welcome.

Here in the UK there was also some decent numbers out of the July earnings data with average weekly earnings ex-bonuses jumping two-tenths and more than expected to +2.9% yoy (vs. +2.8% expected). In July alone basic earnings came in at +3.1% which was the most since 2015. While we’re on the UK, yesterday we got confirmation that BoE Governor Carney was to extend his term as Governor for an extra seven months, taking his term to January 2020 and therefore around half of the way through the period from which the UK will withdraw from the EU. Sterling finished flat yesterday despite those headlines. Late in the US session, media outlets reported that the UK and EU are preparing to formally sign off on a Brexit withdrawal agreement in November, possibly in the week of November 12. The pound edged up around +0.3% on the headlines but failed to hold there, as the more contentious issues, e.g. how to resolve the Irish border, will likely not be completely resolved before the UK withdraws from the EU.

As for what we should be keeping an eye on today, this morning we’ll get the July industrial production print for the euro area which is expected to show a small month on month decline. This afternoon the main focus in the US should be on the August PPI report where a +0.2% mom print is expected for both the headline and core readings. The Fed’s Beige Book is also out this  evening while St Louis Fed President James Bullard speaks at 2.40pm BST and then Governor Lael Brainard will speak at 5.45pm BST.

Published:9/12/2018 5:58:47 AM
[Markets] [$$] Muted Stock-Market Moves Show Investor Caution The S&P 500 has gone 53 trading days without a move of 1% in either direction, the longest such streak since January and just the fifth time the benchmark index has moved less than 1% on 50 consecutive sessions in the past five years, according to Dow Jones Market Data. It last moved at least 1% on June 25, falling 1.4% as trade fears gripped global markets. The Dow Jones Industrial Average and Nasdaq Composite have also been relatively calm recently, though certain sectors have at times been volatile. Published:9/11/2018 7:18:15 PM
[Markets] Stock market closes higher as energy, telecom sectors lead U.S. stocks shrug off a wobbly start to close higher Tuesday, with the Dow climbing by triple digits, as energy and telecommunications rallied. Published:9/11/2018 4:01:36 PM
[Markets] Wall Street rises as Apple, energy stocks advance U.S. stocks rose on Tuesday as Apple Inc led a jump in technology shares and a gain of more than 2 percent in oil prices drove up energy shares. The Dow Jones Industrial Average rose 113.99 points, or ... Published:9/11/2018 3:14:12 PM
[Markets] Tesla Model 3 production tracker tops 90,000, but weekly rate lower than expected Tesla Inc. has manufactured slightly more than 90,000 Model 3 sedans total, but the company's weekly pace is under 4,000 cars, according to a Bloomberg estimate updated on Tuesday. The estimate uses a combination of vehicle identification numbers posted on social media and registered with federal regulators. Tesla on July 2 said it had made 5,031 Model 3s in the last seven days of the second quarter, adding then it would expect to have boosted production to 6,000 a week by late August. Tesla does not report its deliveries, the company's proxy for sales, monthly but instead reports them by quarter a few days after the end of a quarter. It will report third-quarter numbers in early October. Tesla shares on Tuesday lost 4% to bring yearly losses to 12%, which compares with yearly advances of 8% and 5% for the S&P 500 index and Dow Jones Industrial Average. Published:9/11/2018 12:48:48 PM
[Markets] Dow up 150 points, led by Apple and Micosoft, as stocks stage intraday rebound Dow up 150 points, led by Apple and Micosoft, as stocks stage intraday rebound Published:9/11/2018 11:35:41 AM
[Markets] GoFundMe Will Cover Rest Of $400,000 Raised For Homeless Vet

Johnny Bobbitt Jr., a homeless veteran who has been fighting for nearly a year to win the balance of roughly $400,000 in charitable donations made out to him, will soon receive the roughly $325,000 that he is still owed by the New Jersey couple who raised the money, according to his lawyer, Chris Fallon.

In an interview with CNN, Fallon said that GoFundMe had promised to cover the rest of the money raised for Bobbitt via their platform if Kate McClure and Mark D'Amico, the couple in question, failed to pay up.

The couple recently saw their home raided by Burlington County police after lawyers working on Bobbitt's behalf sued the couple and filed a complaint saying McClure and D'Amico had refused to turn over the money - which the couple raised for Bobbitt via a GoFundMe campaign that went viral - which the lawyers argued rightfully belonged to Bobbitt.

Bobbitt

GoFundMe said that it would launch an investigation into what happened with the funds based on whatever evidence was seized from the couple's home by Burlington County police. But regardless of what happened, the donations are backed by GoFundMe's "GoFundMe guarantee," which protects donors and recipients.

Here's more from Fallon, who broke the news to CNN.

"We reached an agreement today with GoFundMe and they have agreed to make sure he will be made whole," Fallon says.

In a statement, the company said it would back the money raised:

"...Our platform is backed by the GoFundMe Guarantee, which means that in the rare case that GoFundMe, law enforcement or a user finds campaigns are misused, donors and beneficiaries are protected."

McClure and her boyfriend set up the GoFundMe page after Bobbitt, a homeless vet who has struggled with susbstance-abuse problems, used his last $20 to buy gas for McClure after her car ran out of fuel, leaving her stranded on the side of I-95 in a dangerous neighborhood of Philadelphia. The couple started the page, which was titled "Paying it Forward" to help repay Bobbitt for his generous act of altruism, and it quickly went viral: 14,347 people donated $402,706 over the course of 10 months. However, they quickly reneged on their promise to turn the money over, and instead parceled it out to Bobbitt in installments, eventually giving him a total of $75,000. To justify their actions, D'Amico told the press that giving the whole sum to an addict would be like giving him a loaded gun. However, their shady actions have raised speculation that they may have spent the money.

Following the complaint, the couple hired a lawyer and repeatedly refused to produce an accounting of the funds. D'Amico later admitted that he "borrowed" $500 from Bobbitt's pot and spent it on online poker - but insisted that he had paid the money back with his winnings. The couple has repeatedly denied any wrong doing, but they have also refused to abide by a court order to hand over the money.

On Thursday, the couple agreed to let a forensic accountant examine their books. They've also been ordered to appear in person at a deposition on Monday by Judge Paula Dow, who has said she's "no longer comfortable" hearing only from the couple's attorney.

Meanwhile, Bobbitt has been enrolled in a 28-day detox program and given $20,000 to cover his living expenses until he recovers the balance of the money.
 

Published:9/8/2018 7:19:24 PM
[Markets] Trump responds to Apple tariff concerns, suggests 'easy solution' President Donald Trump on Saturday appeared to respond to Apple Inc.'s letter concerning the impact that proposed tariffs could have on the Apple Watch, AirPods, and other products. "Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive," he wrote on Twitter. "Make your products in the United States instead of China." He urged Apple to "start building new plants now" and ended his message with: "Exciting!" Apple on Wednesday sent a letter to the U.S. trade representative saying that a proposed 25% tariff on $200 billion worth of goods imported from China would affect numerous Apple products, including the Watch, Mac Mini, and charging cables. "Our concern with these tariffs is that the U.S. will be hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers," the company said in the letter. Apple's stock closed down 0.8% in Friday's session, while the Dow Jones Industrial Average fell 0.3%. Published:9/8/2018 12:34:12 PM
[Markets] Apple says proposed tariffs would hit the Apple Watch, AirPods, Mac Mini, and other products In a letter to U.S. Trade Representative Robert Lighthizer, Apple Inc. said that a proposed 25% tariff on $200 billion worth of Chinese imports would cover a "wide range of Apple products," including the Apple Watch. The tariffs would also affect the Apple Pencil, AirPods, Mac Mini, cables and chargers, testing equipment, and repair tools. "Our concern with these tariffs is that the U.S. will be hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers," the company said in its letter, which is dated from Wednesday. "Given the balance of Apple's economic footprint, the burden of the proposed tariffs will fall much more heavily on the United States than on China." The letter said that Apple found it "difficult to see how tariffs that hurt U.S. companies and U.S. consumers will advance the government's objectives with respect to China's technology policies." Apple shares dipped into negative territory toward the end of Friday's trading session and closed down 0.8%. Shares are up 37% over the past 12 months, while the Dow Jones Industrial Average , of which Apple is a component, has gained 19%. Published:9/7/2018 3:22:06 PM
[Markets] GE holds quarterly dividend steady at 12 cents General Electric Co. (ge) said Friday it was keeping its quarterly dividend at 12 cents a share, with the payment scheduled for Oct. 25 to shareholders of record on Sept. 17. In June, the company had said it planned to maintain its annual dividend rate at 48 cents a share, until it completes its plan to establish GE Healthcareas an independent entity. At current stock prices, GE's dividend yield is 3.90%, compared with the implied dividend yield for the Dow Jones Industrial Average (djia) of 2.09%, according to FactSet. Published:9/7/2018 1:22:55 PM
[Markets] Dow skitters 120 points lower as tepid stock-market rebound comes to a screeching halt MARKET PULSE The Dow Jones Industrial Average sank back into the red in midday Friday trade and the broader market cut modest gains as a rise in the technology sector deteriorated and a decline in consumer-staples and energy shares picked up steam. Published:9/7/2018 11:17:49 AM
[Markets] Stocks Plunge On Trump Shocker: Threatens China With Another $267BN In Tariffs

The Friday moment everyone has been waiting for, namely whether or not Trump would greenlight the next $200BN in China tariffs now that the comment period is over. Moments ago we got the answer when Trump, speaking to reporters on board of Air Force 1, just said that another $267BN in China tariffs are ready to go, and could be added to the $200BN which are already contemplated. From Bloomberg:

  • TRUMP: ANOTHER $267B CHINA TARIFFS READY TO GO, ADDED TO $200B
  • TRUMP: EXTRA $267B CHINA TARIFFS COULD BE READY ON SHORT NOTICE

While there were few details, and it was not clear if Trump had activated the original $200BN that was meant to be enacted today, the reaction on the market was instant, and the Dow Jones tumbled by 100 points in seconds once the headlines hit.

Published:9/7/2018 11:17:49 AM
[Markets] The Dow is being held lower in intraday action by Boeing's stock slump MARKET PULSE The Dow Jones Industrial Average was lagging behind its main equity benchmarks in early Friday trade, with a drop in shares of Boeing Co. (BA) serving as the most significant factor, anchoring blue chips in the red. Published:9/7/2018 10:37:53 AM
[Markets] Dow wipes out tepid weekly gain at the open amid tech slump, Friday jobs report The nonfarm-payroll report was seen as underlining the likelihood for a rate increase later this month by the Federal Reserve amid a bevy of concerns on international trade policy, emerging economies and a multisession slump in the technology sector. The Dow Jones Industrial Average (DJIA) was down 101 points, or 0.4%, at 25,892, the S&P 500 index (SPX) declined by 0.5% at 2,865, while the Nasdaq Composite Index (COMP) fell 0.5% at 7,879. Published:9/7/2018 8:51:04 AM
[Markets] Dollar, Yields Surge After Wages Come In Hot

Wage inflation is back with a bang, and so is speculation that the Fed will be forced to hike far longer than the market expects, which of course means much more pain for emerging markets.

Because just as EM currencies breathed a sigh of relief that the dollar may have finally peaked after 4 weeks of declines, the greenback surged following today's average hourly earnings number, which as a reminder, was the strongest in 9 years...

... leading to a sharp spike in the dollar.

The stronger dollar has translated to immediate yield strength as well, with 10Y yields jumping 5bps as high as 2.93%...

... while 2Y notes rose to 2.686%, the highest since July 2008.

As for stocks, they are down, but nothing too dramatic just yet, with S&P futures down about 9 points and the Dow -90. 

As a reminder, it was the "hot" January hourly earnings print that according to many prompted the sharp selloff that Friday that cascaded into the VIXtermination event the following week. Is the market about to have another similar ugly reaction now that wage inflation, and the Phillips curve, appears to finally be making a comeback?

 

Published:9/7/2018 8:23:06 AM
[Markets] Global Stocks Slide On Tariff, Payrolls Suspense; Dollar Drops

Global markets slumped in suspense over today's main events, with S&P 500 futures falling along with European and Asian shares as investors awaited the latest move in the U.S.-China trade war after the comment period deadline passed overnight, even as August payrolls data loomed later on Friday. A weaker dollar helped emerging-market equities snap seven days of declines while EM currencies also rose.

World shares limped toward their worst week in almost six months on Friday, with Asia carving out a 14-month trough as investors braced for a new salvo of Sino-U.S. tariffs. A Thursday slump in U.S. chip stocks and reports that President Trump had also weighed a trade feud with Japan dragged on tech-heavy Asia overnight, while Europe’s main bourses faded after an initial attempt push higher, with the Stoxx 600 index falling to session low, down 0.3% reversing gains of 0.2%, driven lower by banks and as travel stocks declined. The Europe STOXX 600 was set to end the week with a 2.3% loss, its worst weekly performance since the end of March. Emerging market stocks have lost even more, some 3%, while U.S. equity futures pointed to a softer open following a negative session in Asia as equities fell in Japan, South Korea and Australia, while those in China posted gains.

European banks dropped 1% after Dow Jones reported that China asked HNA Group to exit Deutsche Bank, and ING said its license to operate could be threatened because of information technology and working system problems. As a result, the European Bank Index dropped lowest since November 2016.

Core European bonds fell, while Italian bonds gained on optimism the government will stick to European Union budget-deficit rules. In fact, Italian bonds headed for the biggest weekly gain in almost three months after the country’s finance chief reassured investors that this month’s budget won’t breach European Union rules.

Chinese blue chips had managed their 0.5 percent bounce as beaten-down health care stocks found buyers after taking a savaging in recent months amid vaccine scandals. MSCI’s broadest index of Asia-Pacific shares outside Japan had still lost 0.3% though, having earlier reached its lowest since mid-July last year. The Nikkei shed 0.8 percent, undermined by a rising yen and reports U.S. President Donald Trump could be contemplating taking on Japan over trade.

Trader nerves have been frayed further after the public comment period for proposed tariffs on an additional $200 billion worth of Chinese imports passed. The tariffs could now go into effect at any moment, although there was no clear timetable. China has warned of retaliation if Washington launches any new measures. Australia’s dollar, often used in as play on China’s fortunes due to its huge metals exports there, hit a 2-1/2 year low early on it Europe.

“It is all linked to the trade comment period expiring and now we are wondering what the implementation plan is going to be and how China is going to respond,” Saxo Bank’s head of FX strategy John Hardy said. "The Aussie dollar of course is a proxy within G10 for that,” he added, also pointing to shares in mining giants such as BHP trading down near key technical levels.

There was a silver lining after the MSCI Emerging Market Index jumped 0.4%, on course to snap a 7-day losing streak after falling into a bear market earlier in the week. China had closed higher overnight despite the tariff feud and Turkey’s lira and South Africa’s rand and Argentina’s peso all looked relatively calm early on.

Other emerging markets were trying to steady after a punishing week, with Indonesia and the Philippines still badly scarred by fears of capital flight following crises in Argentina and Turkey and the rumbling U.S.-China trade strains.

“It seems unlikely the tariffs are not implemented as the U.S. administration believes that they are winning the trade war and will be in a stronger position to negotiate if they put more pressure on China,” JPMorgan analysts wrote in a note. “The tech sector was also very weak overnight, with a slide in Micron of almost 10 percent and further weakness in the Chinese Internet ADRs.”

Elsewhere in EM, Brazil's stocks and currency jumped after presidential candidate Jair Bolsonaro was stabbed during a street rally as traders bet that the attack will wind up creating sympathy for the candidate and help propel him into the second round of voting.

The Turkish lira advanced for a third day and Turkish bonds rallied as an emerging-market currency rout showed signs of easing.

With the EM rout fading for now, traders returned to more familiar themes: trade tensions and central banks. The Thursday deadline for public comment on proposed U.S. tariff hikes on an additional $200 billion of Chinese imports came and went without any fresh announcement from Washington. Eyes now turn to the U.S. payrolls report for August which is expected to show a robust rise of 191,000 - in part as July was temporarily depressed by the closure of the Toys R Us chain that month - which investors will watch with particular attention following dovish comments by New York Fed President John Williams on Thursday.

Still, as we noted previously, Goldman analysts cautioned that: “Despite employment indicators pointing to another strong report, it is worth noting that there is a tendency for August payrolls to initially disappoint and then be revised up noticeably later.”

Just as important will be figures on U.S. wages where a rise above the 0.2 percent forecasted would likely boost the dollar and pressure Treasury prices.

The dollar could do with the lift, having lost out to the safe-haven yen and Swiss franc. It was changing hands at 110.70 yen after falling 0.7 percent on Thursday, the sharpest one-day loss in seven weeks. Part of the decline came after a Wall Street Journal columnist reported Trump had mused about starting a trade fight with Japan. The dollar also hit a four-month low on the franc around $0.9645. Against a basket of currencies, the dollar index nudged lower to 94.939 and was heading for a fourth weekly drop.

Elsewhere in G-10 FX, the pound was little changed on the day and headed for its first weekly loss since mid-August. The euro was a shade higher at $1.1645, while sterling idled at $1.2939 amid ongoing uncertainty over Brexit negotiations. The dollar dipped and Treasuries moved lower before the U.S. payroll report on Friday, which will offer clues on the labor market’s health, the state of wage inflation and the pace of future Fed rate hikes.

In commodities, WTI and Brent futures were marginally higher in early European trade thus far with the former hovering around the USD 68/bbl level. According to Reuters trade flow data, US imports of crude oil from Saudi Arabia in August and September are set to reach the highest 2-month level early of 2017, citing the relatively cheap prices as advantageous for US refiners. News flow remains light for the complex, however, next week will see the release of the EIA short-term energy outlook, OPEC’s monthly report and IEA’s oil market report. Elsewhere, spot gold trades flat as the yellow metal flirts with the USD 1200/oz level ahead of the release of key US jobs data later, while copper underperforms amid ongoing trade-related concerns.

Market Snapshot

  • S&P 500 futures down 0.08% to 2,876.75
  • STOXX Europe 600 down 0.1% to 373.05
  • MXAP down 0.2% to 160.23
  • MXAPJ down 0.2% to 515.81
  • Nikkei down 0.8% to 22,307.06
  • Topix down 0.5% to 1,684.31
  • Hang Seng Index down 0.01% to 26,973.47
  • Shanghai Composite up 0.4% to 2,702.30
  • Sensex up 0.2% to 38,302.99
  • Australia S&P/ASX 200 down 0.3% to 6,143.81
  • Kospi down 0.3% to 2,281.58
  • Brent Futures up 0.2% to $76.68/bbl
  • Gold spot up 0.1% to $1,201.26
  • U.S. Dollar Index down 0.1% to 94.91
  • German 10Y yield rose 0.8 bps to 0.363%
  • Euro up 0.2% to $1.1645
  • Brent Futures up 0.2% to $76.68/bbl
  • Italian 10Y yield rose 2.9 bps to 2.694%
  • Spanish 10Y yield fell 0.7 bps to 1.442%

Asia equity markets traded negative following a lacklustre lead from the US where continued weakness in tech and underperformance in energy dragged most US majors lower, while upcoming NFP jobs data and trade-related concerns added to the tentative tone. ASX 200 (-0.6%) and Nikkei 225 (-0.9%) were lower with nearly all sectors in Australia in the red and energy among the worst hit following the recent pullback in crude, while Tokyo stocks underperformed on a firmer currency and after US President Trump hinted that Japan could be next on the agenda. Conversely, Hang Seng (-0.9%) and Shanghai Comp. (-0.1%) initially outperformed despite the potential escalation in the trade dispute with the consultation period for the proposed tariffs on USD 200bln of Chinese imports now expired. Furthermore, China had declared it would retaliate against fresh tariffs and plans to take necessary countermeasures to support its companies, while the PBoC were also active today and injected CNY 176.5bln through its 1yr MLF. Chinese stocks then deteriorated heading into the tariff deadline to conform to the overall risk-averse tone and amid increases in money market rates which saw the Hong Kong overnight CNH HIBOR hit its highest level since late June. Finally, 10yr JGBs were marginally higher as they tracked the prior session’s gains in T-notes and with support seen amid the risk averse sentiment in the region, while today’s enhanced liquidity auction for 2yr-20yr JGBs also saw improved results across all metrics.

Top Asia News

  • Philippine Central Bank Pledges ‘Strong’ Action on Inflation
  • Hong Kong, China Stocks Wobble as U.S. Tariff Consultations End
  • China End-Aug. Forex Reserves at $3.1097T; Est. $3.115T
  • Deutsche Bank Top Holder HNA Is Said to Plan Exiting Its Stake

European equities trade slightly softer (Eurostoxx 50 -0.4%) following a negative read from Asia with sentiment dampened on trade concerns and ahead of the upcoming NFP data, while UK’s FTSE 100 is pressured by miners on the back of softer base metal prices. Sector wise, telecom names outperform as French listed Iliad (+5.7%) shares jumped higher on rumours of going private. The company decline to comment.. In stock specific news, IAG (-2.9%) is under the hammer after subsidiary BA said at least 380,000 customers credit card details have been compromised in a data theft.

Top European News

  • Europe’s Stocks Finally Get Some Love With 1st Inflows in 26 Wks
  • Iliad Shares Soar as Oddo Says Buyout Scenario Is Credible
  • Steve Bannon’s Favorite Swedish Party Is Set to Upend Status Quo
  • How Did Russia’s Gas Giant Get Beaten by Its Smaller Rival?

In FX, AUD was the marked G10 underperformer and main victim of ‘pending’ $200 bn Chinese import tariffs by the US, alongside the threat that President Trump turns his trade offensive towards Japan next. Having failed yet again to clearly overcome resistance around 0.7200 vs the Usd, reported bids from exporters and short covering or profit taking demand at 0.7150 has been severely tested and briefly breached before a relatively firm bounce, albeit amidst broader Greenback weakness, as the Aud continues to lose ground against its NZD antipodean peer with the cross down under 1.0900 – Kiwi holding towards the upper end of a 0.6560-95 range vs the Usd and not really reacting to comments from RBNZ Governor Orr last night. EUR - Conversely, the single currency is the major front-runner vs the Dollar and overcame a post-German data wobble in early EU trade to test offers around 1.1650, with some technical impetus derived as the headline pair held just above the 100 HMA (1.1607). Note also, more decent option expiry interest in the mix with 1 bn running off between 1.1635-50 at the NY cut. CAD/CHF/JPY - All pretty flat against the Usd, but retaining the bulk of gains made on Wednesday as the Loonie benefited from positive NAFTA talk via the US President and reaffirmation of gradual rate hike guidance by BoC’s Wilkins. Usd/Cad currently circa 1.3130 and awaiting Canadian jobs data alongside US NFP. The Franc is also on the firmer side of recent ranges around 0.9650 and its safe-haven counterpart, Jpy trades around a new pivot of 110.50 and bang in the middle of 1 bn option expiries at the 110.00 and 111.00 strikes. EM - So far so good, as regional currencies continue their comeback, led by the Try that has extended its rebound on renewed CBRT tightening expectations, with the Lira now over 6.5000 again vs the Usd. Similarly, the Rouble has been boosted by signals from the Central Bank that a rate hike could well be in the offing next Friday (just a day after the CBRT policy meeting) and Usd/Rub is back below 69.0000 in response, while Usd/Zar has retreated further towards 15.0000.

In commodities, WTI and Brent futures are marginally higher in early European trade thus far with the former hovering around the USD 68/bbl level. According to Reuters trade flow data, US imports of crude oil from Saudi Arabia in August and September are set to reach the highest 2-month level early of 2017, citing the relatively cheap prices as advantageous for US refiners. News flow remains light for the complex, however, next week will see the release of the EIA short-term energy outlook, OPEC’s monthly report and IEA’s oil market report. Elsewhere, spot gold trades flat as the yellow metal flirts with the USD 1200/oz level ahead of the release of key US jobs data later, while copper underperforms amid ongoing trade-related concerns.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 191,000, prior 157,000
  • 8:30am: Unemployment Rate, est. 3.8%, prior 3.9%
  • 8:30am: Underemployment Rate, prior 7.5%
  • 8:30am: Average Hourly Earnings MoM, est. 0.2%, prior 0.3%; Average Hourly Earnings YoY, est. 2.7%, prior 2.7%
  • 8:30am: Average Weekly Hours All Employees, est. 34.5, prior 34.5
  • 8:30am: Labor Force Participation Rate, prior 62.9%

DB's Jim Reid concludes the overnight wrap

So a week to go until the 10-year anniversary of the Lehman default weekend. Of more immediate interest is that today we welcome in another payrolls Friday. They’ve generally been a bit dull over the last 7 months after the excitement of the average hourly earnings (AHE) spike in the release from the first week of February. As you’ll no doubt remember this caused unparalleled chaos in volatility markets. Since then, this number has been relatively well behaved. For today, DB are a tenth above consensus for AHE at +0.3% mom which, if correct, would equal the post-crisis yoy high of +2.8%. We should continue to keep a very close eye on this number as when the labour market is as tight as it is, the risks are virtually all on the upside for wages. Beware of the seasonality that often makes August’s payroll number weaker than expected. This is why unemployment and AHE will likely be more instructive today. The full preview is at the end.

So as we approach the end of the first week of September it’s been one where the negativity baton has been passed from EM to US tech. Indeed, the big mover yesterday was the NASDAQ again which tumbled -0.91% and so takes the three-day loss to -2.30% this week. The NYSE FANG index was also down -1.65% which means the -5.37% sell-off in the three days this week is now the biggest three-day move since the big selloff at the end of July. A not-so insignificant $158bn of value has also been wiped from that index over the last three days.

Anyway, the moves also weighed on the S&P 500 (-0.37%), while the DOW ended up bucking the trend to close +0.08%. The recent weakness is clearly being driven largely by tech given the outperformance for the other bourses. That said the VIX did rise above 15 intra-day for only the second time over the last two months (close 14.65). Here in Europe, the STOXX 600 (-0.59%) closed lower for the third session in a row. The FTSE MIB (-0.27%), despite finishing lower, continues to outperform much of Europe this week; it is now up +1.27% on the week compared to the STOXX 600’s -2.35% drop. Bond markets were generally a sideshow, with yields a couple of basis points lower for Treasuries and Bunds. EM FX meanwhile ended last night a rather modest +0.16% and in the grand scheme of things has had two days of fairly stable moves (although equities have been a lot weaker). Indeed the Argentine Peso (+2.84%) and Turkish Lira (+0.28%) both strengthened for the second day in a row while even the South African Rand (+0.58%) was stronger. In fact, there’s only been 2 other days since the start of August that those three currencies have all finished the same day stronger. The Russian Ruble fell -1.43% after Prime Minister Medvedev said he hopes the Bank of Russia takes an “active position” to address high interest rates. The new head of the Bank of Russia’s monetary-policy department, Alexey Zabotkin, issued similar comments by saying that financial conditions are already tightening, and that this will be part of the discussion around any future rate moves. Sentiment was not helped by the UK and allies’ joint statement formally accusing Russia of using the nerve agent Novichok on British soil.

Overnight the generally risk off tone has continued into Asia once again. Japan is leading the way in terms of underperformance (Nikkei -1.18%) not helped by a WSJ article which came out late last night suggesting that President Trump may turn his focus on trade tariffs over to Japan. Elsewhere the Hang Seng (-0.86%), Shanghai Comp (-0.13%), Kospi (-0.62%) and ASX (-0.63%) are also lower capping a tough week for the region. Coming back to trade there hasn’t been any news overnight post the deadline passing for the public comment period although there is a story on Bloomberg suggesting that some of the big US tech companies have made a big pushback to the proposed $200bn of tariffs on China. So we’ll see what today brings. NAFTA could also be in the spotlight after Canada’s Foreign Minister Chrystia Freeland said that a deal is unlikely this week but talks remain upbeat.

Coming back to yesterday which was a busy day for data but there were a couple of prints which stood out in the US. The first was the latest weekly initial jobless claims reading which at 203k (vs. 213k expected) marked a new cycle low and in fact the lowest since 1969. The second was the August ISM nonmanufacturing reading which backed up the manufacturing print earlier in the week by coming in at a much stronger than expected 58.5 (vs. 56.8 expected) – a jump of 2.8pts from July and so reversing much of the sharp decline that month. The details showed that the majority of significant components rose too, with the exception of prices. So further evidence that GDP growth isn’t showing signs of abating just yet.

In Europe, German manufacturing orders fell -0.9% in July, a big miss versus the expected +1.8% expansion. The fall was mostly attributable to a big drop in external orders from outside the Eurozone, suggesting some potential softening in external demand. Risks around Italy, trade, and EMs may also be contributing to uncertainty and may be weighing on business spending plans. In Switzerland, second quarter GDP printed at a very robust +3.4% yoy, exceeding expectations for +2.4%. This represents the strongest pace of growth since 2010, and the Swiss Franc rallied +0.75% versus the Euro to its strongest level in over a year. Apart from data, focus yesterday was on a speech by new NY Fed President John Williams (formerly of the San Francisco Fed). He broadly confirmed the house view for Fed policy and the economy. He downplayed the relevance of a flattening or inverted yield curve as a recession signal, assuming other asset prices maintain their positive signals. He described the outlook as “a bit of a Goldilocks economy from a policy maker point of view” and said that “we don’t feel the need to raise interest rates more quickly.” This supports DB’s expectations for two more rate hikes this year and four more in 2019. Williams also downplayed the risks to the US economy from stresses in emerging markets, “but we need to be on top of that.” Separately, Chicago Fed President Evans repeated his hawkish view that rates should proceed to neutral, or even a bit further. This is a big change from an FOMC member who used to be among the most dovish, but didn’t move markets. Separately, the Canadian dollar appreciated as much as +0.52% versus the US dollar after Deputy Governor Wilkins said that the Bank of Canada considered dropping their commitment to a “gradual approach” to rate hikes, which could signal a potential acceleration in the pace of hikes beyond the currently-discounted path of one per quarter. Food for thought internationally.

As for what to look forward to today the aforementioned US employment report dominates the agenda. Consensus is for a 191k payrolls reading which follows a much softer than expected 157k last month. Our US economists are slightly more cautious and have pegged a 185k forecast which is more conservative than their models imply largely because payrolls have missed consensus in the month of August for seven consecutive years which is a fairly telling stat. Indeed the average miss is 46k in the last seven Augusts. To be fair that probably dampens the importance of today’s data but the earnings numbers will still be a big focus.

The market is expecting a +0.2% mom average hourly earnings number which should be enough to keep the annual rate at +2.7% yoy. As mentioned earlier our economists actually expect a slightly stronger +0.3% earnings print which would push the annual rate up a tenth to +2.8% and just slightly behind September 2017’s hurricane-distorted post-recession high. Meanwhile our colleagues expect the unemployment rate to hold steady at 3.9% although the market expects a one-tenth fall to 3.8%.

Elsewhere, shortly after this hits your screens we’ll get July trade and industrial production data out of Germany followed shortly by the same in France. A couple of hours later we then get the final Q2 GDP revisions for the Euro area although the market isn’t expecting any changes from the +0.4% qoq advanced estimate. In the US all eyes will be on the aforementioned  August employment report while at some stage today we’ll also get August foreign reserves data out of  China. Meanwhile it’s a busy day for Fedspeak with Rosengren, Mester and Kaplan all on the cards. It’s worth noting that an informal meeting of EU economic and financial affairs ministers will also kick off today and continue into Saturday.

Published:9/7/2018 5:51:21 AM
[Markets] US STOCKS-Trade jitters and tech woes weigh on S&P, Nasdaq The S&P 500 and Nasdaq declined on Thursday as the possibility of more U.S. tariffs on Chinese imports loomed, while tech stocks stumbled, led by chipmakers and concerns about increased regulation of social media companies. On a more positive note, talks between the United States and Canada to renegotiate the North American Free Trade Agreement continued. The Dow edged up even as the S&P and Nasdaq fell. Published:9/6/2018 4:10:54 PM
[Markets] Nasdaq, S&P 500 end lower as tech shares slump; Dow finishes with gains Nasdaq, S&P 500 end lower as tech shares slump; Dow finishes with gains Published:9/6/2018 3:28:51 PM
[Markets] After the Bell: How the Dow Jones Industrial Average Sashayed Clear of the Tech Wreck Congressional testimony by Facebook’s Sheryl Sandberg and Twitter’s Jack Dorsey was blamed for hitting tech stocks hard on Wednesday, causing the Nasdaq to close down more than 1%. The Dow Jones Industrial Average finished higher despite losses in Asia that led to fears of an emerging markets contagion. You're going to hear a lot about how the testimony of executives from Faceook (FB) and Twitter (TWTR) before Congress rocked the tech sector today. Published:9/5/2018 6:23:19 PM
[Markets] US Tech Wrecks, Cryptos Crash As Global Contagion Spreads

Just keep buying, everyone else is...

 

Bad night for Chinese stockholders...No afternoon National Team BTFD effort!!

 

European stocks tumbled to their lowest since early April as EM contagion spread on fears of soaring exposures...

 

And US Equities were mixed - The Dow clung to unchanged all day as Nasdaq was battered (supposedly on regulatory concerns from the Congressional hearings)...

 

Futures had dipped overnight - mainly during the European session, then NASDAQ snapped at the US Cash open...

 

Tech is notably underperforming financials in September...

 

Is this the start of stocks' catch down to VIX...

 

FAANG Stocks were ugly...

Amazon is no longer a trillion dollar company...

With both NFLX and GOOGL below their 50DMA...

TWTR tumbled on the day as Dorsey spoke...

 

And TSLA dropped another 3% to 3-month lows... and TSLA bonds hit a new low...pushing the bond's yield above 8% - almost as bad as Turkey!

 

Despite stock weakness, Treasury yields are up once again...

 

The Dollar ended the day lower - breaking a four-day win streak

 

Cable spiked and dropped on headlines about Germany's attitude towards Brexit documents...

 

EM FX bounced modestly today...

 

Yuan remains stable...

 

Cryptos were smacked with the ugly stick today after headlines reported Goldman Sachs delaying its plans for a crypto trading desk...ETH is down 15% this week!

 

Knocking Bitcoin back below $7000...

And Ethereum plunged to its lowest since Sept 2017...

 

WTI Crude slipped lower (below $69) ahead of tonight's inventory data but PMs and copper limped higher on a modest USD drop...

 

Gold futures managed to scramble back above $1200...

 

Gold buys the most silver in a decade...

 

So is this is the start of the meanest reversion in US stocks to the reality of many other global markets?

Published:9/5/2018 3:21:03 PM
[Markets] Stocks end mostly lower as tech weakness weighs on Nasdaq, S&P 500 MARKET PULSE Stocks ended mostly lower Wednesday, with weakness in tech shares weighing on the S&P 500 and the Nasdaq. The Dow Jones Industrial Average (djia) bucked the soft tone, ending with a gain of around 22. Published:9/5/2018 3:21:02 PM
[Markets] Dow's gain belies bad market breadth The Dow Jones Industrial Average (djia) has swung to a gain of 30 points in early-afternoon trade, erasing an earlier loss of as much as 81 points, but broader-market internals are painting a fairly negative picture. The number of advancing stock is leading decliners 1,618 to 1,204 on the NYSE and 1,745 to 926 on the Nasdaq exchange. Within the Dow, 20 of 30 Dow stocks are trading higher, with advancing volume leading declining volume 156.8 million shares to 102.7 million shares. Published:9/5/2018 12:27:09 PM
[Markets] Nasdaq is stock-market laggard Wednesday, falling seven times as hard as Dow Nasdaq is stock-market laggard Wednesday, falling seven times as hard as Dow Published:9/5/2018 9:47:54 AM
[Markets] The Global Financial System Is Unraveling, And No, The US Is Not Immune

Authored by Charles Hugh Smith via OfTwoMinds blog,

Currencies don't melt down randomly. This is only the first stage of a complete re-ordering of the global financial system.

Take a look at the Shanghai Stock Market (China) and tell me what you see:

A complete meltdown, right? More specifically, a four-month battle to cling to the key technical support of the 200-week moving average (the red line). Once the support finally broke, the index crashed.

Now take a look at the U.S. S&P 500 stock market (SPX):

SPX is soaring to new highs, not just climbing a wall of worry but leaping over it. So the engine of global growth--China--is exhibiting signs of serious disorder, and the world's consumerist paradise--the U.S.-- is on a euphoric high (Ibogaine in the water supply?)

This divergence is worth pondering. How can the two economies that have powered a 28-year Bull Market in just about everything (setting aside that spot of bother in 2008-09) be responding so differently to the global economy and global financial system's woes?

There's a rule of thumb that's also worth pondering. While the stock market attracts all the media attention--every news cast reports the daily closing the the Dow Jones Industrial Average, the SPX and the Nasdaq stock index--the bond market is larger and more consequential. And larger still is the currency market--foreign exchange (FX).

As the chart below illustrates, a great many currencies around the world are in complete meltdown. This is not normal. Nations that over-borrow, over-spend and print too much of their currency to generate an illusion of solvency eventually experience a currency crisis as investors and traders lose faith in the currency as a store of value, i.e. the faith that it will have the same (or more) purchasing power in a month that it has today.

Here's the key takeaway: a currency crisis is a symptom of a deeper disease--it is not the illness. The same is true of stock market declines like the Shanghai Index that break long-term support levels: a crashing stock market is a symptom of a deeper disease, it's not the illness.

The fact that so many currencies are melting down at the same time is telling us the global financial system is unraveling, and unraveling fast. This is a symptom of a fatal disease. Currencies reflect all sorts of financial information; they're akin to taking an economy's pulse: trade balances, debt levels, interest rates, central bank policies, fiscal policies, and so on.

The global financial system is inter-connected, but this is not a viable excuse for the meltdown. The general explanation floating around is that currency weakness is like the flu: one currency gets it, and then it spreads to other weak currencies.

This diagnosis is misleading. What's actually happening is the unprecedented global bubble of debt and assets of the past decade is popping, and it's laying waste to the most indebted, over-leveraged and mismanaged nations first, either via stock market declines or meltdowns in currencies.

These are symptoms. The disease is the "fixes" of the past decade--extreme expansions of debt and asset valuations--are unraveling. The global financial system suffered a seizure in 2008-09, a non-linear manifestation of a system completely out of whack: the $500 billion subprime mortgage market almost took down the entire $200 trillion global financial system.

That's the acme of a brittle, fragile system: a small input (subprime mortgage defaults) yields an enormous output (global financial meltdown).

What nobody dares talk about is the "fixes" have made the global financial system even more vulnerable than it was in 2008. The global meltdown of currencies is evidence that the symptomatic "solutions" to the brush with collapse in 2008-09--skyrocketing debt and asset bubbles-- fixed nothing. All they did was inflate an even larger, more vulnerable bubble.

Currencies don't melt down randomly. This is only the first stage of a complete re-ordering of the global financial system, a re-ordering that will reprice all the assets currently bubbling at absurd levels to much lower valuations.

The illusion that the U.S. is immune to the unraveling of debt and asset valuations won't last. When the defaults start piling up, so will the losses, and when asset bubbles pop, incomes and spending decline. Although few seem to notice, almost half the profits of the S&P 500 corporations are earned overseas.

The belief that U.S. markets are somehow disconnected from global markets and immune to the repricing of risk, debt, assets and currencies is magical thinking.

*  *  *

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Read the first section for free in PDF format.


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Published:9/4/2018 5:49:40 PM
[Markets] Facebook, Nike drag Wall Street lower, data limits losses By April Joyner NEW YORK (Reuters) - Declines in Facebook and Nike shares weighed on the S&P 500 and the Dow on Tuesday, although data showing U.S. manufacturing activity accelerated in August kept losses ... Published:9/4/2018 3:39:33 PM
[Markets] 10 Years Later - No Lessons Learned

Authored by Jim Quinn via The Burning Platform blog,

“A variety of investors provided capital to financial companies, with which they made irresponsible loans and took excessive risks. These activities resulted in real losses, which have largely wiped out the shareholder equity of the companies. But behind that shareholder equity is bondholder money, and so much of it that neither depositors of the institution nor the public ever need to take a penny of losses. Citigroup, for example, has $2 trillion in assets, but also has $600 billion owed to its own bondholders. From an ethical perspective, the lenders who took the risk to finance the activities of these companies are the ones that should directly bear the cost of the losses.”– John Hussman – May 2009

This month marks the 10th anniversary of the Wall Street/Fed/Treasury created financial disaster of 2008/2009. What should have happened was an orderly liquidation of the criminal Wall Street banks who committed the greatest control fraud in world history and the disposition of their good assets to non-criminal banks who did not recklessly leverage their assets by 30 to 1, while fraudulently issuing worthless loans to deadbeats and criminals. But we know that did not happen.

You, the taxpayer, bailed the criminal bankers out and have been screwed for the last decade with negative real interest rates and stagnant real wages, while the Wall Street scum have raked in risk free billions in profits provided by their captured puppets at the Federal Reserve. The criminal CEOs and their executive teams of henchmen have rewarded themselves with billions in bonuses while risk averse grandmas “earn” .10% on their money market accounts while acquiring a taste for Fancy Feast savory salmon cat food.

I find the cognitive dissonance and normalcy bias regarding what has actually happened over the last ten years to be at astounding levels. As someone who views the world based upon a factual assessment of financial, economic and global data, I’m flabbergasted at the willful ignorance of the populace and the ease with which the ruling class has used their propaganda machine to convince people our current situation is normal, improving, and eternally sustainable.

When confronted by unequivocal facts, historically accurate comparisons, and proof our economic system is unsustainable and headed for a crash, the average person somehow is able to ignore the facts and believe all will be well because some “experts” in the propaganda media said not to worry. Those who present factual arguments are declared doomers or conspiracy theorists. They are scorned and ridiculed for being wrong for the last ten years.

The vast majority of math challenged citizens in this country don’t understand the concepts of real interest rates, real wages, debt to GDP, deficits, national debt, or unfunded liabilities. As long as their credit cards are accepted and they can get that pack of smokes with their debit card, all is well with the world. They’ve been convinced by the propagandist corporate media machine that acquiring stuff on credit makes them wealthier. They think their wages are increasing when they get a 2.5% raise, when they are falling further behind because true inflation exceeds 5%.

Their normalcy bias keeps them from grasping why their credit card balance rises even though they have slightly higher pay. They actually believe bloviating politicians when they declare we have the best jobs market in history. Suddenly, formerly skeptical conservatives who rightly believed the government drones at the BLS and BEA cooked the books to make the economy appear better than it really is, believe Trump’s declarations based on the same data. Root, root, root for your home team. Why let facts get in the way of a good story?

“The President says this is the best economy in “15 years”. Kudlow says we’re in a “boom”. But in the first 18 months of the Trump presidency, private nonfarm payrolls averaged 190k, the same rate of job creation in the last 18 months of the Obama tenure.” – David Rosenberg

The unemployment rate was falling during Obama’s entire presidency and has continued to fall under Trump. It’s the same story. In order to keep up with the demographic growth of the labor market we need to generate 200k new jobs per month. But even though we’ve added less than 200k per month for the last three years, the unemployment rate has fallen because the BLS drones say a few million more working age stiffs have willingly left the labor force, bringing that total to just below 96 million people with their feet up on the couch watching The View.

They must be living off their non-existent savings and accumulated wealth. The cognitive dissonant masses, who believe the BS peddled by CNBC, etc., don’t seem to question why their real wage increases have ranged between 0% and 1% since the Trump reign began (it was 2% during Obama’s last two years). Real wages couldn’t be falling if the unemployment rate was really 3.9%. But, why spoil a good narrative with inconvenient truth.

With stagnant real wages since the Wall Street created financial crisis, a critical thinking person might wonder how an economy whose GDP is 70% dependent on consumer spending could grow for the last nine years, with corporate profits at all-time highs, consumer confidence at record highs, and the stock market at record highs. The Deep State/Ruling Class/Powers That Be or whatever you want to call the real people pulling the strings behind the curtain boldly assumed their propaganda machine and the years of dumbing down the populace through their public education system could convince the American public to utilize cheap plentiful debt to re-inflate a new bubble to replace their last criminal enterprise.

You would think after being burned with 50% losses twice in the space of eight years, the average American would have learned their lesson. Debt kills. Consumer debt, which collapsed under an avalanche of Wall Street write-offs (paid for by you the taxpayer) in 2009/2010, has regained all-time high levels and is accelerating as we enter this final phase of blow-off top euphoria. When the next inevitable financial collapse occurs these heavily indebted suckers will be blind-sided with a baseball bat to the skull again. It seems Americans never learn.

Total household debt topped out at $14.5 trillion in 2008 and proceeded to fall by almost $1 trillion as a tsunami of foreclosures swept across the land. But a funny thing happened on the way towards Americans approaching debt with the appropriate caution – QE1, QE2, QE3 and propped up Wall Street banks doling out loans to anyone capable of fogging a mirror and scratching an X on a loan document. The Deep State oligarchs realized the only way to keep their ponzi scheme economy afloat was to lure in more suckers with debt that could be re-circulated to make the economy appear solvent.

College students, after over a decade of government school indoctrination, were the perfect dupes. From 2009 until today the government has doubled student loan debt from $750 billion to over $1.5 trillion. Everyone likes a shiny new car, so the financial industry took auto lending from $700 billion to over $1.1 trillion over the same time frame. The re-ignition of the housing bubble, through Wall Street engineered supply suppression, has driven prices far above the 2005 peak in most major markets.

With household debt at record levels, real wages stagnant and being in the ninth year of economic recovery a positive sign for the future? Do you believe the Fed has conquered economic cycles and have eliminated recessions? Have we entered a new permanent prosperity paradigm? We’ve also heard about how corporations are swimming in profits (turbocharged in the last nine months by the Trump tax cuts). This narrative is used to resolve the excess stock valuation dilemma.

If corporations were swimming in profits, why have they added $2.5 trillion of debt above the pre-collapse high in 2008? It seems they have been incentivized to take on mountains of debt because the Fed inflicted ZIRP upon the economy. Did American companies use this debt to expand facilities, invest in new capital projects, or raise wages for their workers? Don’t be silly. They had a better idea.

In what passes for the normal exercise of crony capitalism in this warped deviant shitshow we call America, the biggest corporations in the world took the free money created by the Federal Reserve and proceeded to “invest” it in their own stock rather than investing it in their operations and workers. Borrowing at near zero rates and using the proceeds to buy back hundreds of billions of your own stock had multiple benefits for greedy feckless Harvard MBA CEOs. Reducing shares outstanding juiced their earnings per share, resulting in a false profit picture to investors, who bid their stock prices higher.

Corporate executives tied their compensation to stock performance and reaped extravagant salaries and bonuses. This same scenario played itself out in 2007 – 2009. These brilliant CEOs bought back a record amount of stock just before the financial collapse. Using their borrowings, along with Trump’s tax cut windfall, current day S&P 500 company CEOs are saying “Hold My Beer”. They are on pace to buy back $1.2 trillion of their stock at all-time highs. When stock prices are cut in half again, these greed monkeys will pay no price for their reckless stupidity. All of this idiocy has been aided and abetted by the Fed with their near zero interest rates a decade after the crisis supposedly ended.

The messengers for the Deep State, put forth on the propaganda news networks, are paid to spin the narrative that debt is under control, GDP is soaring, inflation is non-existent, unemployment is at record lows, and America’s economy has never been better. Despite retro-active upward adjustments to GDP and personal income by government drone agencies to obscure the truth, even the fake data reveals debt levels at extremely dangerous heights. U.S. corporate debt as a percentage of GDP is currently the highest in history.

Previous peaks occurred at the bubble peaks in 1990, 2001 and 2008, just before recessions hit. Due to Fed monetary recklessness, irresponsibility, and enslavement to Wall Street bankers, we now have an “Everything Bubble” consisting of stocks, bonds, commercial real estate, and housing market. With corporate and personal debt at record levels, rising interest rates, and a slowing global economy, the dominoes are lined up once again. If you don’t know what happens next, you’re the dupe.

If you think corporations and consumers have been on debt binge, check out what the rest of the world has done since 2007. There should be no disagreement the global financial catastrophe of 2008/2009 was caused by excessive un-payable debt creation by global financial institutions in conspiracy with the Federal Reserve, Washington politicians, and corporate America. Trillions in faux wealth was obliterated in a matter of months. Rather than learn a useful lesson from this orgy gone wrong, the shadowy figures in smoky back rooms decided the solution was ramping debt to levels never imagined.

Using “Big Lie” propaganda and central bank printing presses across the globe, they have managed to add $71 trillion of global debt in the last ten years, up 43% from pre-crisis levels. And the most mind-boggling aspect of this growth is that $42 trillion of the new debt was in emerging markets, up 200%. Venezuela, Argentina, and Turkey are considered emerging markets. No risk of contagion there. Right? Trying to solve a debt problem by creating far more un-payable debt is like trying to cure stomach cancer with a gunshot to the scrotum. How the average person can not see the insanity of these actions by their political and financial leaders is beyond my comprehension. Or am I the crazy one for questioning our ruling oligarchs?

In order to prop up the criminal banking cabal, the Fed, ECB and Bank of Japan took their balance sheets from less than $4 trillion in 2008 to over $14 trillion today – and still rising. Make no mistake, this “money” (debt) was created out of thin air by captured bureaucrats doing the bidding of bankers, billionaires and the rest of their Deep State cronies. Believing the false narrative this was done for Main Street USA is a sign of willful ignorance or pure stupidity, as proven by the following chart.

While central bankers have more than tripled their balance sheets and funneled the fantasy bucks to Wall Street banks and mega-corporations, virtually none of it trickled down to Main Street. The only trickle is the piss running down our backs from the ruling elite. The massive debt creation has been nothing more than a last-ditch effort to prop up the crumbling financial/political paradigm. The current state of affairs is unsustainable. It is failing. And it will fail. This turkey will ultimately hit the ground like a wet sack of cement.

“Instead of doing the right thing and fund the tax cut through spending restraint, government expenditures have ballooned 10% in the past year. Treasury borrowing in July at $130 billion was the most ever outside the 2008/09 recession.” – David Rosenberg

I voted for Donald Trump in 2016 because he wasn’t Hillary and he had voiced what I considered positive stances on economic and global issues. He ridiculed the government data regarding unemployment and inflation. He trashed Yellen and the Federal Reserve for creating bubbles with their recklessly low interest rates. He railed against excess government spending and deficits. He declared the stock market was a bubble (7,500 Dow points lower than today). He had criticized our military involvement in Afghanistan, Syria and Iraq.

As we know, he got elected and proceeded to forget all of his positions from the campaign. His Supreme Court choices have been stellar. Reducing regulations and taxes is a good thing. Fighting the Deep State and his own intelligence agencies takes balls. And his contempt and ridicule of the fake news media is to be applauded. But his 180 degree reversal on rational economic stances and feeding the war machine has been disappointing and will ultimately contribute to the next financial crisis.

Does every new president get brought into a room where they are told what to say about the economy, or else? Mr. Concerned about government spending and deficits signed one of the largest tax cuts in history (mostly to corporate America) while simultaneously ramping up military spending and cutting absolutely nothing. The result is trillion dollar deficits for as far as the eye can see. The fake government data he once scorned, he now boasts about on a daily basis. It seems he now loves low interest rates and bubbles.

He threatens the Federal Reserve Chairman about raising rates. Even though the stock market is 45% higher than when he declared it a bubble, he takes credit for its ascension to record highs. Saber rattling and threatening war around the globe is now par for the course. It seems Trump thinks he can run our economy like a NYC real estate mogul. He does have experience with bankruptcies. That may come in handy.

As a country, we’ve allowed our elected and unelected rulers to do the exact opposite of what should have been done in 2009. We allowed criminal banks who were too big in 2008 to get bigger and now, Too Big To Control. Not one criminal banker was jailed, despite proof of the greatest financial fraud in history. We allowed ourselves to become addicted to low interest rate debt. We now view $1 trillion deficits as normal, when the highest annual deficit in history prior to 2008 had been $413 billion.

Ivy League educated intellectual yet idiot financial experts argue a negative real Federal Funds rate during a “booming” economy is logical. Everything about our economic system and financial markets is abnormal. And whenever a sober minded person questions this insanity, the spokesmodels for the establishment point to the record stock market as their proof all is well.

The arrogance and hubris of those who have benefited from Fed handouts and rigged market gains has reached epic levels. They’ve now convinced average Joes and Janes to venture into the markets at all-time highs. Equity exposure was only higher at the Dot.com peak. Consumer confidence is the highest since 2001. Irrational exuberance abounds. Whenever forthright honest financial analysts use factual historical data to prove stock valuations are at excessive levels, they are attacked and ridiculed for being wrong for the last decade. The old Wall Street adage that “being right but early is the same as being wrong” applies.

What the hubristic MBA stock trading savants fail to acknowledge is the longer this nine- year bull market goes, the closer to its demise. The unsustainable will not be sustained. Back in 2008 only 20% of market assets were passively managed through Index and ETF funds. That number now stands at 40%. This works well on the way up. It will create a cascading crescendo of selling on the way down.

I wonder how the 30-year-old big swinging dicks will handle that situation. To be confident about substantial upside at these levels is not rational, but whoever claimed Wall Street traders were rational? Reason and rationality will eventually assert themselves. Dark humor will have to sustain honest men for now.

“If margins are 2x the norm, valuations are 2x the norm, and mean regression is still a force of nature, we are looking at an 80% correction. Of course, if an 80% correction whacks revenues, then it could start to get ugly.”– Dave Collum

Warren Buffet’s favorite indicator of stock market valuations now exceeds the Dot.com peak.

Shiller’s cyclically adjusted P/E ratio is far above 1929 and 2007 crash levels. Only the Dot.com bubble saw a higher level.

Those who continue to point out inconvenient facts about our economy and financial markets will continue to be branded doomers and conspiracy theorists. Scorn and ridicule will be the weapons used by the Deep State to undermine confidence in reality- based analysis. Newsletter writers and money managers will be accused of fear mongering to attract subscribers and investors. I’m neither a newsletter peddler or investment professional. I’m just a dude who gets up every morning and drives to my job to support my family. I benefit in no way financially by taking a stand against the corrupt, lying, propaganda peddlers for the establishment.

The entire purpose of creating The Burning Platform was to inform those who wanted to hear the truth about our unsustainable financial, social and political systems. I’ve tried to do that to the best of my limited abilities for the last ten years. I’m frustrated because the majority have learned no lessons from the 2008/2009 catastrophe. The ruling class has doubled-down on the same policies and actions which created the disaster. Those in control may have successfully delayed the day of reckoning, but they have insured it will be far worse than it needed to be.

We are only halfway through this Fourth Turning and the coming financial collapse will be the catalyst for the looming conflicts and clashes which will determine the future course of our country. If you choose not to acknowledge the inevitability of financial collapse and imminent conflict, you haven’t been paying attention. Lessons not learned in the past decade will be learned the hard way in the next decade. To paraphrase Mencken, they deserve to get it good and hard, and they will.

“Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” – Strauss & Howe  The Fourth Turning – 1997 

*  *  *

If you feel you’ve received some value from this article and this blog dedicated to free speech and truth in the face of lies, corruption and fake news, feel free to make a Donation to keep the lights on at The Burning Platform.

Published:9/4/2018 3:39:33 PM
[Markets] Where Will The Next Crisis Come From?

Authored by Jeffrey Kleintop via Schwab.com,

Key Points

  • It’s been 10 years since a U.S. financial shock turned into a crisis in the global financial, market and economic system.

  • A shock turns into a crisis when the system is unprepared for it. The system is often at its most vulnerable near the end of the global economic cycle when excesses have built up and managing risks may have been neglected.

  • The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future. But there are other increased vulnerabilities including: high debt levels, political fragmentation, dependence on international sales, little fiscal or monetary policy ammunition, and the rise of passive investments.

It’s been 10 years since a U.S. financial shock turned into a crisis in the global financial, market and economic system. On September 15, 2008, Lehman Brothers filed for bankruptcy as the shock waves from subprime mortgages rocked the entire financial system, shattering confidence and leading to an economic downfall.

Regularly paying attention to financial news reveals one thing for certain: shocks to the global system happen all the time. Many of these shocks are absorbed by the system without much disruption. Recent examples of shocks might include last year’s escalating geopolitical tensions between the U.S. and North Korea, the U.S. Fed beginning to reverse QE (quantitative easing), or the rapid unwinding of the short-volatility trade that took place earlier this year. 

A shock turns into a crisis when the system is unprepared for it. The system is often at its most vulnerable near the end of the global economic cycle when excesses have built up and managing risks may have been neglected. Since we have likely reached the later stages of the cycle, it is now a good time to assess how well the system is prepared for the shocks that lie ahead and where the biggest vulnerabilities may lie.

Hundreds of shocks turned into relatively few crises that hit stocks

Source: Charles Schwab, Bloomberg data as of 8/16/2018.

Better prepared for some shocks

The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future thanks to: stable energy supplies, low inflation, “circuit breakers”, few fixed exchange rates, a lack of extreme valuations, lots of corporate cash, and stronger banks.

1.  Stable energy supplies – A frequent source of shocks that the system has been vulnerable to in the past has been abrupt shifts in the supply of oil: the Arab oil embargo in 1973, Iraq’s invasion of Kuwait in 1990 and the U.S. shale oil boom in 2014-15. Each of these lead to very big moves in the price of oil, up or down. Fortunately, today’s increased economic efficiency with regard to oil, as you can see in the chart below, and the growth in non-OPEC supply (notably from the U.S.) would likely have limited the vulnerability of the system to the shocks in 1973 and 1990. 

Oil consumption relative to GDP continues to decline

Source: Charles Schwab, World Bank data as of 8/19/2018.

2.  Low inflation – Inflation remains low and well-contained on a global basis. Markets reflect a high degree of confidence in central banks to stay ahead of the curve on inflation based on inflation forecasts embedded in bond yields and economists’ forecasts. This marks a stark contrast to soaring inflation among many countries in the 1970s as central banks got behind the curve on inflation. This forced an abrupt shock on a vulnerable global system as the Federal Reserve aggressively hiked rates into the double-digits in 1979-80 to end the cycle of spiraling inflation at the cost of a global bear market and recession.

Inflation (CPI year-over-year % change) for selected countries

Source: Charles Schwab, Bloomberg data as of 8/19/2018.

3.  Circuit breakers – The so-called “circuit breakers” would have made the stock market less vulnerable to the selling forces that drove the October 19, 1987 stock market crash where the Dow Jones Industrial Average dropped 508 points, or 22.6%, the biggest one-day decline in the history of the stock market. A similar one-day drop in the Dow today would be almost 6,000 points. 

Then, an options technique referred to as “portfolio insurance,” which hedges a portfolio of stocks by short selling stock index futures, depended on the ability to sell more as the market declined. This allowed the drop to feed on itself and overwhelm the trading systems. To avoid such selling pressure in the future, circuit breakers were implemented in 1989 across all exchanges which halt trading for periods of time when the stock market hits certain percentage declines. The periodic “flash crashes” we have seen since then have been reserved to very short intra-day moves.

4.  Few fixed exchange rates – The fixed exchange rate regimes that fed the 1998 Asian crisis have all but completely vanished. A major difference between the Asian crisis of 1998 and today is that most emerging markets (EMs) have floating rather than fixed exchange rates, limiting a vulnerability to shocks. Floating exchange rates mean that shocks can be absorbed over time instead of hitting suddenly when multiple currencies devalue by a large amount all at once as we saw in Asia during the fall of 1998. Also, EM current accounts are now in balance, on average, rather than in deficit as they were in 1997-98 when they were dependent upon foreign lending to sustain their trade deficits, as you can see in the chart below. Finally, EMs have much greater foreign currency reserves that can be used to defend their currencies than they did 20 years ago. 

Current accounts in balance

Nine crisis-prone countries included in average: Brazil, India, Indonesia, Malaysia, Mexico, Russia, South Africa, Thailand, and Turkey.
Source: Charles Schwab, International Monetary Fund data as of 8/19/2018.

5.  Valuations not at extremes – There are many measures of stock market valuations. On balance, those valuations are above average, as is typical after an extended period of growth, but not at extremes or as broadly above average as they were in 2000. Extreme valuations make the market vulnerable to a shock in the form of missing lofty expectations. Both the higher level of valuations and the number of industries that had extreme valuations in 2000 compared to today can be seen in the chart below. The economic vulnerability to the 2000 shock was increased by how much investment had poured into intangible goodwill as opposed to productive assets as the valuation bubble inflated.

Valuation comparison by industry: March 2000 peak and July 2018

Price-to-earnings ratio on next twelve months earnings estimates for each of the 66 industry groups that make up the MSCI AC World Index for March 2000 and July 2018. The two industry groups with PEs exceeding 100 appear at top of scale.
Source: Charles Schwab, Factset data as of 8/18/2018.

6.  Lots of corporate cash – Companies have lots of cash relative to history according to data compiled by Bloomberg. This lack of a vulnerability, in our view, that in the past has led to the need for forced sales of assets to support companies’ core businesses may help keep a shock from developing into a crisis. It also suggests the potential for corporate share buybacks that might limit the vulnerability of stock prices to investor selling pressure.

7.  Stronger banks – In our opinion, banks are less vulnerable today than they were ahead of the 2008-09 financial crisis and the 2012 European debt crisis. Most importantly, there has been a reduction in risky activities, including sub-prime mortgage lending. There have also been substantial regulatory and institutional changes which aim to address some of the systemic weaknesses that contributed to the global financial crisis, these include: the establishment of new regulatory institutions, bank stress tests and increased capital requirements, bank taxes and fees, “bail-in” provisions, increased savings protection, and altered incentive structures. There is further progress to be made, especially in Europe where the banking system is still not integrated. But it’s clear that on measurable benchmarks banks are much better prepared. For example, banks are much better capitalized than in 2008-09 and 2011-12 crises with Tier 1 capital ratios considerably higher than they were going into past crises, as you can see in the chart below. 

Domestic banks Tier 1 capital to risk-weighted assets

Source: Charles Schwab, Bloomberg data as of 8/15/2018.

Increased vulnerability to other shocks

The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future. But there are other increased vulnerabilities that may make future shocks turn into a crisis: 

  1. High debt levels could magnify a shock from higher interest rates.

  2. Political fragmentation may impair an effective response to a shock.

  3. Dependence on international sales may mean more vulnerability to a shock from trade conflict.

  4. Little ammunition left in the form of monetary and fiscal stimulus may limit the ability of policy to mitigate a shock from an economic slowdown.

  5. Rising inflows into passive investments might amplify the market volatility from a shock.

Let’s look at each of these vulnerabilities.

1.  High debt levels – Global debt has swelled to 225% of GDP reaching $164 trillion, nearly $50 trillion above the levels that preceded the financial crisis (data is for 2016—the latest year for which totals from the IMF are available). Debt has grown sharply from $62 trillion in 2001 and $116 trillion in 2007 just ahead of the global financial crisis, as you can see in the chart below. 

Global debt has nearly tripled since 2001

Source: Charles Schwab, International Monetary Fund data as of April 2018.

While the International Monetary Fund (IMF) forecasts the U.S. as the only advanced economy that will see a further increase in debt-to-GDP ratio over the next five years, as you can see in the chart below, more than one-third of developed economies have debt-to-GDP levels above 85%--three times worse than in 2000. 

IMF expects debt-to-GDP to worsen for the U.S.

Source: Charles Schwab, International Monetary Fund projections as of 4/23/2018.

While a high debt burden isn’t necessarily a problem by itself, it increases the vulnerability of the system to a shock—in particular, a shock that would lift interest rates. Central banks’ QE (quantitative easing) programs helped ease the cost of higher debt burdens by keeping interest rates low, but those programs are winding down. 

In theory, all that debt means the potential losses from a rise in interest rates would be more costly than in the past, especially combined with a stronger dollar pushing up the cost of dollar-denominated debt outside the United States. In reality, it is hard to draw hard conclusions as to what impact an interest rate shock would have on the increasingly indebted global economic and financial system due in part to some of that increase in debt being held by central banks that aren’t leveraged or marked to market on their holdings and refund excess interest payments back to the government, unlike traditional financial institutions. For example, U.S. Treasury yields jumped by about one full percentage point and the dollar soared during 2013’s so-called “taper tantrum” without the shock turning into a crisis. Nevertheless, increasingly high debt burdens represent an increased vulnerability to a shock.

2.  Political fragmentation - The political establishment has frayed considerably in almost all major economies since the global financial crisis. Populism of both the far right and far left has been on the rise making decision-making, and even assembling governments, harder to do. The U.S. appears to be stepping back from its post-WWII role as a stabilizing force and organizer of global crisis responses. The result may be that the willingness or ability of governments to mount an effective response to a shock is impaired and could lead to a crisis. 

3.  Dependence on international trade – After a steady rise over many decades, more than half of the sales of the companies that make up the world’s stock market (MSCI World Index) now come from outside their home country, according to Factset data.  Even domestic sales are impacted by increasingly interconnected global supply chains resulting in greater vulnerability to shocks from bottlenecks or border issues than in the past.

Companies in most countries get most of their sales from outside their borders

Based on sales of companies in MSCI China Index, MSCI India Index, MSCI USA Index, MSCI Australia Index, MSCI Japan Index, MSCI Canada Index, MSCI Korea Index, MSCI Hong Kong Index, MSCI Taiwan Index, MSCI Switzerland Index, MSCI United Kingdom Index, MSCI France Index, MSCI Germany Index, MSCI Netherlands Index. 
Source: Charles Schwab, Factset data as of 8/19/2018.

4.  Less ammunition to fight a downturn - There is little room for governments to use increases in public spending or central banks to ease monetary policy in response to a shock in order to fight an economic downturn. The pre-crisis 2007 U.S. budget deficit of $161 billion, or 1.1% of GDP, pales in comparison to this year’s projection of $804 billion, or 4.5% of GDP. In Europe, with the exception of Germany, there is very little room for governments to engage in fiscal stimulus. Quantitative easing has left central bank balance sheets stuffed with nearly $15 trillion in assets (see chart below) and interest rates are still close to record lows—with policy rates still negative in some countries. 

Central bank balance sheets have bloated since 2008-09 global financial crisis

Source: Charles Schwab, Bloomberg data as of 8/19/2018.

While a downturn that could require as much stimulus as the financial crisis is unlikely, the vulnerability posed by limited ammunition to fight a downturn could lengthen and deepen the effects of the shock.

5.  Rise of passive investing – It is unknown if the rise of passive investing presents a vulnerability to the system, but there is no doubt it represents a change. By extrapolating the trend in passive investing, Moody’s Investor Service forecasts passively invested assets to exceed those actively invested by the end of 2021. 

Passive may exceed 50% market share by 2021

Source: Moody’s Investors Service Calculations for base case forecast dated 2/2/2017 available here: http://www.n3d.eu/_medias/n3d/files/PBC_1057026.pdf

Passive investing is a strategy typically implemented by holding securities in line with their representation in an index, offering a diversified and low-fee portfolio. However, some fear that the mechanical investment rules of passive investing may give rise to distortions in the pricing of individual securities and might reduce diversification while amplifying investors’ trading patterns on the overall market.

Different vulnerabilities may mean different risks

Market watchers tend to look for the signs that in the past signaled a shock was developing into a crisis. Yet, there are some reasons to think that the probability of a repeat of a past crisis or something similar has eased. The changes we have seen should help reduce the vulnerability of the global system to shocks like those of the past. 

Of course, risk has not been entirely eliminated from the system. Vulnerabilities have shifted which may make the shocks that pose the greatest risk of a crisis somewhat different than those of the past. Of these, the potential risk posed by a shock from higher interest rates coupled with a stronger U.S. dollar may pose the greatest threat to a vulnerable financial and economic system.

Published:9/1/2018 2:47:08 PM
[Markets] Trade Concerns Push Down Stocks U.S. stocks closed out August with monthly gains, holding their ground even as jitters around trade negotiations drove investors out of major indexes elsewhere around the world. Investors ended the month much as they began it: weighing questions around the future of U.S. trade policy. The S&P 500, Nasdaq Composite, Russell 2000 and Dow Jones Transportation Average all rose to fresh highs in August. Published:8/31/2018 7:02:10 PM
[Markets] Nasdaq Surges To Best August Since 2000, Bonds Bid As EM Collapses

The US stock market seems distracted from bonds, FX, the yield curve, macro data, and geopolitics... so here is a distraction for the distraction watchers...

It seems August was "buy all the things" month as bonds and stocks both rallied notably... and once again it was all about China...

 

Especially buy US stocks - because US data has been so awesome!! (US Macro Surprize index is down 6 of the 8 months of this year)

 

Chinese Stocks did not have a great August...

 

European Stocks were lower but only Italy was really ugly...

 

US Stocks just went upper-er and upper-er...

 

This was the Nasdaq's best August since the peak of the DotCom bubble... (Dow/S&P best August since 2014)

 

Tech stocks led the way, massively outperforming financials...

 

FANG Stocks soared in August - second best month since January's meltup...

 

Some context here from CLSA - FANG stocks have doubled on average in 23 months and tripled in 43 months

 

It's even more concentrated than that. AAPL (the biggest market cap company in the world) is  up a shocking 20% in August, and AMZN is up 13% -  Combined they account for 25% of the entire Nasdaq gain in August.


 

Treasury yields tumbled across the entire curve in August, with the long-end outperforming...

 

Biggest drop in 10Y yields this month since March 2018 (and dropped to the lowest monthly close since March 2018)...

 

The yield curve tumbled in August - flattening for the 6th month in a row (with a small rebound today)...

 

The Dollar managed modest gains on the month - but was only bid early and late in August (highest monthly close since June 2017) with a big roundtrip in the middle triggered by China...

 

Despite China's intervention, the Yuan ended lower on the month... the 5th month of Yuan devaluation in a row

 

The biggest headlines were from the emerging market space where currencies collapsed...

While The Rand, Real, and Ruble were rough; Argentina and Turkey Collapsed...

 

Emerging Market FX is now at its weakest on record...

 

In fact, EM FX volatility is now at a record high relative to G7 volatility...

 

Cryptos had another ugly month with Ethereum down almost 35%. Bitcoin was best... only down 8.5%!

 

WTI Crude managed modest gains on the month but across the board commodities were weaker - from PMs to Softs...

 

Gold managed to stay above $1200 but completed August with its fifth straight month of declines as the record run in U.S. stocks and rising rates boost demand for the dollar.

As Bloomberg note, throw in trade-war fears and the greenback's quasi-haven status, and it just doesn't look good for the yellow metal. In fact, it's looking like a fool's errand to try to call a bottom in gold. It basically boils down to the Fed and rates. Advocates of rate hikes cite preventing asset bubbles and controlling the money flow into the financial. For the doves, wages may be stagnant, but that does nothing to overshadow the more important number, the unemployment rate, which says keep hiking. The Fed is going to keep chasing its vision of what the economy should be, and gold's going to keep getting crushed under the wheels.

Finally, we note that VIX was unchanged on the month despite stocks soaring...

 

Published:8/31/2018 3:06:20 PM
[Markets] U.S. stock market trades at session lows in midday trade ahead of Labor Day Trading was marked by low volumes and choppy action, representative of the typical atmosphere in the last trading session in August. The Dow Jones Industrial Average (DJIA) was off 90 points, or 0.3%, at 25,897, the S&P 500 index (SPX) retreated 0.2% at 2,894, while the Nasdaq Composite Index lost ground off less than 0.1% at 8,087. All three benchmarks were off their best levels of the day as investors worried about trade developments between the U.S. and Canada, with negotiations under way. Published:8/31/2018 11:35:52 AM
[Markets] Verizon could boost dividend by more than it usually does, says Morgan Stanley Morgan Stanley analyst Simon Flannery expects Verizon Communications Inc. (vz) to raise its dividend on Sept. 6 and wrote that an larger-than-expected increase "while not likely, is possible." The company has "some headroom for a bigger-than-normal increase" as it was a major beneficiary of the tax bill. Verizon boosted its payout by 5 cents last September and while a similar increase is likely, Flannery said that a 12-cent increase "would only bring the payout ratio up modestly to 52.3% of consensus 2019 EPS estimates, well below historical levels." Verizon shares are down 1.1% in Friday trading but up 13% over the past 12 months. The Dow Jones Industrial Average (djia) of which Verizon is a component, has gained 18% in that time. Published:8/31/2018 11:01:07 AM
[Markets] Markets Now: Dow Drops 51 Points Because the Trade War Isn't Over Want to know why the Dow Jones Industrial Average is doing what it's doing? The market ended its winning streak Thursday on reports President Donald Trump is in favor of placing tariffs on $200 billion on Chinese goods, and the weakness has continued into Friday. "While there is surely some lingering optimism that Canada will offer positive news on the trade front, Trump’s commitment to move forward with tariffs on an additional $200 bn of Chinese goods certainly isn’t calming any trade-war jitters," writes BMO Capital Markets' Ian Lyngen. Published:8/31/2018 7:06:44 AM
[Markets] US Market Indexes Retreat After Reports on China Trade Dow Jones closes at 25,986.92 Published:8/30/2018 6:26:53 PM
[Markets] Dow, S&P 500 Slump in Late Action on China Trade War Tensions The Dow and S&P extended their declines in late trading Thursday, amid reports President Trump wants to go forward with tariffs on an additional $200 billion in Chinese imports next week. Published:8/30/2018 3:00:50 PM
[Markets] Dow loses grip on 26,000 on report Trump set to press ahead with additional China tariffs U.S. stocks retreat Thursday with the Dow falling below the psychologically-important 26,000 on a report that President Donald Trump is likely to press ahead with tariffs against $200 billion worth of Chinese products. Published:8/30/2018 2:25:37 PM
[Markets] Oil Prices Are Rising: Stocks to Watch On August 29, US crude oil October futures rose 1.4% and closed at $69.51 per barrel—the highest closing level for active US crude oil futures since July 30, 2017. In the last trading session, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 0.6% and 0.2%, respectively. On August 29, the Energy Select Sector SPDR ETF (XLE) rose 0.6%. The increase might have be behind the rise in these equity indexes on the same day. Published:8/30/2018 11:02:29 AM
[Markets] Wall Street lower on China tariff worries Metal prices fell as the Sino-U.S. trade tensions upstaged optimism that the United States and Canada could clinch a new North American Free Trade Agreement (NAFTA). The consumer discretionary index slid 0.35 percent on weak earnings from retailer Dollar Tree and a drop in Calvin Klein owner PVH Corp. At 10:06 a.m. ET the Dow Jones Industrial Average was down 58.65 points, or 0.22 percent, at 26,065.92, the S&P 500 was down 4.24 points, or 0.15 percent, at 2,909.80 and the Nasdaq Composite was down 12.40 points, or 0.15 percent, at 8,097.29. Published:8/30/2018 9:32:26 AM
[Markets] Global Markets Slide As Trade War Fears Return, EM Crisis Grows

The rally that saw US stocks hit a record high for 4 consecutive sessions took a breather overnight as S&P futures and European stocks followed Asian shares lower on Thursday, as trade and geopolitical concerned re-emerged, hurting bullish sentiment.

Stock markets and major government bond yields rose in recent weeks on hopes that a global trade war could be averted, particularly with the leaders of the United States and Canada optimistic they could reach new North American Trade Agreement by Friday. Trump said earlier talks with Canada on overhauling Nafta are going well, while Canadian PM Trudeau said his government his trying to reach an agreement with the U.S. this week but won’t sacrifice its goal of getting the right deal

But with tariffs beginning to hurt the Chinese economy, Asian stocks lost some of their gains and European shares followed suit on Thursday on concerns over trade relations between the world’s two largest economies.

"In all honestly, the NAFTA situation probably reflects a desire to get the agreement over the line before elections in Mexico and the mid-term vote in the U.S.,"said OANDA analyst Craig Erlam. “It doesn’t mean the U.S. will look for a quick solution with China. There’s still a long way to run with these trade situations, and I wouldn’t be surprised if we see more tariffs on more goods before it gets better.”

Indeed, while NAFTA may be resolved as soon as Friday, the US-China trade is only set to worsen as US tariffs on another $200 billion of Chinese goods are expected to take effect next month.

Geopolitical fears also creeped back in, with the Korean Peninsula once again back in the headlines after President Trump accused  China of undermining U.S. efforts to pressure North Korea into giving up its nuclear weapons, indicating his trade war with Beijing is starting to exacerbate geopolitical tensions.

As a result, the mood turned sour in Asia first, where the MSCI index of Asia-Pacific shares ex-Japan dropped 0.3%, with broad gains across the region offset by losses in China which dropped the most in nearly 2 weeks. The Shanghai Composite Index slid 0.9%, closing at session lows and set for its biggest fall since Aug. 17, as tech shares slide and the National Team was clearly absent; The ChiNext Index of small-cap and tech stocks -1.3%, while shares in Hong Kong also fall, with Hang Seng Index -0.9%; Tencent lost 1.3% as biggest drag on the measure.

Earlier, a Reuters poll showed activity among China’s manufacturers probably slowed for the third straight month in August.

“Investors are relatively pessimistic and cautious for now amid low levels of trading volume, as there are still concerns over the development of the Sino-U.S. trade spat,” said Yan Kaiwen, an analyst with China Fortune Securities.

After a serious of aggressive interventions last week by the PBOC halted the Yuan slide, the offshore Yuan has resumed its slide in recent days. The CNH slid even though the PBOC strengthened the yuan fixing by 0.06% to 6.8113 per dollar, stronger than average estimate; central banks skips open-market operations. As Bloomberg reports, offshore yuan turnover jumped to a record in July on the CBOE global markets platform, spurred by President Trump’s attack on Chinese currency practices and the trade war

In Europe equity markets open lower and sell off further, real estate stocks lag after negative comments on the sector by Morgan Stanley; the Europe Stoxx 600 index dropped 0.4 percent on Thursday, dragging the MSCI world equity index off a five-month high. Miners led the retreat as most sectors fell on. Treasuries and most European bonds edged higher.

Today's profit taking is not unexpected: equities have rallied as August draws to a close, with an index of world stocks heading for a second weekly gain. Central-bank support in China has gone some way to stabilizing the currency and stemming a rout in Shanghai stocks, though worries remain concerning the U.S.-China trade spat and the pace of monetary tightening in the U.S. Looking at the future, sellside analysts are increasingly seeing only upside.

Back to the overnight market, Asia was also the center of some of the biggest overnight currency volatility after the Australian dollar slumped after second-quarter business investment and building approvals were much worse than expectations, while New Zealand’s currency tumbled as business confidence hit a 10-year low. Australia’s currency may fall to 71.6 U.S. cents over next few months as investment conditions in the nation deteriorate, according to Kyle Rodda, market analyst at IG Group in Melbourne

It wasn't just Asia, however, with broad risk-off sentiment emerging across all markets before tentative stabilization into the North American crossover. While there was no real catalyst cited for the moves, EM weakness was prominent again especially in currencies, as the USDZAR spiked higher through 14.50, driven partly by weakness in local stock market as MTN falls 18% due to Nigeria demanding a $8.1b refund.

The British pound extended its gains against the euro after recording its biggest gain in seven months on Wednesday. The gains came as European Union negotiator Michel Barnier signaled an more accommodative stance toward London in ongoing talks. "It is a slight change in tone from Barnier and a sign that the EU is very aware of the Brexit deadline and they don’t want a no-deal Brexit any more than we do,” said OANDA's Erlam.

The euro struggled to sustain an early advance as German regional inflation data for August showed slowing price growth in some areas compared with the previous month, as noted. German Regional CPIs y/y (National Est. 2.0%): Saxony 2.0%, Brandenburg 2.0%, Bavaria 2.2%, Baden Wuert. 2.1%, Hesse 1.7%, NRW 2.0%; additionally Saxony Core CPI 1.4% vs 1.5% prev. The common currency failed for a second day to overcome supply above $1.1700 that comes both on a take-profit basis and on fresh positioning, according to two traders in London and Europe

The dollar pared its weekly loss as month-end pressure subsided.

The Turkish Lira accelerated its drop for the 4th day, sending the USDTRY higher by 2.7% and bringing this week's decline to 9%. Today's drop was precipitated after Erdogan said that Turkey " is not without alternatives" and warning that "It’s not possible to make us back down with threats." Taking another hit at the US, Erdogan said that “some do not hesitate openly stating the fact that they are trying to drive us into a corner through the economy. There are surely structural issues in the Turkish economy. We know these issues and are working to fix them.”

Judging by the plunge in the lira, the market does not seem convinced:  the Lira closed last night -3.0% at 6.469 which is now weaker than where it was on the Friday 3 weeks ago (6.4323) when the panic spread across the market. The only softer closing level was on the following Monday (6.884) but that actually included a big intra-day rally back from the Asian wides. Yesterday was the third day in a row the Lira has weakened (post domestic holidays) while Turkey’s 5yr CDS was also +14.4bps wider and touched 500bps again (recent high was 535.0 on Aug 13).

Meanwhile, yet another emerging market currency is under scrutiny, this time Argentina’s, after the country asked the International Monetary Fund for early assistance, alarming investors and hurting the peso and the country’s bond prices. The IMF said it was studying the request from Argentina to speed up disbursement of the $50 billion loan. The Argentinian peso dropped more than 7 percent on Wednesday, its biggest one-day decline since the currency was allowed to float in December 2015. Yields on Argentina’s 100-year bond issued last year rose to its highest level yet at 9.859 percent overnight.

Elsewhere, WTI and Brent futures trade higher following the larger than expected draw in DoE crude inventories while concern looms of tightening supply by year-end. According to the WSJ, Iran’s oil exports are expected to drop from 2.7mln BPD in June to 1.5mln BPD in September ahead of US sanctions (coming into effect on November 5th). Otherwise, news flow for the complex has remained light thus far. Elsewhere, gold is lower on the day, having tested USD 1200/oz to the downside and currently close to the lower end of the range, while copper is on the backfoot amid underperformance in its largest consumer, China.

Expected data include personal income and spending, and jobless claims. Campbell Soup, Dollar General, and Lululemon are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.2% to 2,909.00
  • STOXX Europe 600 down 0.4% to 384.92
  • MXAP down 0.3% to 166.05
  • MXAPJ down 0.4% to 538.60
  • Nikkei up 0.09% to 22,869.50
  • Topix down 0.03% to 1,739.14
  • Hang Seng Index down 0.9% to 28,164.05
  • Shanghai Composite down 1.1% to 2,737.74
  • Sensex down 0.2% to 38,648.80
  • Australia S&P/ASX 200 down 0.01% to 6,351.76
  • Kospi down 0.07% to 2,307.35
  • German 10Y yield fell 1.4 bps to 0.39%
  • Euro down 0.2% to $1.1681
  • Italian 10Y yield fell 6.1 bps to 2.852%
  • Spanish 10Y yield fell 1.2 bps to 1.452%
  • Brent futures up 0.4% to $77.45/bbl
  • Gold spot down 0.4% to $1,202.35
  • U.S. Dollar Index up 0.1% to 94.69

Top Overnight News

President Trump said talks with Canada to overhaul the North American Free Trade Agreement are going well, expressing optimism the two countries could reach a deal this week

Trump: “necessary and appropriate” to maintain a 25% tariff on steel imports and 10% on aluminum; allowing some product exclusions for South Korea, Argentina and Brazil

New Zealand business confidence extended its decline with sentiment about the general economy sinking to the lowest in a decade. Australian business investment unexpectedly dropped last quarter despite the broader economy showing solid growth and hiring

German Regional CPIs y/y (National Est. 2.0%): Saxony 2.0%, Brandenburg 2.0%, Bavaria 2.2%, Baden Wuert. 2.1%, Hesse 1.7%, NRW 2.0%; additionally Saxony Core CPI 1.4% vs 1.5% prev.

Euro-area economic confidence continued its slide in August as risks from trade tensions to politics weigh on momentum. The European Commission’s index of household and business sentiment fell for an eighth month to the lowest in a year

The IMF said it will consider Argentina’s request to speed up disbursements from a $50 billion credit line as the government seeks to restore investor confidence

Barclays Plc has moved its head of Asia Pacific fixed income syndicate to Hong Kong, as China gains more prominence in the region’s dollar-bond market

August has historically been a cruel month for emerging markets. A Bloomberg currency index that tracks carry-trade returns from eight emerging markets, funded by short positions in the dollar, suggests this year has been the worst on record

Sweden is increasingly under attack by forces trying to influence and disrupt the election in 10 days, Swedish Radio reported

The International Monetary Fund said it will consider Argentina’s request to speed up disbursements from a $50 billion credit line as the government seeks to restore investor confidence as peso tumbles

The U.K. government said the European Union should compromise or risk a “no deal” Brexit, as the timeline for reaching an agreement slipped back. Michel Barnier, the EU’s chief negotiator, said the EU was prepared to offer Britain an unprecedented partnership

The U.S. exempted South Korea, Brazil and Argentina from metal tariffs

Asian equity markets traded mixed as the initial impetus from Wall St where the S&P 500 and Nasdaq posted a 4th consecutive day of records and where sentiment was underpinned by better than expected US GDP data as well as NAFTA optimism, was eventually clouded by weakness in China. ASX 200 (flat) was initially led by outperformance in telecoms on confirmation of the TPG Telecom-Vodafone Hutchison M&A deal although upside in the index was capped by weakness in financials and following disappointing capex data, while Nikkei 225 (+0.1%) gapped above the 23k level at the open which it then failed to sustain. Elsewhere, Shanghai Comp. (-1.1%) and Hang Seng (-0.9%) were subdued amid continued PBoC liquidity inaction and the ongoing US-China trade dispute, while President Trump also blamed China for the difficulties related to North Korea. Finally, 10yr JGBs were lower amid the mild gains in Japan and after the 2yr JGB auction failed to spur demand despite stronger results. PBoC skipped open market operations for a net neutral daily position.

Top Asian News

  • Erdogan Says Turkey Won’t Back Down, Has Alternatives: Anadolu
  • Downloads of Chinese Ride App Didi Tank After Passenger’s Death
  • Varde, Birla Group Create $1 Billion Venture for Stressed Assets
  • Vodafone Shackled Down Under as Unprofitable Venture Joins TPG

European equities are largely on the backfoot (Eurostoxx 50 -0.7%). Germany’s DAX 30 (-1.0%) is underperforming its peers with the likes of German auto names, Deutsche Bank, Commerzbank and heavyweight Bayer pressuring the index. Sector wise, telecom names underperform despite Bouygues (+3.16%) taking a spot at the top of the Stoxx 600 following earnings, with the likes of Vodafone and Telecom Italia weighing on the sector. Material names are also a laggard, in-fitting with price action in the base metal complex, while Elekta (-8.8%) shares plummeted on disappointed figures.

Top European News

  • Panasonic Plans Post Brexit Move From London to Amsterdam
  • Astaldi Bonds Fall After Report Lenders Seeking Restructuring
  • German Unemployment Drops Further as Companies Signal Optimism
  • French Minister Calls for Patience on Impact of Macron Reforms

In Currencies, the GBP saw some loss of momentum on less positive Brexit talk from Germany’s Finance Minister who is unsure whether there will be a withdrawal agreement and doesn’t rule out a disorderly UK departure from the EU, but Sterling remains supported and not too discouraged by weaker than expected mortgage and consumer credit data. Cable is holding around the 1.3000 level vs just shy of 1.3050 at best, while Eur/Gbp has continued its retreat from close to 0.9100 peaks on Wednesday through 0.9000 and testing the 21 DMA around 0.8977. CAD - The Loonie continues to benefit from NAFTA deal prospects and a possible Friday accord along the lines of the US-Mexico agreement, while firm crude prices are also supportive as Usd/Cad trades within a 1.2935-00 range ahead of Canadian GDP data for Q2. EUR - The single currency has retreated after another rally above 1.1700 vs the Greenback on broadly benign German state CPI and Spanish inflation data, but remains underpinned at the top of a daily cloud formation between 1.1655-81. EM - Another day, but more misery for the region’s 2 whipping boys as the Lira and Rand  depreciate further – Usd/Try now over 6.6000 and Usd/Zar around 14.6500. Elsewhere, the Peso has pared some of its NAFTA-related gains to trade below 19.0000 vs the Buck, but its Argentine counterpart is sharply underperforming even though several forms of intervention were deployed on Wednesday to try and stop the rot – Usd/Ars closed almost 8% higher yesterday just under 33.8980.

In commodities, WTI and Brent futures trade higher following the larger than expected draw in DoE crude inventories while concern looms of tightening supply by year-end. According to the WSJ, Iran’s oil exports are expected to drop from 2.7mln BPD in June to 1.5mln BPD in September ahead of US sanctions (coming into effect on November 5th). Otherwise, news flow for the complex has remained light thus far. Elsewhere, gold is lower on the day, having tested USD 1200/oz to the downside and currently close to the lower end of the range, while copper is on the backfoot amid underperformance in its largest consumer, China.

Looking ahead to today we’ve got arguably the most significant data release of the week with the July personal income and spending reports. As part of that, we’ll get the core PCE reading where the market expects a +0.2% mom outturn to result in the first +2.0% yoy (+1.99% unrounded) reading since April 2012. For previously dovish-leaning policymakers such as Chicago Fed President Evans, hitting the Fed’s official inflation target would be an important milestone and add to their confidence that the Fed can continue on its gradual course of rate increases. So worth watching out for.

US Event Calendar

  • 8:30am: Personal Income, est. 0.4%, prior 0.4%; Personal Spending, est. 0.4%, prior 0.4%
    • Real Personal Spending, est. 0.2%, prior 0.3%
    • PCE Deflator MoM, est. 0.13%, prior 0.1%; PCE Deflator YoY, est. 2.3%, prior 2.2%
    • PCE Core MoM, est. 0.2%, prior 0.1%; PCE Core YoY, est. 2.0%, prior 1.9%
  • 8:30am: Initial Jobless Claims, est. 212,000, prior 210,000; Continuing Claims, est. 1.73m, prior 1.73m
  • 9:45am: Bloomberg Consumer Comfort, prior 58.6

DB's Jim Reid concludes the overnight wrap

The US equity market continues to devour all that’s put in front of it and hatching new records on a regular basis. This week it seems no news continues to be good news with the S&P 500 (+0.57%) and NASDAQ (+0.99%) climbing to fresh new highs last night and the DOW (+0.23%) cutting the gap to the all-time highs to less than 2%. It’s hard to know if this is just liquidity slowly coming back to markets post the holidays or something else completely but there’s hardly  been a plethora of newsflow for markets to feed off this week aside from the few bits and bobs we’ve touched on below. In fact the moves are coming despite a weak session for EM and specifically Turkey and Argentina with the Lira and Peso both depreciating sharply again.

Indeed the Lira closed last night -3.0% at 6.469 which is now weaker than where it was on the Friday 3 weeks ago (6.4323) when the panic spread across the market. The only softer closing level was on the following Monday (6.884 but that actually included a big intra-day rally back from the Asian wides. Yesterday was the third day in a row the Lira has weakened (post domestic holidays) while Turkey’s 5yr CDS was also +14.4bps wider and touched 500bps again (recent high was 535.0 on Aug 13). In fairness there didn’t appear to be one obvious catalyst for yesterday’s move, although the weakest economic confidence reading since 2009 didn’t help, and likewise the CBT’s move to reinstate borrowing limits on overnight transactions failed to inspire confidence.  Instead of addressing its fundamental imbalances by executing orthodox policies like conventional rate hikes and/or going to the IMF, the CBT continues to tweak its other, unconventional policy tools. The move to tighten interbank liquidity comes only two weeks after the central bank took the exact opposite step.

However, the tough day for the Lira was overshadowed by the steep depreciation in the Argentine Peso, which dropped 7.55% versus the dollar to a new all-time low of 33.97. The currency traded at 18.6 at the end of last year - a 45.3% depreciation to now. The immediate catalyst was President Macri’s request for the IMF to speed up disbursements under its current bailout program. Argentina had received $15bn in June and is due for another $3bn next month, but it is now unclear if that will be enough to stabilize the government’s finances amid persistent reserve drain. Policy interest rates are at 40.0%, but, with inflation rising to 31.2% in July, real rates are not tight enough to encourage capital inflows.  The economy is likely to contract this year, and the benchmark Merval stock index is down 27.6% since its January peak in local currency terms, and over 56% in USD terms.

This morning in Asia, equities are trading mixed after paring back earlier gains. Across the region, the Nikkei (+0.16%) and Kospi (+0.05%) are modestly up while the Hang Seng (-0.61%) and Shanghai Comp. (-0.81%) are down as we  type. Futures on the S&P and treasuries are little changed. Meanwhile the US / Canada NAFTA talks seems to be tracking relatively well, with Canadian Foreign Minister Freeland indicating she had productive discussions with US trade representative Lighthizer and there was “a lot of goodwill” from both sides. She added that officials from both sides “will be meeting until very late tonight”. Earlier on, the Canadian PM Trudeau was also cautiously upbeat as he noted “…there is a possibility of getting (a deal) by Friday”, while adding the caveat that “…it’ll hinge on whether or not there is ultimately a good deal for Canada”. As for data, Japan’s July retail sales rose for the ninth straight month and was above market at 1.5% yoy (vs. 1.2% expected).

Looking ahead to today we’ve got arguably the most significant data release of the week with the July personal income and spending reports. As part of that, we’ll get the core PCE reading where the market and our US economists expect a +0.2% mom outturn to result in the first +2.0% yoy (+1.99% unrounded) reading since April 2012. As our colleagues noted, for previously dovish-leaning policymakers such as Chicago Fed President Evans, hitting the Fed’s official inflation target would be an important milestone and add to their confidence that the Fed can continue on its gradual course of rate increases. So worth watching out for.

It would be nice if that data wakes bond markets up as we stumbled upon a fairly interesting stat yesterday about Treasuries. The 10y yield has traded in a remarkably low 21bps intraday range so far this quarter which is tracking to be the lowest for a quarter since 1965 when we only had closing level data. For some perspective the average quarterly range since 2010 is 62bps. This is slightly biased by yields being as low as they are and us only being 2/3rds of the way through the quarter but the MOVE index, which should adjust for low yields, backs up the point somewhat with the index only a few points off the YTD low at 49.9 (low was 45.3 last month in this quarter) compared to the average of 53.8 in 2018 and all-time low of 44.0 made in November last year.

To be fair, Treasuries and wider bond markets were a bit weaker yesterday. The 10y Treasury closed 0.4bps higher at 2.884% while yields in Europe – with the exception of Italy (more on that shortly) – were 2 to 3bps higher.

Coming back to Italy, the relative outperformance for BTPs (-6.2bps) and the FTSE MIB (+0.68%) yesterday appeared to be down to a flurry of headlines initially reported in Italian press La Stampa suggesting that the Italian government  was reaching out to the ECB for a new round of QE designed to defend Italy’s debt from financial speculation (according to Bloomberg) and also avoid a downgrade. The story was later downplayed by Deputy PM Di Maio although this does follow the recent Bloomberg story about Conte winning a pledge from US President Trump about also buying up Italian debt. To be fair these stories feel like a distraction and noise with the much bigger near term issue for markets being the budget proposal next month.

Elsewhere, the other relatively big mover in FX yesterday was Sterling which rallied as much as +1.39% from the lows before closing +1.19% higher. This followed comments from EU Brexit negotiator Michal Barnier that "we are ready... to propose a partnership like there has never been before with any other third country." This is consistent with the existing EU offer from March and the readout from Barnier’s meeting last week with UK Brexit Minister Raab. It isn’t new news as the EU still has red lines that haven’t changed. Nevertheless, the market took the news as a positive signal that it lowers the odds of a no-deal Brexit scenario. UK rates sold off as well, as the positive rhetoric raised the odds of further BoE action. The market moved up its pricing for the next rate hike to May from August 2019. Meanwhile the German Finance Minister Scholz seems to have maintained his conciliatory tone as he hopes “we can proceed fast” in negotiating a “manageable exit”.

Meanwhile, the main data print yesterday came in the US with the Q2 GDP revised up 0.1 pp to 4.2% qoq saar. Capital expenditures and net exports both improved slightly, more than outweighing a slight downward revision to consumer spending. This confirms the strong trend in the first half of the year, and our economists maintain their forecast for 3.1% qoq growth this quarter. Separately, pending home sales declined 0.7% mom in July and MBA mortgage applications fell last week. Both are noisy series and shouldn’t detract from the economy’s strong underlying trends.

Looking at the day ahead, apart from the aforementioned US core PCE print, we’ll also get flash August CPI for Germany at 13:00 London today (2.1% yoy expected). That will be preceded by German regional CPI data and the official August unemployment rate. At 10:00 London time, the final Eurozone consumer confidence reading for August will be released by the European Commission.

In the UK, we’ll get mortgage, money supply, and consumer credit numbers for July. Second quarter Canadian GDP growth will print later this afternoon, and is expected to show healthy growth of 3.1% qoq saar. Away from the economic data, EU foreign affairs ministers are due to meet at a conference (continuing into Friday) to discuss topics including the Middle East, trans-Atlantic relations, the Iran nuclear deal and North Korea.

 

Published:8/30/2018 6:20:45 AM
[Markets] Markets Now: Forget Summer Doldrums, Stocks Just Keep Rising Want to know why the Dow Jones Industrial Average is doing what it's doing? The S&P 500 increased 0.6% to 2,914.04, the Dow Jones Industrial Average added 0.2% and the Nasdaq Composite advanced 1% to above 8,100. Industrial stocks, on the other hand, lagged the market on Wednesday. Published:8/29/2018 4:18:18 PM
[Markets] Stocks - Wall Street Starts Flat as Trade Tensions Continue The S&P 500 gained 2 points, or 0.07%, to 2,900.18 as of 9:37 AM ET (13:37 GMT), while the Dow decreased 13 points, or 0.05%, to 26,050.17 and the tech-heavy Nasdaq Composite rose 17 points, or 0.22%, to 8,047.91. Published:8/29/2018 11:42:38 AM
[Markets] Stocks Hold Modest Gains on Easing Trade War Fears fell 4.7% after the electronic retailer's third-quarter earnings guidance came in below analysts' forecasts. The Dow on Monday, Aug. 27, rose 259 points, or 1.01%, to close at 26,049. The S&P 500 rose 0.77% to 2896.74, its second record high in as many trading days. Published:8/28/2018 2:14:34 PM
[Markets] Stocks Rise Modestly Amid an Easing of Trade War Fears fell 5.2% after the electronic retailer's third-quarter earnings guidance came in below analysts' forecasts. The Dow on Monday, Aug. 27, rose 259 points, or 1.01%, to close at 26,049. The S&P 500 rose 0.77% to 2896.74, its second record high in as many trading days. Published:8/28/2018 1:04:36 PM
[Markets] Stocks are at all-time highs, but the toughest month for the market looms The Dow averages a decline of 0.7 percent while the S&P 500 falls 0.5 percent, on average, in September, data from "Stock Trader's Almanac" show. Investors could also experience added volatility in September as a U.S. midterm election looms. The Dow and Nasdaq's September losses widen ahead of midterms. Published:8/28/2018 11:04:24 AM
[Markets] S&P Above 2,900, Global Stocks Hit 6 Month High As Dollar Slide Accelerates

US index futures rose higher into record territory rising above 2,900, as European stocks pared muted gains after the EURUSD rose above 1.17, pressuring exporters, while Asian shares were broadly higher with the exception of China; but the key theme of the session was another day of USD weakness.

World stocks rose to a six-month high on Tuesday, lifted by optimism that the U.S.-Mexico deal to replace the North American Free Trade Agreement will help with averting a global trade war. Investors expect Canada will agree to join the three-nation pact, while Trump and Merkel spoke by telephone and the two leaders “strongly supported ongoing discussions” on trade, according to the White House.

European and Asian shares followed Wall Street’s Monday lead, inching to multi-month highs after the S&P 500 and Nasdaq indexes surged to fresh records on Monday led by gains in technology stocks.

The Bloomberg Dollar index extended its recent slump, sliding to the lowest level in 4 weeks and implied volatility across currencies and equity markets also eased amid bullish risk sentiment and stabilization in the Chinese Yuan.

The ongoing slump in the dollar ever since China re-introduced the countercyclical factor has helped boost emerging market currencies, although the clear outlier overnight was the Turkish lira which slumped 1.4% and was back down to 6.21 vs the USD.

Optimism around the U.S.-Mexico deal has been key in helping shift market sentiment and the news agenda in the wake of Trump’s legal woes last week, while the Federal Reserve’s "gradualist" outlook has also boosted sentiment. Gains for risk assets remain fragile, however, as hopes for a similar trade breakthrough between American and China fade and a host of threats remain, from U.S. relations with Russia and North Korea, to Chinese growth prospects.

For now, the US remains immune to global trade woes, with the daily record highs in US stocks persisting even as the US economy appears to have hit a downward inflection point, with US economic surprises underperforming the world over the past three months.

The Euro Stoxx 50 was unchanged with gains in mining shares offset by a drop in banks and telecoms, while E-mini futures looked to extend on the 0.8% Monday gain, with the S&P500 set to open above 2,900 in cash trading after the U.S. and Mexico moved closer to a deal on trade. Italian stocks and bonds fell, while Treasuries and German bunds were steady.

Stocks in Japan extended a recent increase as the yen round-tripped an early decline, while China A-shares underperformed amid concerns that a Mexico trade deal made a similar deal with China less likely. JPMorgan and other analysts said the trade deal was not necessarily positive for the outcome of talks with China, though they said risks of a generalized global trade war had abated somewhat. "Despite this, Asia-Pacific equities including HK/China should benefit from the weaker U.S. dollar and risk-on moves."

The Chinese yuan edged higher Chinese central bank strengthened the daily fixing against the greenback by the most in more than 14 months, even as President Donald Trump said it’s not the right time for trade negotiations with China.

Speaking to reporters during his announcement Monday of the new Mexico accord, Trump said he is rejecting overtures from China to negotiate as he tries to achieve a less "one-sided" trade policy. "They want to talk but it’s just not the right time to talk right now, to be honest" Trump said. As Bloomberg notes, Trump’s remarks are his latest in recent weeks to suggest he doesn’t see a quick end to trade tensions with China, stoking concerns in Beijing that his actions are part of a wider plan to contain the nation’s rise. Fears are growing that the spat between the world’s biggest economies may spill over into geopolitical flash points, from North Korea to Taiwan.

The Mexico breakthrough will embolden Trump’s trade hawks to double down on demands for concessions from China, according Rob Carnell and Prakash Sakpal, economists at ING Bank NV in Singapore.

"So as far as China and Asia are concerned, this new Mexico deal solves nothing," they wrote in a note. "It strengthens the U.S. position to play hard-ball with China. This doesn’t look good for the region."

Elsewhere, the Mexican peso fell after initially rallying on the deal news as investors clamored for details and clarity on where it leaves Canada. "It could be because a dose of reality is sinking in after the initial euphoria," said TD Securities EM strategist Mitul Kotecha. "There is still some way to go before the deal is concluded, including political hurdles in both the the U.S. and Mexico and the question of how Canada will be added to a broader deal."

U.K. stocks rose in sympathy, catching-up rally as traders returned from a holiday, while the pound steadied as Prime Minister Theresa May said a no-deal break with Europe wouldn’t be the end of the world.

"On a broad sense, if markets were worried about trade tensions and trade talks escalating into full-blown wars at least this is one sign that there is a cooling off period and that some parts of the global trade space will still be connected and as free markets would hope,” said JPM global market strategist Nandini Ramakrishnan. "Another good example: European discussions this summer came down to a very conciliatory, almost non-issue."

Elsewhere, South Africa’s rand has pulled off two-year lows hit earlier this month while the Australian dollar, often used as a liquid hedge for global growth, is well above recent 1-1/2 year troughs. Reversing the EM trend this morning was the Turkish lira which fell another 1.5% against the dollar, adding to Monday’s 2% fall as concerns have not abated about Turkey’s rift with Washington and its monetary policies.

The yield on 10-year Treasuries was unchanged at 2.85%, the highest in more than a week. Germany 10-year yield dropped 1 bp to 0.37%.

WTI oil hovered around $69 a barrel. Bitcoin climbed for the fourth successive weekday, breaking above its 50-day moving average.

Italian BTPs initially underperformed as supply concession is priced in, later futures spike higher as block trade crosses. Earlier, Italian interest rates rose to three-month highs after Deputy Prime Minister Luigi Di Maio said the country’s public deficit could exceed the European Union’s ceiling of 3% of gross domestic product next year.

In commodities, gold increased 0.1 percent to $1,213.19 an ounce, the highest in almost three weeks. Brent crude advanced 0.6 percent to $76.66 a barrel, the highest in seven weeks. LME copper gained 0.5 percent to $6,136.00 per metric ton, the highest in more than two weeks.

U.S. economic data - with consumer confidence figures due later in the day and the latest estimate for second-quarter gross domestic product expected on Wednesday - could determine the dollar’s further moves. Best Buy and Tiffany are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 2,899.50
  • STOXX Europe 600 up 0.2% to 386.28
  • MXAP up 0.4% to 166.45
  • MXAPJ up 0.5% to 540.13
  • Nikkei up 0.06% to 22,813.47
  • Topix up 0.2% to 1,731.63
  • Hang Seng Index up 0.3% to 28,351.62
  • Shanghai Composite down 0.1% to 2,777.98
  • Sensex up 0.5% to 38,878.05
  • Australia S&P/ASX 200 up 0.6% to 6,304.65
  • Kospi up 0.2% to 2,303.12
  • German 10Y yield fell 0.9 bps to 0.367%
  • Euro up 0.1% to $1.1690
  • Italian 10Y yield rose 0.4 bps to 2.882%
  • Spanish 10Y yield rose 0.7 bps to 1.417%
  • Brent futures up 0.6% to $76.70/bbl
  • Gold spot up 0.1% to $1,213.07
  • U.S. Dollar Index down 0.1% to 94.70

Top Overnight News from Bloomberg

  • President Donald Trump said it’s not the right time for trade negotiations with China, denting expectations for a near term deal after a breakthrough agreement between the U.S. and Mexico
  • President Donald Trump said the U.S. is pursuing a new trade accord with Mexico to replace the North American Free Trade Agreement and called on Canada to join the deal soon or risk being left out. Trump, Trudeau agree to continue ‘productive’ trade talks
  • The earliest indicators for China’s economy show that the pace of expansion slowed for a fourth month in August, highlighting the pressure for the government to push through pro-growth policies
  • The French government will prepare contingency plans in case the European Union and the U.K. fail to agree on terms of their divorce
  • The Federal Reserve Bank of San Francisco has bad news for those declaring an inverted yield curve is no longer a recession predictor. Adjusting for the compensation investors demand to hold longer-dated bonds doesn’t invalidate the curve’s prognosis powers, according to a new research post published Monday

Asian equity markets traded mostly higher as the region got a tailwind from US where the S&P 500 and Nasdaq extended on record highs with sentiment supported after US and Mexico reached a trade agreement. This lifted the ASX 200 (+0.7%) back above the 6300 level with gains led by outperformance in financials, while Nikkei 225 (+0.4%) was underpinned by a weaker currency but with upside capped by resistance around 23000. Shanghai Comp. (Unch) and Hang Seng (+0.3%) both initially conformed to the positive tone although the mainland then failed to sustain gains amid ongoing US-China trade uncertainty and as focus shifts to earnings with 3 of China’s big 4 banks to announce results today. Finally, 10yr JGBs traded subdued with demand sapped as focus centred on riskier assets and following weaker demand at the enhanced liquidity auction for longer dated JGBs.

Top Asian News

  • The $4.4 Billion Hong Kong Residential Enclave That Cost $41,000
  • Early Indicators Show China’s Economy Weakening Again in August
  • Ex-Temasek Executive Warns Debt Deal Won’t Fix Noble Group
  • Lira Extends Slide as Investors See Policy Concerns Unaddressed
  • Aramco’s IPO Delay Brings Silver Lining for Saudi Stocks

European equities trade mixed (Eurostoxx 50 +0.02%) with underperformance in Italy’s FTSE MIB with Italian banks plumbing the depths while UK’s FTSE 100 outperforms as it plays catch-up following a public holiday on Monday. In terms of sectors, material names outperform on the back of firmer base metal prices while telecom names underperform. For stock specifics, Faurecia (+4.4%) climbed to the top if the Stoxx 600 following an upgrade at Kepler Cheuvreux while Sybank (-9.8%) and Baloise (-3.4%) share fell amid disappointing earnings

Top European News

  • Italy May Breach Deficit Limit for Income Support Tool: Fatto
  • Italian Bonds Fall as Budget Concerns Continue to Hit Investors
  • French Energy Minister Hulot Resigns in Clash With Macron
  • Swedish Retail Sales Plunge Raises Doubts on Economic Momentum
  • Altice Is Said to Mandate Lazard on SFR Network Finance: Figaro

In FX, the Dollar has lost more ground vs most G10/major rivals, but remains mixed vs EMs, as the Try continues to weaken in contrast to the Cny (and Cnh in response) that saw the strongest fixing in more than a year overnight. Hence, the index has been drifting down further below 95.000 within a new 94.920-665 range, with nearest supports seen at early August lows (circa  94.610 and 94.491). CHF - The Franc is benefiting most from the weaker Greenback and trading above 0.9800, though not really outperforming in cross terms as Eur/Chf holds firmly above 1.1400. GBP - Mixed fortunes for the Pound as Cable revisits 1.2900 by virtue of the aforementioned broad Usd downturn, but Eur/Gbp climbs towards 0.9075 on heightened prospects of a no deal Brexit. AUD/JPY - Narrowly mixed vs the Usd around 0.7350 and 111.00 respectively, with the Aud undermined by the ongoing US-China import tariff stand-off, but Jpy gleaning some support due to its safe-haven status, the Dollar’s demise and key chart levels/supply (unlike Eur/Jpy that touched 130.00 earlier amidst macro, leverage and fast money buying).

Commodities are benefitting from the pullback of the dollar with Brent futures marginally higher while WTI futures test the USD 69/bbl level to the upside. Saudi Energy Adviser stated the current US sanctions are unlikely to completely stop Iranian exports, ahead of oil-related sanctions are to come into effect in November. News flow has be relatively light, traders will be keeping an eye on the API crude inventories released after-market today; the Street expects crude stocks to draw by 500k bbls in the week, distillates are seen building by 1.4mln, and gasoline is expected to build by 400k bbls; according to a Reuters poll. Traders are also citing reports on Monday that showed OPEC+ compliance fell, though output still remains below target.  Elsewhere, gold has gained a firmer footing above USD 1200/oz, attributed to the ongoing dollar weaker.

Looking ahead to today’s calendar, we'll get the July advance goods trade balance, preliminary July wholesale inventories report, the August Richmond Fed manufacturing index print and the August Conference Board consumer confidence survey. Away from the data we'll also hear from ECB board member Peter Praet when he speaks around lunchtime in Germany. European Commissioner Gunther Oettinger will also discuss the EU budget at a conference in Brussels. Finally the UK’s Secretary of State for international trade Mr Fox will address the British Chamber of Commerce in Singapore.

US Event Calendar

  • 8:30am: Advance Goods Trade Balance, est. $69.0b deficit, prior $68.3b deficit, revised $67.9b deficit
  • 8:30am: Wholesale Inventories MoM, est. 0.2%, prior 0.1%; Retail Inventories MoM, prior 0.0%, revised 0.1%
  • 9am: Case Shiller 20-City MoM SA, est. 0.2%, prior 0.2%; CS 20-City YoY NSA, est. 6.4%, prior 6.51%
  • 10am: Richmond Fed Manufact. Index, est. 17, prior 20
  • 10am: Conf. Board Consumer Confidence, est. 126.6, prior 127.4; Present Situation, prior 165.9; Expectations, prior 101.7

DB's Jim Reid concludes the overnight wrap

The sun was well and truly shining out on global equities yesterday albeit in thin trading volumes with London on holiday. The Shanghai Composite (+1.89%) started the gains early on, while the Euro Stoxx 600 advanced +0.52%. In the US, the S&P 500 (+0.77%), NASDAQ (+0.91%), and Russell 2000 (+0.16%) all reached new all-time highs while the Dow gained +1.01% but still remains just below its January peak. Cyclical sectors led gains on both sides of the Atlantic, with materials, car makers, financials, and IT outperforming. The dollar index shed -0.39%, supporting commodity prices, with Brent crude oil up +0.22%. The risk on tone weighed on bonds with treasury yields higher across the curve. 10-year  yields were up +3.6bps while Bunds also weakened (+3.2bp), in part as a firmer than expected IFO reading added to the upbeat mood (more below).

The real outperformers yesterday, however, were in Latin America and Asia. In LatAm, sentiment was boosted by the announcement that the US had reached a new NAFTA agreement with Mexico. Any deal would need Congressional approval in the US but it was encouraging to the market that some of these trade disputes can be resolved. Bloomberg reported that the Canadian Foreign Minister and chief negotiator Chrystia Freeland will travel to the US today to join the discussions, while the Mexican President Nieto was “quite hopeful” that Canada would soon join in the revised agreement. The Mexican Peso gained 0.77% versus the dollar and Mexico’s benchmark index, the S&P/BMV index, rallied +1.58% to reach its highest level since February. Elsewhere the MSCI EM index jumped +1.81% while most EM currencies also advanced, although the Turkish Lira fell -1.96% as trading resumed post last week’s holidays. This morning in Asia, markets are consolidating on Monday’s gains with the Nikkei (+0.41%), Kospi (+0.19%) and Hang Seng (+0.24%) all modestly up while Chinese bourses are broadly flat following stronger gains yesterday. Elsewhere the Yuan is little changed while futures on the S&P are also pointing to a firmer start.

Back to yesterday, given the U.K. holiday its worth expanding on the Asia equity advance. The Nikkei, Hang Seng, and CSI 300 gaining +0.88%, +2.17%, and +2.44%, respectively. It was the first trading day since last Friday’s news that  the PBoC would reintroduce the “counter-cyclical buffer” in its daily formulation of the Yuan’s exchange rate fixing. The buffer allows the central bank to use more discretion when setting currency policy, potentially leaning against prevailing trends to moderate FX swings. The offshore Yuan had gained 1.30% versus the dollar on Friday, its biggest gain since January 2017 and its third best day since offshore trading began in 2010. The apparent effort by policymakers to arrest  the currency’s decline may signal a potential concession to US policymakers amid the ongoing trade dispute between the two countries, which, if realised, would also prove to be positive for risk assets.

Staying with the trade theme, DB’s Quinn Brody and Torsten Slok have looked at the five popular myths around US trade, including: i) that China's large imbalances take advantage of the system, ii) trade imbalances are driven by tariffs, iii) the US has broadly lower tariffs on goods imports than its partners, iv) US services trade is more open than the rest of the world, and v) the US has fewer non-tariff barriers than competitors. Amongst other findings, they conclude that the US is generally as open to trade as other DM countries and that tariffs or nontariffs barriers, are actually not the main source of the US trade deficit. Refer to their note for details.

Meanwhile in Europe yesterday, yields on 10y Italian BTPs slightly outperformed (+0.5bp), though they remain within 1bp off their year-to-date highs. Italian politicians seems to have continued to escalate their rhetoric regarding potential budget conflict with the European Union. Deputy Prime Minister Di Maio, leader of the Five Star Movement, said that Italy has no intention of withdrawing from the union or the currency zone, but that “we will look at all measures in discussions regarding the European budget and will block what doesn’t work for us.” The other Deputy Prime Minister, from the Northern League, Matteo Salvini, echoed Di Maio’s sentiments, saying “it’s time to cut financing to a useless entity.” The principle point of contention is immigration policy, with Italian leaders arguing that the rest of Europe needs to do more to assist Italy with their influx of migrants. This issue is likely to remain a big topic for markets as we go into autumn/fall although judging from the weather we’ve gone straight to winter in the U.K.

Elsewhere for those interested in empirical research on the yield curve. The latest research from the San Francisco Fed concluded the yield curve has been a reliable predictor of recessions and that the best summary measure is the spread between the 10y and 3m yields. That said, the authors Mr Bauer and Mr Mertens added that “the flattening yield curve provides no sign of an impending recession”, in part as long term rates, while falling remains above short term rates (3m-10y spread of c75bp).

Yesterday’s economic calendar was light, but the data was mostly positive. Germany’s August IFO business survey printed at 103.8, its first monthly increase since last November and its highest level since February. Improvements were concentrated in the forward-looking expectations subsection, boding well for H2 growth. The strong reading may have been driven by the weaker euro or by stronger domestic demand. In the US, the July Chicago Fed National Activity Index printed at 0.13 (a positive value signals above average growth) while the August Dallas Fed manufacturing activity survey came in at 30.9. Both of the US indexes were lower than last month, but they remain near the cyclical highs.

Looking ahead to today’s calendar, we'll get August consumer confidence data for France and July M3 money supply data for the Euro area. Data in the US will include the July advance goods trade balance, preliminary July wholesale inventories report, the August Richmond Fed manufacturing index print and the August Conference Board consumer confidence survey. Away from the data we'll also hear from ECB board member Peter Praet when he speaks around lunchtime in Germany. European Commissioner Gunther Oettinger will also discuss the EU budget at a conference in Brussels. Finally the UK’s Secretary of State for international trade Mr Fox will address the British Chamber of Commerce in Singapore.

Published:8/28/2018 6:12:54 AM
[Markets] Mexico Trade Deal, Best Buy and Pumpkin Spice Latte - 5 Things You Must Know U.S. stock futures rose on Tuesday, Aug. 28, indicating a third consecutive record-setting session for Wall Street, and global stocks edged higher as investors reacted to news of a possible NAFTA overhaul that could lead to the end of trade disputes between the U.S., China and the European Union. The Dow on Monday, Aug. 27, rose 259 points, or 1.01%, to close at 26,049. Donald Trump announced a new agreement on trade Monday with Mexico that will both replace the current NAFTA pact - which covers an annual $1 trillion in trade - and leave Canada, the U.S.'s second-largest trading partner, without a bespoke deal. Published:8/28/2018 4:58:54 AM
[Markets] Two lessons from Lehman Brothers’ 2008 collapse can save your investments In its wake, several prominent money-market funds began “breaking the buck,” which had never happened before. Not surprisingly, the stock market plunged: The Dow Jones Industrial Average (DJIA) shed 25% over the next 30 days — one-quarter of its value in just four weeks. The first investment lesson you should draw from this anniversary: A drop of such magnitude could happen at any time. Published:8/28/2018 4:39:09 AM
[Markets] The Dow just busted out of its longest stint in correction territory in nearly 60 years The Dow Jones Industrial Average on Monday catapulted out correction territory for the first time in more than six months, ending its longest period in that phase since a 223-session run in 1961. Published:8/27/2018 6:25:16 PM
[Markets] After the Bell: Dow Climbs 259 Points as U.S.-Mexico Trade Deal Sends Stocks Soaring Catch Up. Stocks powered ahead Monday as President Donald Trump announced a preliminary bilateral trade deal with Mexico that could pave the way for a revamp of the North American Free Trade Agreement, but whether Canada joins the deal remains an open question. The Dow Jones Industrial Average moved past 26,000, the Nasdaq crossed 8000, and the S&P 500 will try for 2900 on Tuesday. Published:8/27/2018 5:54:53 PM
[Markets] Post-NAFTA Trump Bump Helping Lift FAANG Stocks The announcement of a renewed trade deal with Mexico is helping extend a market rally and lifting FAANG stocks. A reversal of tone from the constant talk of trade and tariffs with China appears to be boosting market sentiment as the market continues its bull run today with the Dow topping 26,000 and the Nasdaq Composite crossing the 8,000 mark. Nasdaq's technology sector rose 1% on Monday to the highest level in over two weeks. Published:8/27/2018 1:22:33 PM
[Markets] Nasdaq hits 8,000 as stock market gains in broad-based rally U.S. stocks advance Monday with the Nasdaq successfully testing 8,000 and the Dow retaking 26,000 for the first time since early February, as the market rallied on enthusiasm over a new trade deal between the U.S. and Mexico. Published:8/27/2018 12:57:32 PM
[Markets] Dow retakes 26,000, while S&P 500, Nasdaq carve out intraday records U.S. stock-index gauges trade solidly higher Monday morning, with the Dow industrials retaking a psychologically significant level at 26,000 for the first time since early February. Published:8/27/2018 9:49:05 AM
[Markets] Dow jumps 150 points early Monday with Mexico trade-talk optimism in air Dow jumps 150 points early Monday with Mexico trade-talk optimism in air Published:8/27/2018 9:08:50 AM
[Markets] Dow appears poised to surge nearly 140 points at Monday's opening bell Dow appears poised to surge nearly 140 points at Monday's opening bell Published:8/27/2018 8:03:20 AM
[Markets] Wall Street Set for More Records as Powell's Rate Comments Lift Global Stocks Global stocks trade firmly higher as U.S. dollar trims gains following comments from Fed Chair Powell that suggest "gradual" rate hikes needed to maintain full employment and price stability. U.S. equity futures suggest the potential for another record-setting session on Wall Street, with the Dow poised for an 80-point opening bell gain and the S&P 500 priced for an 8.6 point pop. Global stocks traded firmer Monday, with shares in Asia hitting a multi-week high and Europe posting solid gains in holiday-thinned dealing, as investors reacted to a dovish outlook on U.S. rate increases last week from Federal Reserve Chairman Jerome Powell that clipped gains for the dollar and eased pressure on emerging markets. Published:8/27/2018 4:46:21 AM
[Markets] More Evidence The Economy Is Deteriorating

Authored by Dave Kranzler via Investment Research Dynamics,

“Financial-market and economic prospects remain far shy of the hype and headlines, amidst tanking consumer optimism and negative revisions to recent reporting.” – John Williams, Shadowstats.com

The economy may seem like it’s doing well if you are part of the upper 10% demographic. Though, in reality, for most of the upper 10%, doing “well” has been a function of having easy access to credit. NASA Federal Credit Union is offering 0% down, 0% mortgage insurance for mortgages up to $2.5 million.

Someone I know suggested the tax cut stimulus had run its course. But the narrative that the tax cuts would stimulate economic activity was pure propaganda. The tax cuts stimulated $1 trillion in expected share buybacks and put more money in the pockets of corporate insiders and billionaires. The average middle class household spent its tax cut money on more expensive gasoline and food. Since the tax cut took effect, auto sales and home sales have declined. Retail sales have been mixed. However, it’s difficult to distinguish between statistical manipulation and inflation. I would argue that, net of real inflation and Census Bureau statistical games, real retail sales have been declining.

As an example, last week Black Box Intelligence released July restaurant sales. While comparable store sales were up 0.54% over July 2017, comparable restaurant traffic was down 1.8%. On a rolling three months, comp sales are up 0.46% but comparable traffic is down nearly 2%. With traffic declining, especially a faster rate relative to the small increase in sales, it means the sales “growth” is entirely a function of price inflation. If Black Box Intelligence could control it’s data for price increases, it would show that there is no question that real sales are declining. I have been loathe to recommend shorting restaurant stocks because, for some reason, the hedge funds love them.

On Wednesday last week, the Government reported July retail sales, which were “up” 0.5% vs June. However, June’s 0.5% “gain” was revised sharply lower to 0.2%. Revising the previous month lower to make the headline number for the reported month appear higher is a mathematical gimmick that the Government uses frequently. As an example of the questionable quality of the retail sales report, the Government reports that sales at motor-vehicle and parts dealers rose 0.2% from June to July. But the auto industry itself reported a 4% decline in sales from June to July. I’ll leave it up to you to decide which report is more reliable…

Housing starts for July, reported last Thursday, showed an 8% decline from June’s number. June’s number was revised lower from the original number reported. No surprise there, at least for me. The report missed the Wall Street brain trust’s expectations by a wide margin for the second month in row. The downward revision to June makes the report even worse. Additionally, housing starts are now down year-over-year for the second month in a row.

This report followed last Wednesday’s mortgage applications report which showed a decline in purchase applications for the 5th week in a row. The housing starts number continues to throw cold water on the “low inventory” narrative. While there still may some areas of housing market strength in the $500,000 and below price bucket, the mortgage purchase applications data has been mostly negative since April, which reflects deteriorating home sales. This reality is “magnified” by the fact that home sales have declining during what should be the strongest seasonal period of the year for home sales.

Lending Tree, Zillow Group and Redfin are “derivatives” of housing market activity. They reflect web searches, foot traffic and sales associated with mortgages and home sales. Lending Tree stock is down nearly 42% late January. Zillow stock is down 26% since mid-June. Redfin is down 39.5% since the beginning of the year, including an 18.5% plunge two weeks ago. unequivocally, these three stocks reflect the popping of the housing bubble. The Short Seller Journalrecommended shorting all three of these stocks before their big declines.

Normally I’m hesitant to discuss the regional Fed economic surveys because they are skewed by their expectations/outlook (hope/sentiment) components. However, the Philly Fed survey for August was notable because it reinforced my view that the economy and the “hope” for a better economy is fading quickly. The overall index crashed to 11.9 from 25.7 in July. This is lower than just before the Trump election, when “hope” soared. Wall Street was expecting a 22.5 reading on the index. The new orders, work week and employment components plunged. Shipments dropped, inventories rose and prices paid fell. This report reflects the view that economy is much weaker than is conveyed by the political propaganda coming form DC.

I don’t know what it will take to cause a plunge in the Dow, S&P 500 and Nasdaq but, as we’ve seen with homebuilder stocks, there’s a lot of opportunity to make money on economic reality in the lesser-followed sectors of the stock market.

Published:8/26/2018 8:15:47 PM
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