Newsgeeker.com news site RSS Email Alerts

Search:dow


   
[Markets] Euro Crisis Returns With A Bang: Stocks Crash In Frenzied Liquidation Panic

And there it went...

To summarize:

  • Italian 2Y Yield biggest spike ever

  • Italian risk curve inverted

  • Italian 'redenomination risk' record high

  • Spanish 2Y bond yields spike to 2Y highs

  • Spanish 'redenomination risk' record high

  • EU banks crash 11% in last 4 days to 18-month lows

  • US banks plunge 4% to 6-month lows

  • VIX back above 200DMA

  • US 5Y Treasury yields plunges over 18bps - most since March 2009

  • US 30Y Yield back below 3.00% - lowest in 7 weeks

  • Dollar Index spiked to 6-month highs

Italian capital markets collapsed today.

The risk curve inverted...

 

Meanwhile, if you're interested in some insane speculation - how about the 5x-levered inverse BTP ETF...

 

European Banks contagion...

Italian banks are in freefall...

 

Deutsche Bank closed with a single-digit share price for the first time since it asked for a bailout from the German government...

 

The biggest US banks are under severe pressure today with Goldman now down 18% from the March peaks...

This is Goldman Sachs' and Citi's worst start to a year since 2011.

Bank weakness weighed on The Dow (down 2% at the lows) but all major US equity indices suffered...

Did we get a visit from the Plunge Protection Team into the US close today?

 

Nasdaq futures were excited yesterday but gave all that back today...

 

The Dow is back in the red for 2018 and S&P back to almost unchanged...

 

S&P tumbled through its 100DMA and tested its 50DMA...

 

Dow broke below its 100DMA and 50DMA...

 

VIX broke above its 200DMA...

 

FANG stocks closed at the lows of the day but it was not a bloodbath there...

 

Credit markets were crushed today...

 

Treasury yields plunged back to stocks post-Feb crisis...

 

Investor panic-bid Treasury bonds today - sending yields down 13-18bps across the curve...

 

This was the biggest daily collapse in 5Y yields since Brexit.

 

30Y Yield is back below 3.00% to its lowest level in almost 4 months...

 

Once again the 3.20% range marked significant resistance...

 

The Dollar extended yesterday's gains as EUR tumbled further... The Dollar is now at 6-month highs.

 

EURUSD plunged...

 

Cryptos were bid today as Europe fell apart, ramping Bitcoin back to unchanged from Friday's close...

 

Despite the dollar strength of the last two days, gold clung to unchanged since Friday, even as crude crumbled...

 

Oil prices tumbled further today...

 

Finally, we note that the odds of The Fed hiking rates 3 more times in 2018 have collapsed...

 

Bonus Chart: Elon is having a bad day as TSLA Bonds collapse to a record low close...

Published:5/29/2018 3:05:58 PM
[Markets] Italy, banks drive Wall Street southward The political crisis in Rome, and the threat to the euro project it represents, triggered a rush to traditional safe havens like U.S. debt, pulling down U.S. 10-year bond yields and in turn spurring losses for U.S. banks. JP Morgan corporate and investment bank chief Daniel Pinto drove another round of selling by saying his bank's second-quarter markets revenue would be flat on the year. If sustained, the 1.7 percent and 1.3 percent falls in the Dow and the S&P, respectively, would be their biggest daily drops since April 24 and the first of more than 1 percent in May. Published:5/29/2018 2:07:10 PM
[Markets] Dow down 400 points as Tuesday's stock-market losses accumulate Dow down 400 points as Tuesday's stock-market losses accumulate Published:5/29/2018 12:05:30 PM
[Markets] Dow slumps 400 points as Italy turmoil grabs spotlight U.S. stocks accelerated losses in afternoon trade Tuesday, with the Dow industrials down more than 400 points as traders returning from a three-day weekend were greeted by fresh political drama in Italy. Another Italian election looks likely within a few months, and investors fear it could turn into a de facto referendum on the country’s membership in the euro. Traders also were assessing efforts to revive a June summit between President Donald Trump and North Korean leader Kim Jong Un, as well as political uncertainty in Spain, where Prime Minister Mariano Rajoy is now struggling to stay in power. Published:5/29/2018 12:05:30 PM
[Markets] Dow Tanks as Italy Political Crisis Rocks Markets, Financials Fall Here Are 3 Hot Things to Know About Stocks Right Now With a sharp decline Tuesday, the Dow Jones Industrial Average turned lower for 2018. Stocks in Italy fell 2.6% amid a political crisis in the eurozone's third-largest economy. Published:5/29/2018 11:35:13 AM
[Markets] Dow Tumbles as Italy Political Crisis Rocks Markets, Financials Fall Here Are 3 Hot Things to Know About Stocks Right Now With a sharp decline Tuesday, the Dow Jones Industrial Average turned lower for 2018. Stocks in Italy fell 2.6% amid a political crisis in the eurozone's third-largest economy. Published:5/29/2018 11:04:56 AM
[Markets] Consumer confidence sticks near 18-year high The consumer confidence index rose to 128 from a revised 125.6 in April, the Conference Board said Tuesday. What they are saying?: “Consumer confidence has remained resilient in recent months despite uncertainty stoked by anti-trade rhetoric and stock market volatility,” economists at Barclays said. Market reaction: The Dow Jones Industrial Average (^DJI) and Standard & Poor’s (^GSPC) fell sharply in Tuesday trades, but prices partly recovered after the report on consumer confidence. Published:5/29/2018 10:04:25 AM
[Markets] Stocks Fall as Political Crisis in Italy Rocks Global Markets Here Are 3 Hot Things to Know About Stocks Right Now With a sharp decline Tuesday, the Dow Jones Industrial Average turned lower for 2018. Stocks in Italy fell 2.3% amid a political crisis in the eurozone's third-largest economy. Published:5/29/2018 9:34:24 AM
[Markets] Dow drops more than 200 points as Italy woes grab spotlight U.S. stocks fell in early trade Tuesday, with the Dow industrials down more than 200 points, as traders returning from a three-day weekend were greeted by fresh Italian political drama. Another Italian election looks likely within a few months, and investors fear it could turn into a de facto referendum on the country’s membership in the euro. Traders also were assessing efforts to revive a June summit between President Donald Trump and North Korean leader Kim Jong Un, as well as political uncertainty in Spain, where Prime Minister Mariano Rajoy was struggling to stay in power. Published:5/29/2018 9:04:19 AM
[Markets] Morning Movers: Upgrades, Downgrades…and a Great Big Mess in Italy The Dow Jones Industrial Average is sinking this morning as the future of the European Union is suddenly a question again. Wall Street was pointing towards a rocky opening Tuesday morning, as the deepening of yet another political crisis in Italy brought back sent global stock markets tumbling and the US dollar zooming higher. Published:5/29/2018 8:34:15 AM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Analysis – May 28, 2018 Forecast Although volume and volatility are expected to remain extremely low, the direction of the Dow the rest of the session is likely to be determined by trader reaction to the pivot at 24745. Published:5/28/2018 3:00:27 PM
[Markets] The stock market is poised for its best May in 9 years—but the coming week is crucial Indeed, the S&P 500 index (^GSPC) is staged for the best May performance in nine years, boasting a month-to-date return of 2.8% thus far, while the Dow Jones Industrial (^DJI)  also headed for the best May since 2009, according to FactSet data. Back in 2009, the Dow booked a 4.1% return for May as the S&P 500 returned 5.3% that month. The Nasdaq Composite Index (^IXIC) is the outperformer, on track for a May return of 5.2%, which would represent the technology-tilted index’s best rise for that month since 2005, when it advanced by 7.63%. Published:5/26/2018 11:48:28 AM
[Markets] After the Bell: Dow Zigs, Zags and Who Knows Where It's Headed Next The Dow Jones Industrial Average slid today along with just about everything else. Nothing could be done to please stock, oil, or commodities investors Friday as the Dow Jones Industrial Average, crude, and even gold were bleeding ahead of the long weekend. Bullish patterns have been a disappointment in the last few months, but they are “at our backs,” writes Frank Cappelleri, Instinet technical analyst. Published:5/25/2018 6:13:55 PM
[Markets] Bond Bear Bloodbath: EU Meltdown Sparks Safe-Haven Surge

Well that escalated quickly... Italian asset manic-selling, US Treasury panic-buying

 

Ugly week for Chinese stocks...

 

But Italy (and now Spain) were probably the biggest headline-makers on the week...

  • Italian stocks worst week since Nov 2016 (US election)

  • Italian stocks worst two-week drop Jun 2016 (Brexit)

  • Italian banks worst week since Jun 2016 (Brexit)

  • Italian 2Y Spread to Bunds biggest spike since July 2012

  • Italian redenomination risk biggest spike ever to record high...

 The Euro is down 8 of the last 9 weeks against the dollar...

European "VIX" spiked to its highest premium to US "VIX" since September of 2017...

And as Italian capital markets cratered, so US Treasuries were bid...

And gold...

And in US, while Trannies and Nasdaq outperformed, The Dow and Small Caps struggled to get green on the week...

 

FANG-ish stocks managed gains with NFLX best - now bigger than Comcast and Disney...

 

While EU Banks were ugly, US Banks suffered this week too...

 

HY Credit risk spiked most since Feb this week...

 

 

While stocks clung to the week's gains, bond yields plunged...

 

Treasury Bonds had their best week in 13 months (10Y) and 30Y futs saw their biggest weekly price appreciation since July 2016.

 

10Y tumbled back below 3.00%...

 

and 30Y rallied off the crucial downtrend-level of around 3.23% - just as Bill Gross said...

 

And this won't help as Specs added to already record net shorts this week...

 

The Dollar index ended the week unchanged after a 5-week win streak...

 

 

Overall an ugly week for cryptocurrencies... with Bitcoin outperforming and Bitcoin Cash worst...

 

With the dollar flat, PMs and copper largely eked out modest gains, but it was crude that was crushed...

 

WTI plunged back to a $67 handle this week - its worst week since February and worst day since June 2017

 

Gold managed to get back above - and cling to - $1300... for its best week since March...

 

But we do note the big swing in Gold/Silver (gold outperforming) today...

 

Finally, there's this - Smart money is piling out of stocks at an unprecedented pace, accelerating this week...

 

Bonus Chart: Since The Fed's "Dovish" FOMC Statement, bonds & bullion are bid, stocks unchanged and the dollar dumped...

Published:5/25/2018 3:13:11 PM
[Markets] Despite Dow, S&P 500 losses Friday, stocks finish the week higher Despite Dow, S&P 500 losses Friday, stocks finish the week higher Published:5/25/2018 3:13:11 PM
[Markets] Airline stocks surge to fuel the Dow transports' rally, as oil prices tumble Airline stocks soared Friday, giving a big boost to the Dow Jones Transportation Average , with the tumbled in crude oil prices helping fuel the rally. The NYSE Arca Airline Index rallied 3.0%. The Dow ... Published:5/25/2018 11:12:08 AM
[Markets] Stocks open mostly lower as energy shares sell off U.S. stocks opened slightly lower on Friday, as selling in energy shares weighed on the main indexes. The main benchmarks looked set to finish the week with modest gains, however. The Dow Jones Industrial ... Published:5/25/2018 8:46:05 AM
[Markets] The subtle sign of promise for stocks, from a Wall Street veteran The Dow just might saunter to a weekly win, as joy over Memorial Day weekend apparently overcomes any jitters over North Korea or Europe’s latest regulatory maneuver. Ahead of the 101st trading day of 2018, O’Rourke notes the S&P 500 has closed in the green 57% of the time so far this year, on par with 2017’s full-year reading. Published:5/25/2018 6:39:53 AM
[Markets] Need to Know: The subtle sign of promise for stocks, from a Wall Street veteran The Dow just might saunter to a weekly win. Count JonesTrading’s Michael O’Rourke among the strategists marveling at the stock market’s resilience. Ahead of 2018’s 101st session, he offers a chart that helps illustrate why he’s impressed.
Published:5/25/2018 6:39:53 AM
[Markets] U.S. Stocks Fall After Trump Nixes North Korea Summit The Dow Jones Industrial Average declined Thursday after President Donald Trump called off a summit with North Korea, hitting investors with another wave of uncertainty. News of the canceled summit came within 30 minutes of the stock market’s open, pulling the blue-chip index down as much as 291 points before it recouped some of its losses later in the afternoon. As major indexes regained a bit of their footing, some money managers said the latest exchange between Washington and Pyongyang could be more of a negotiating tactic than a wholesale abandonment of the peacemaking process. Published:5/24/2018 8:07:42 PM
[Markets] After the Bell: Dow Drops 75 Points as Bears Win the Day The Dow Jones Industrial Average fell today as talks with North Korea were canceled and tariff talk returned from the dead. Not for the market, that's for sure, as the Dow Jones Industrial Average dropped 75 points. Not to be left out, the bears roared back, too: Their number rose by 4.6 percentage points to 25.2%. Published:5/24/2018 5:05:23 PM
[Markets] U.S. stocks close lower, energy the day's biggest decliner U.S. stocks closed modestly lower on Thursday, with energy stocks leading the decline as crude-oil prices fell. The Dow Jones Industrial Average fell 0.3% to 24,811. The S&P 500 slid 0.2% to 2,728. The ... Published:5/24/2018 3:06:46 PM
[Markets] Bonds & Bullion Surge Amid Korean Chaos, Trade Turmoil

Stocks round trip on the day, bonds roundtrip on the week, dollar roundtrips on the year... sometimes it's better not to play...

 

Just when you thought it was safe to buy Italian bonds or banks... they resume their decline...

 

Trannies had a good day as oil prices leaked lower but the rest of the majors managed to bounce back to the flatline after Trump killed the Korea Summit...

 

It looks like today's bounce from the Trump headlines was prompted by a need to get green for the week...

 

The Dow remains stuck around unchanged for the year and the 50% retrace of the Feb Flop...

 

S&P is finding support at its 100DMA...

 

In single-stock-land, Twitter is now bigger than Deutsche Bank...

 

And Netflix is bigger then Comcast and Disney...

h/t David Wilson

 

HY Bonds remain unimpressed since The Fed Minutes...

 

Stocks briefly tried to catch back down to bond's reality today after trump's comments, but dip-buying machines piled in...

 

Treasury yields continue to tumble - down 5 days in a row...

 

Erasing last week's spike...

This is the best 5-day price gain for 10Y Note futures since May 2017.

 

The dollar index extended losses post-FOMC Minutes...

 

Despite a weaker dollar, EM FX resumed its decline...

 

Cryptos tumbled early on, but rebounded starting around 9amET...

 

Leaving Bitcoin green by the end of the day..

 

A weaker dollar sent PMs and copper higher but crude crumbled...

 

WTI ended back below $71...

 

Gold surged back above $1300... best day for gold in 6 weeks

 

Since The Fed Minutes, gold is the big winner, bonds are slightly outpacing stocks and the dollar is down...

Published:5/24/2018 3:06:46 PM
[Markets] GE’s stock selloff started from ‘irrational’ level, analyst says The big selloff in General Electric Co.’s stock was a rational response to disappointing comments made by Chief Executive John Flannery, and to an “irrational” share rally that preceded it, according to J.P. Morgan analyst Stephen Tusa. The stock (GE) bounced back 2.7% in active afternoon trade Thursday, enough to pace the gainers among Dow Jones Industrial Average (^DJI) components, after plummeting 7.3% the previous session to suffer the biggest selloff in nine years. Wednesday’s tumble came after Flannery’s comments at an industry conference were interpreted to mean the company’s turnaround could take longer than expected and the current dividend was not necessarily safe. Published:5/24/2018 2:34:45 PM
[Markets] Don’t confuse low stock-market volatility with an all-clear signal, Goldman warns While major U.S. stock-market indexes are still a few percentage points below records hit earlier this year, recent trading may feel reminiscent to 2017, when equities rose in essentially uninterrupted fashion, with little in the way of volatility. Things have gotten so calm, according to Goldman Sachs, that the quiet on Wall Street isn’t too far from record levels. Per data from the investment bank, single-stock implied volatility has dropped to 21% on a three-month basis, its lowest level since January — when the Dow and S&P 500 were last at records — and three points above all-time lows. Published:5/24/2018 11:33:54 AM
[Markets] Dow off 160 points as Trump cancels North Korean summit, citing 'tremendous anger and open hostility' U.S. stock benchmarks traded lower in early Thursday action after President Donald Trump canceled a planned meeting with North Korea. In a letter released by the White House, Trump told North Korean leader Kim Jong Un that the summit "will not take place." The president added that "tremendous anger and open hostility displayed in your most recent statement," was behind the cancellation. In the letter Trump said "you talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used." The Dow Jones Industrial Average , most recently, was off 170 points, or 0.7%, at 24,714, the S&P 500 index sank 0.5% at 2,720, while the Nasdaq Composite Index retreated by 0.4% at 7,395. Published:5/24/2018 11:03:56 AM
[Markets] Markets Now: Dow Drops 250 Points as Canceled Korea Talks Tank Stocks Want to know why the Dow Jones Industrial Average is doing what it's doing? The Dow Jones Industrial Average has dropped 249.47 points or 1%, to 24,637.34, while the S&P 500 has fallen 0.8% to 2710.31, and the Nasdaq Composite has declined 0.8% to 7363.79. North Korean threats quickly became a cancelled summit, as President Donald Trump used North Korea's "anger and open hostility" as an excuse to call the whole thing off. Published:5/24/2018 10:33:49 AM
[Markets] Dow down as much as 242 points as investors process North Korea summit news Dow down as much as 242 points as investors process North Korea summit news Published:5/24/2018 10:04:02 AM
[Markets] Dow off 260 points as Trump cancels North Korean summit, citing 'tremendous anger and open hostility' U.S. stock benchmarks traded sharply lower in early Thursday action after President Donald Trump canceled a planned meeting with North Korea. In a letter released by the White House, Trump told North Korean leader Kim Jong Un that the summit "will not take place." The president added that "tremendous anger and open hostility displayed in your most recent statement," was behind the cancellation. In the letter Trump said "you talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used." The Dow Jones Industrial Average, most recently, was off 255 points, or 1%, at 24,630, the S&P 500 index sank 0.9% at 2,709, while the Nasdaq Composite Index retreated by 0.8% at 7,363. Published:5/24/2018 10:04:02 AM
[Markets] Dow drops 140 points, adds to opening fall after Trump cancels planned summit with North Korea U.S. stock benchmarks fell near the open on Thursday after a report surfaced indicating that President Donald Trump has canceled a planned meeting with North Korea. In a letter released by the White House, Trump told North Korean leader Kim Jong Un that the summit "will not take place." The letter comes after officials from Hermit Kingdom expressed anger over U.S. demands to denuclearize. In the letter Trump said "you talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used." The Dow Jones Industrial Average was off 150 points, or 0.6%, at 24,736, the S&P 500 index sank 0.6% at 2,716, while the Nasdaq Composite Index retreated by 0.5% at 7,390. Published:5/24/2018 9:03:33 AM
[Markets] Markets Now: North Korea! Tariffs! And the Dow Drops 9 Points Want to know why the Dow Jones Industrial Average is doing what it's doing? 6:56 a.m. The market appears to have used up all its energy rallying back from early losses yesterday because it's doing almost nothing this morning. S&P 500 futures are little changed, while Dow Jones Industrial Average futures have declined nine points, and Nasdaq Composite futures have ticked up 0.1% This despite reports that the U.S. is considering tariffs on imported cars as a national security issue, and new threats from North Korea. "Futures are flat as markets digest recent macro headlines (car tariff probe and North Korea’s bellicose rhetoric) but for now neither are impacting markets because they aren’t changing underlying expectations (the NK summit is still on for now and U.S./China trade relations continue to improve)," writes The Sevens Report's Tom Essaye. Published:5/24/2018 6:33:37 AM
[Markets] Tales From "The Master Of Disaster"

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

Tightening Credit Markets

Daylight extends a little further into the evening with each passing day.  Moods ease.  Contentment rises.  These are some of the many delights the northern hemisphere has to offer this time of year. As summer approaches, and dispositions loosen, something less amiable is happening.  Credit markets are tightening.  The yield on the 10-Year Treasury note has exceeded 3.12 percent.

A change in pace: yields are actually going somewhere. There is a fly in the ointment for treasury bears though: the net speculative short position in futures across the yield curve is seemingly establishing new record highs every week. While this is not bullish for treasuries per se, it definitely makes yields vulnerable to a sharp pullback. The question is what might cause such a pullback. Our guess would be that either “unexpected economic weakness” will enter the scene, or crisis conditions in emerging markets will worsen and eventually spark “flight to safety” behavior. [PT]

 

If yields continue to rise, this one thing will change everything.  To properly understand the significance of rising interest rates some context is in order.  Where to begin?

In 1981, professional skateboarder Duane Peters was busy inventing tricks like the invert revert, the acid drop, and the fakie thruster, in empty Southern California swimming pools.  As part of his creative pursuits, he refined and perfected the art of self-destruction with supreme enthusiasm.  His many broken bones, concussions, and knocked out teeth earned him the moniker, “The Master of Disaster”.

But as The Master of Disaster was risking life and limb while pioneering the loop of death, the seeds of a mega-disaster were being planted.  In particular, the rising part of the interest rate cycle peaked out in 1981.  Then, over the next 35 years, interest rates fell and these seeds of mega-disaster were multiplied and scattered across the land.

Credit and Asset Prices

The relationship between interest rates and asset prices is generally straightforward. 

Tight credit generally results in lower asset prices.  Loose credit generally results in higher asset prices.

When credit is cheap, and plentiful, individuals and businesses increase their borrowing to buy things they otherwise couldn’t afford.  For example, individuals, with massive jumbo loans, bid up the price of houses.  Businesses, flush with a seemingly endless supply of cheap credit, borrow money and use it to buy back shares of their stock… inflating its value and the value of executive stock options.

When credit is tight, the opposite happens.  Borrowing is reserved for activities that promise a high rate of return; one that exceeds the high rate of interest.  This has the effect of deflating the price of financial assets.

In 1981, credit was expensive, while stocks, bonds, and real estate were cheap.  For example, in 1981, the interest rate on a 30-year fixed mortgage reached a high of 18.63 percent.  That year, the median sales price for a U.S. house was about $70,000.

30 year t-bond yield from 1942 to today. The recent move higher probably is not a breakout just yet – this depends a bit on how one draws the resistance line on the chart. One has to keep in mind that any upcoming decline in yields is likely to occur in conjunction with negative news on the economic front. It could well be that the current level of yields is already more than the economy can bear (per experience this level becomes lower the larger the debtberg becomes). Yields have nevertheless reached a level that is very close to a definitive breakout. We are a bit reluctant to read too much into it, mainly because it always looks very convincing when yields start to move higher (see the past occasions on the chart above). We think a real change of character in the market will require clearly discernible higher highs in yields – which may of course be in store.  [PT]

 

Today, the interest rate on a 30-year fixed mortgage is about 4.5 percent.  And the median price of a U.S. house is now about $330,000.  Along the Country’s east and west coasts, prices are much higher.

Similarly, the Dow Jones Industrial Average (DJIA) was roughly 900 points in 1981.  Today, the DJIA is about 24,700 points.  That comes to over a 2,600 percent increase.  Yet over this same period, nominal gross domestic product has only increased by roughly 500 percent.

We suspect a 35-year run of cheaper and cheaper credit had something to do with ballooning stock and real estate prices.  Asset prices and other financialized costs, like college tuition, have been grossly distorted and deformed by three decades of cheap credit.  The disparity between high asset prices and low borrowing costs, have positioned the world for an epic mega-disaster.

The Federal Reserve has an extreme and heavy handed influence over credit markets.  But they are not the masters of it.  The fact is, Fed credit market intervention plays second fiddle to the overall rise and fall of the interest rate cycle.

The DJIA since 1980. It is probably fair to call this the mother of all bubbles by now. If one looks at a very long term log chart of the average, there are only three time periods over the past century that have seen comparably rapid and large price increases: 1922-1929, 1982 – 1987 and 2009 –  2018. However, the latter time period has generated the most pronounced overbought readings, the greatest valuation extremes and arguably new records in terms of complacency among market participants (admittedly there are far more ways to measure sentiment today than there used to be, many data series cannot be compared with those of past asset bubbles because they didn’t exist at the time). [PT]

 

From a historical perspective, today’s 10-Year Treasury note yield of 3.12 is still extraordinarily low.  But if you consider just the last two years, it is extraordinarily high. The yield on the 10-Year Treasury note bottomed out at just 1.34 percent in early-July 2016.  At 3.12 percent today, the yield his increased dramatically.  In fact, the yield on the 10-Year Treasury note has increased over 130 percent over the last 22 months.

Tales from “The Master of Disaster”

The last time the interest rate cycle bottomed out was during the early-1940s.  The low inflection point for the 10-Year Treasury note at that time was a yield somewhere around 2 percent.  After that, interest rates generally rose for the next 40 years.

What hardly a living soul remembers is that the Federal Reserve’s adjustments to the federal funds rate have drastically different effects during the rising part of the interest rate cycle than during the falling part of the interest rate cycle.  Between 1981 and 2016, each time the economy went soft, the Fed cut interest rates to stimulate demand.

In this disinflationary environment, the credit markets limited the negative consequences of the Fed’s actions.  Certainly, asset prices increased and incomes stagnated.  But consumer prices did not completely jump off the charts.

The Fed took this to mean that it had tamed the business cycle.  This couldn’t be further from the truth.  During the rising part of the interest rate cycle, as demonstrated in the 1970s, after the U.S. defaulted on the Bretton Woods Agreement, Fed interest rate policy becomes increasingly disastrous.

Fed policy makers are politically incapable of staying out in front of rising interest rates.  Their efforts to hold the federal funds rate artificially low, to boost the economy, no longer have the desired effect.  In this scenario, monetary inflation breeds consumer price inflation. Fed policies become policies of disaster.

It seems possible that in July 2016, roughly 35 years after it last peaked, the credit market finally bottomed out.  Yields are rising again.  In truth, they may well rise for the next three decades. This means the price of credit will become increasingly more expensive into the mid-21st century.  Hence, the world of perpetually falling interest rates – the world we’ve known since the early days of the Reagan administration – is over.

But what about The Master of Disaster, Duane Peters?  Well, Duane, you see.  He’s a true iconoclast.  He is much more stubborn than the credit market. At age 55, he continues to pursue disaster with the relentless composure of a fly smashing into a kitchen window.  He also does so while refusing to wear a helmet, and while regularly cracking his skull open on the concrete.  Yet, somehow, he keeps on going.

“Punk skateboarder” and “Master of Disaster” Duane Peters, in his full tattoo-encrusted glory. [PT]

 

The Federal Reserve and the dollar, however, don’t stand a chance.  The rising part of the credit cycle will be their death knell.  But first, rising interest rates and deflating asset prices will wreak havoc and disaster on the world at large. It won’t be pretty.  It will be painful.

Our advice: Make like The Master of Disaster.  Take your lumps, and keep on going.

Published:5/23/2018 5:29:11 PM
[Markets] After the Bell: Dow Gains 52 Points as Fed Frightens No One The Dow Jones Industrial Average turned its frown upside down after the minutes from the Federal Reserve's May 2 meeting were released. In today's After the Bell, we... •...give thanks to the Fed for taking ... Published:5/23/2018 4:58:54 PM
[Markets] Markets Now: Dow Erases Losses as Fed Minutes Show No Sleep Lost Over Inflation Want to know why the Dow Jones Industrial Average is doing what it's doing? The S&P 500 has gained 0.2% to 2728.96, while the Dow Jones Industrial Average has advanced 12.13 points to 24,846.54. The Nasdaq Composite has risen 0.5% to 7413.33. Published:5/23/2018 2:59:55 PM
[Markets] GE’s stock plunges toward worst day in 9 years after CEO John Flannery starts talking Shares of General Electric Co. plunged in very active trade Wednesday, putting them on track for the biggest selloff nine years, with losses accelerating after Chief Executive John Flannery started talking at an industry conference. The industrial conglomerate’s stock (GE) slid 7.4% in afternoon trade, enough to pace the Dow Jones Industrial Average’s (^DJI) losers. The stock was headed toward the biggest one-day drop since it plummeted 7.2% on Nov. 13, 2017 after Flannery, then newly named CEO, unveiled a transformation plan, including the halving of the company’s dividend. Published:5/23/2018 2:32:15 PM
[Markets] The "Trend Is Your Friend" Until It's Not...

Authored by Michael Lebowitz via RealInvestmentAdvice,com,

Before February 2018, the S&P 500 was positive for a record 15 months in a row. Despite the seemingly perfect track record, a series of daily record highs, and unprecedented levels of positive investor sentiment, the market’s tone changed abruptly in the last few days of January. Since the record highs achieved on January 26th, 2018, the S&P 500 initially fell by 11% and subsequently recovered about half that loss.

The natural reaction for most investors following jolts to markets and changes in its behavior is to link the unexpected price declines with specific catalysts. In Thinking, Fast and Slow, Daniel Kahneman, a renowned Nobel laureate and behavioral psychologist, states, “[All] headlines do is satisfy our need for coherence.

By assuming one knows the cause for a market event and how that cause may evolve, a great level of comfort can be attained. The catalysts blamed for the recent market swoon are higher interest rates, a hawkish Federal Reserve, trade and tariff threats, and volatility strategies gone awry.

While these are certainly affecting the market, we are not easily comforted by headlines.

We believe that constructing portfolios based on longer-term market and economic trends and not short-term market noise is the proper approach to managing money. In this article, we provide context to the recent price action and highlight the true fundamental and technical drivers of the market. Before a discussion of the current market environment, it is helpful to revisit a six month period beginning in August of 2015 that is analogous to today.

2015

After grinding higher during the first seven months of 2015, the equity markets hit a speed bump in mid-August. With little warning, the S&P 500 declined more than 11% over a six-day period. After two months of sharply increased volatility, the market recouped its losses. The rebound was short-lived, and the market subsequently fell 13%, ending below the lows seen in August. From that point, the bull market regained its positive momentum, and the S&P rallied over 50% to the late January 2018 record highs. We cite this tumultuous period because it helps differentiate a bull market correction from a bear market.  The “catalysts” of the 2015 correction were strong indications of interest rate hikes from the Federal Reserve, an appreciating U.S. dollar, and warnings that said dollar strength was having negative economic effects on many foreign countries, most importantly China.

These concerns were valid, but they proved temporary. The dollar would continue to appreciate for another year and then head sharply lower as we are currently witnessing. China and other nations were able to depreciate their currencies and provide fiscal and monetary stimulus to overcome the effects of a stronger dollar. The Fed has raised rates, but at a slow enough pace to ward off financial concerns.

Those investors that rode out the unpleasant volatility of 2015 were rewarded for their steadfastness. Other investors, worried about mounting losses, diverged from their longer-term investment strategies and realized losses that in turn reduced their ability to compound wealth.

Today

By first presenting the 2015 experience, we show that even the most bullish markets, as we are currently in, are frequently met with periods that are not only counter-trend but highly uncomfortable. Periods such as 2015 are not only natural but healthy.

The graph below shows market volatility as measured by the difference between daily highs and lows. In 2017 the average difference was 0.51% (black line) as compared to the 1.32% (red line) difference that has thus far occurred in 2018.

To put these moves into context, the average daily volatility for the five years preceding 2017 was 0.97%. In other words, daily price movement is certainly heightened in recent months, but it is not as alarming when compared to historical market volatility.

Further, it is important to keep in mind that most media outlets present daily market changes in dollar terms and not percentages. When shown this way, the recent sell-off seems larger than those of prior bear markets. For instance, the daily changes in the Dow Jones Industrial Average for the first week of April 2018 were as follows: -459, +389, +231, +241, and -573. The 573 point loss on April 6th was 65 points worse than the 508 point decline on Black Monday 1987. Black Monday remains the largest one-day loss in the DJIA in percentage terms at 22.6%. The recent 573 point loss was only about 2.5% of the total value of the DJIA. A similar decline like Black Monday would result in a loss of over 5,500 points.

It is quite possible that recent volatility is sending a signal that the upward trend since 2009 is reversing. As such, we believe it is important to closely follow the fundamental and technical drivers of equity markets and tactically manage risk accordingly. Below we provide a review of the current factors we think are most relevant. The highlighted factors are the ones we think will dictate market movements over the next few months.

Factors supporting further equity appreciation:

  1. The unemployment rate is at 3.9%, the lowest level since October 2000.

  2. Economic growth has shown signs of improvement in the U.S. and many developed nations.

  3. The S&P CoreLogic Case-Shiller 20-City Home Price Index is at 209.28, about 3 points above the all-time high seen at the peak of the housing bubble in July 2006.

  4. Small Business Optimism is at the highest level since September 1983, and the Michigan Current Consumer Sentiment gauge is at 17-year highs.

  5. Partially as a result of tax reform, corporate earnings growth is strong and running well above the historical average.

  6. The recent tax reform reduces taxes for corporations from a statutory rate of 39% to 21%.

  7. The current U.S. Consumer Price Index is slightly above the Fed’s inflation target but relatively tame at 2.4% and 2.1% excluding-food and energy.

  8. Increased deficit spending related to tax reform, the latest spending bill and the possibility of infrastructure spending, are all stimulative and further support already improving economic growth.

  9. Changes in global trade terms, something the administration is aggressively pursuing, may be net beneficial to the economy.

  10. Corporate equity buy-backs are expected to grow at a record pace in 2018.

Factors providing headwinds to equity appreciation:

  1. The current U.S. economic expansion has lasted 107 months and counting. Based on data since 1945, covering 11 business cycles, the average is 58 months, and the longest was 120 months (1991-2001).

  2. The Federal Reserve is planning to adhere to a gradual series of interest rate hikes and balance sheet reduction over the coming year. Other central banks are planning similar actions.

  3. The Federal Reserve has lost 44 years of policy-making experience with the departures of Yellen, Fischer, Dudley, and

  4. Geopolitical risks are extensive. Problems include instability in the Middle East, Southern Asia and the United Kingdom as well as friction between the U.S. and North Korea, Iran, and China.

  5. Equity valuations are at levels that have historically been met with hefty drawdowns.

  6. Longer-term interest rates have begun rising to levels not witnessed since 2011.

  7. The yield curve continues to flatten, which has historically served as a recession warning.

  8. Inflationary pressures could cause the Fed to withdraw liquidity at a faster pace than the market is expecting.

  9. Short volatility trading strategies may impose more market pressure.

  10. Trade debate could turn into a trade war, hurting both the domestic and global economy.

Our Approach

Per Goldman Sachs, “The average bull market ‘correction’ is 13 percent over four months and takes just four months to recover.” If recent developments in the equity markets are in fact a correction, a market decline of 13% would put the S&P 500 at 2500.

However, caution and prudence suggest that we consider that recent volatility may be signaling the beginning of a larger than normal correction, possibly even a bear market. We are fully aware that equity valuations are at historically high levels, and we are growing increasingly concerned that the reduction in the Fed’s balance sheet will negatively affect money flows to the equity markets. Further, with deficits rising rapidly and the Fed reducing their Treasury bond holdings, we must consider the effect of higher interest rates on economic growth.  As discussed in,Stoking the Embers of Inflation, there exists the possibility the Fed is unknowingly creating inflation while they and most investors believe they are dampening it. Lastly, it is possible that volatility in all asset classes rises and remains elevated for a sustained period. This is not necessarily a bad thing, as it may produce new opportunities. More importantly, it serves as a reminder to ensure that the expected return on investments per unit of expected risk is commensurate with your goals.

Evaluation of the positive and negative factors that drive the markets is time consuming but a necessary effort. The negative factors listed above are not trivial. At the same time, the positive economic impulses can often outweigh the negative ones, thus providing more horsepower to drive the market higher.

Published:5/23/2018 2:00:47 PM
[Markets] Intraday Update: Dow Drops 130 Points as Too Much Bad News Lifts Dollar The Dow Jones Industrial Average was off 150 points by early afternoon, while the broader Standard & Poor’s 500 was down about half a percent. The U.S. Dollar Index is now up a remarkable 10% in just over a month. Some headlines also blame new worries about Italian politics, where the latest negotiations over the formation of a new populist government have hit another snag. Published:5/23/2018 12:59:24 PM
[Markets] GE's stock tumbles, with losses accelerating after CEO Flannery starts taking at a conference Shares of General Electric Co. tumbled 6.8% in afternoon trade Wednesday, enough to pace the Dow Jones Industrial Average's decliners, with losses accelerating after Chief Executive John Flannery spoke at the Electrical Products Group conference in Florida. The stock was down about 2.0% before Flannery spoke. When asked why the stock may have sold off after he started talking, Flannery said it may have to do with disappointment over how "deliberate" the fixes to the company have been, while investors appear to want the company to move faster, according to a transcript of the talk provided by FactSet. Published:5/23/2018 12:30:19 PM
[Markets] UPDATE: Morning Movers: JC Penney Tumbles as CEO Jumps Ship for Lowe's; Kohl's Climbs The Dow Jones Industrial Average is heading higher this morning as the U.S. and China continue to make progress on avoiding a trade war. Nasdaq Composite futures have gained 0.3%. From the looks of it, progress us being made on to avoid a full-blow trade war. Published:5/23/2018 10:27:15 AM
[Markets] Stock market set for lower open after Trump raises trade doubts U.S. stock-index futures pointed to a solidly lower open on Wednesday, as geopolitical and trade concerns continued to nag at investors, reversing optimistic sentiment toward these issues that had spurred an equity rally at the start of the week. On Tuesday, the Dow Jones Industrial Average (^DJI)dropped 178.88 points, or 0.7%, to reach 24,834.41. The S&P 500 (^GSPC)lost 0.3% to end at 2,724.44, while the Nasdaq Composite Index (^IXIC)shed 0.2% to close at 7,378.46. Published:5/23/2018 8:27:53 AM
[Markets] Global Stocks, US Futures Slammed By Quartet Of Risks

It is a "risk off" sea of red in global markets this morning, with US equity futures tumbling (Dow -191, ES -18) following European and Asian market sharply lower, as a quartet of growing risks spooks traders, among them i) the ongoing Turkish lira meltdown, ii) unexpectedly weak European PMIs which missed across the board, iii) the ongoing Italian political quagmire where president Matarella is stalling the formation of a new government, and iv) the return of geopol/trade war fears rose after Trump cast doubts over the North Korean summit and expressed dissatisfaction regarding trade talks with China.

While risk assets slumped and treasuries rose alongside the dollar as while oil dropped with most commodities, the main story overnight remains the unprecedented collapse in the Turkish lira, which started with a flash crash just as futures reopened for trading overnight, with many blaming Japanese flows suggesting domestic retail traders - i.e. Mrs Watanabe - were stopped out in TRYJPY, with the consequent spillover pushing USDJPY lower.

As European trading began, the TRY gapped even lower, dropping to a new all time low of 4.9253 after the release of a series of weak European PMIs which slammed the euro to fresh 2018 lows, while the USDJPY broke 110 and EURCHF touched 1.16.

As risk off gripped stocks, treasuries extended the overnight rally with 10Y TSY yields dropping to just above 3.00%.

In Europe, 10Y bund yields broke back under 50bps after further loss in European manufacturing momentum and the bund/BTP spread snapped wider amid growing concerns about the political situation in Italy, where President Sergio Mattarella is due to announce his decision on whether to give law professor Giuseppe Conte a chance to lead a populist government as early as Wednesday. For now, Mattarella has not yet decided whether to give the PM role to Conte according to sources.

As Mark Cudmore pointed out earlier, Matarella has no good options as far as markets are concerned: "If he blocks the coalition, it’ll leave the country in limbo and stir up popular resentment before new elections. But if he approves the coalition, then it’s even more worrying because of the government’s fiscally irresponsible proposals."

And if Italian politics wasn’t enough of a problem for euro longs, German and French PMI data missed forecasts adding to the bearish sentiment surrounding the Euro lately. This morning Europe's PMIs disappointed across the board, with momentum in France’s private sector slowed to the weakest since the start of 2017, with a lull in services offsetting a pickup in manufacturing numbers, while both German manufacturing and services PMIs missed and dropped.

  • EU Markit Manufacturing Flash PMI 55.5 vs. Exp. 56.0 (Prev. 56.2)
  • EU Markit Services Flash PMI 53.9 vs. Exp. 54.6 (Prev. 54.7)
  • German Markit Manufacturing Flash PMI (May) 56.8 vs. Exp. 57.9 (Prev. 58.1)
  • French Markit Manufacturing Flash PMI (May) 55.1 vs. Exp. 53.7 (Prev. 53.8)

Following the release of the soft French, German and EU PMI data, Bund futures pushed to session highs amid renewed concerns the ECB's tapering plans may be delayed.

As a result, European stocks tumbled as the Stoxx Europe 600 Index sank the most since March alongside U.S. equity-index futures, after US President Trump expressed doubt over the US-North Korean summit before further expressing dissatisfaction in regards to trade talks with China. European sectors are almost all in the red, with consumer staples outperforming while energy plumb the depths amid the retreat in oil prices overnight. In terms of stock specifics, Marks & Spencer (+3.5%) is higher (despite reporting a second straight decline in annual profits) amid faster than expected store closures. Standard Chartered (+1.6%) is in the green following an FT report that Barclays (-0.8%) was looking at a potential merger with rival banks, however Reuters later said the FT report was just more fake news.

Earlier in the session, Asian stocks likewise traded mostly negative after US President Trump placed doubts on the summit with North Korea and expressed dissatisfaction regarding trade talks with China. ASX 200 (-0.2%) was led lower by the energy sector following weakness in crude as Santos shares slumped about 9% after the Co. rejected the approach from Harbour Energy and disengaged from further talks. Nikkei 225 (-1.2%) underperformed as exporters suffered the brunt of a firmer currency, while Shanghai Comp. (-1.4%) and Hang Seng (-1.8%) conformed to the broad risk averse tone amid Trump discontentment with trade discussions. Furthermore, the PBoC conducted a net daily liquidity drain from the interbank market, while basic materials names were pressured by NDRC plans to reduce benchmark coal prices and after US Treasury Secretary Mnuchin clarified that steel and aluminium tariffs were not part of the recent truce and will remain in place for China.

Finally, S&P futures dropped in Asian hours and accelerated further to the downside as European cash equity markets opened, trading near session lows just above 2,700.

In FX, the euro tumbled to a six-month of 1.17 as the abovementioned PMI misses added to concern economic momentum is slowing. The yen strengthened more than 1% against the dollar in the London session as European stocks followed Asia lower, with gains boosted amid a scramble among Japanese margin traders to cut losses from a slide in the Turkish lira as hopes faded that the central bank may step in to rescue the battered currency. Risk sensitive currencies such as the Swedish krona and Norwegian krone were the worst Group-of-10 performers as the worsening geopolitical climate as well as weak European PMIs weighed on the sentiment; EUR/USD fell to a day low of 1.1699 before paring some losses. The pound slid and U.K. government bonds rose as U.K. inflation unexpectedly slowed to a 13-month low in April, denting prospects for rate increases with money markets reducing bets of a Bank of England interest-rate hike in August.

As expected, thanks to the latest move higher in the dollar, emerging markets continue to be a bloodbath, with the TRY sticking out meanwhile the Turkish central bank continues to do nothing.

In commodities, oil has extended the losses seen over night in the current risk averse environment, with downward pressure seen from both a rising USD and overnight source reports suggesting OPEC could increase production in June to offset Venezuelan and Iranian shortages. Prices were also dealt a blow by the latest API reports which posted a narrower  than expected drawdown in headline crude inventories (-1.3mln vs. Exp. -1.6mln). Elsewhere, gold is trading range-bound with participants tentative ahead of today’s FOMC minutes release, while copper was lacklustre overnight alongside the downbeat risk sentiment. Steel has fallen for the fourth consecutive session hitting one month lows as supply glut concerns continue. OPEC and non-OPEC producers are to discuss potential changes to way in which they assess oil stockpiles, according to sources.

In other overnight news, ECB's Coeure said QE will not end abruptly after September and is not worried by the slowdown in growth, confident that inflation will rise.  US President Trump said the House Ways and Means Committee are working on additional tax cuts by November and that he will propose new tax cuts before that month. 

US House passed the Dodd-Frank rollback bill which was then sent to President Trump to sign, while the US House also passed the "right to try" bill which seeks to permit terminally ill patients to try experimental drugs still in clinical trial stage.

Expected data include mortgage applications, new home sales, and PMIs. Fed is scheduled to publish its latest FOMC meeting minutes, while Lowe’s, Target, Tiffany, Synopsys, and CIBC are among companies reporting earnings

Bulletin Headline Summary from Ransquawk

  • Sentiment remains downbeat in Europe amid Trump comments on China and NK. EZ data added to woes
  • TRY at record lows, GBP at 2018 lows with CPI below forecast, CHF at month highs in risk averse markets
  • Looking forward, highlights include, US New Home Sales, DOEs, FOMC minute and a slew of speakers

Market Snapshot

  • S&P 500 futures down 0.6% to 2,708.75
  • STOXX Europe 600 down 0.9% to 393.22
  • MXAP down 0.4% to 173.52
  • MXAPJ down 0.8% to 563.63
  • Nikkei down 1.2% to 22,689.74
  • Topix down 0.7% to 1,797.31
  • Hang Seng Index down 1.8% to 30,665.64
  • Shanghai Composite down 1.4% to 3,168.96
  • Sensex down 0.4% to 34,498.59
  • Australia S&P/ASX 200 down 0.2% to 6,032.51
  • Kospi up 0.3% to 2,471.91
  • German 10Y yield fell 4.7 bps to 0.513%
  • Euro down 0.5% to $1.1718
  • Italian 10Y yield fell 6.1 bps to 2.066%
  • Spanish 10Y yield fell 1.5 bps to 1.442%
  • Brent futures down 0.6% to $79.10/bbl
  • Gold spot up 0.2% to $1,294.02
  • U.S. Dollar Index up 0.2% to 93.79

Top Overnight News from Bloomberg

  • European May Composite PMIs: France 54.5 vs 56.8 est; Germany 53.1 vs 54.6 est; Eurozone 54.1 vs 55.1 est; Markit note it’s becoming increasingly evident that underlying growth momentum has slowed
  • U.K. Apr. CPI y/y: 2.4% vs 2.5% est; Core CPI 2.1 vs 2.2% est; ONS note base effects of airfare prices dropping out of calculation
  • Italian President Mattarella is due to announce his decision as early as Wednesday on whether to give law professor Giuseppe Conte a chance to lead a populist government following a last-minute wobble over the candidate’s suitability; according to Repubblica he is taking extra time before the decision as he is critical of Finance Minister candidate Savona.
  • Trump says House panel is working on more tax cuts by November
  • President Donald Trump expressed pessimism about whether the summit with North Korea’s leader would take place, even as U.S. officials continue to press ahead with plans for a historic meeting to be held on June 12
  • Emerging-market companies and governments straining to deal with the rising cost of borrowing in dollars face increasing pressure as a record slew of bonds come due
  • Divisions among Federal Reserve officials over the yield curve and inflation will be under scrutiny on Wednesday when the U.S. central bank releases minutes of its policy meeting at the start of the month
  • Turkey’s main stock exchange in Istanbul converted its foreign-currency assets into liras, a mostly symbolic gesture meant to express confidence in the nation’s rapidly depreciating currency
  • Add skittish Japanese investors to the list of woes for Turkish assets. With Turkey’s lira breaking below the 24-yen level on Tuesday for the first time, Japanese margin traders cut their losses early Wednesday in Asia, said Takuya Kanda, general manager at Gaitame.Com Research Institute Ltd. in Tokyo
  • Italian President Sergio Mattarella is due to announce his decision as early as Wednesday on whether to give law professor Giuseppe Conte a chance to lead a populist government following a last-minute wobble over the candidate’s suitability
  • Foreign Secretary Boris Johnson set Theresa May a list of Brexit demands, saying she must “get on with” taking the U.K. out of the European Union’s trading rules as fast as possible
  • The Spanish Budget Ministry is working on a plan to reorganize the debt of the country’s regional governments to help them sell bonds in the public markets again after a six- year absence

Asian equity markets traded mostly negative as the downbeat sentiment rolled over from US where stocks retreated and DJIA pulled back from the 25k level, after US President Trump placed doubts on the summit with North Korea and expressed dissatisfaction regarding trade talks with China. ASX 200 (-0.2%) was led lower by the energy sector following weakness in crude as Santos shares slumped about 9% after the Co. rejected the approach from Harbour Energy and disengaged from further talks. Nikkei 225 (-1.2%) underperformed as exporters suffered the brunt of a firmer currency, while Shanghai Comp. (-1.4%) and Hang Seng (-1.8%) conformed to the broad risk averse tone amid Trump discontentment with trade discussions. Furthermore, the PBoC conducted a net daily liquidity drain from the interbank market, while basic materials names were pressured by NDRC plans to reduce benchmark coal prices and after US Treasury Secretary Mnuchin clarified that steel and aluminium tariffs were not part of the recent truce and will remain in place for China. Conversely, baby related stocks gained in Hong Kong as participants reacted took their first opportunity to react to the prospects of China relaxing its child policy restrictions and Standard Chartered was boosted on reports Barclays was examining a potential merger with rivals including the dual-listed lender. Finally, 10yr JGBs are marginally higher amid gains in T-notes and a broad risk-averse tone, while the BoJ were also present in the market for JPY 840bln of JGBs in maturities spread across the curve.

Top Asian News

  • Lira Tumbles to Record as Lack of Central Bank Action Fuels Rout
  • Bank Indonesia Conducting Dual-Intervention as Rupiah Weakens
  • Fallen Singapore High-Flyer Gets Court Protection to Reorganize

European equities are firmly in the red as the downbeat sentiment rolled over from Asia overnight and Wall St. yesterday. Markets took a risk averse stance after US President Trump expressed doubt over the US-North Korean summit before further  expressing dissatisfaction in regards to trade talks with China. European sectors are almost all in the red, with consumer staples outperforming while energy plumb the depths amid the retreat in oil prices overnight. In terms of stock specifics, Marks & Spencer (+3.5%) is higher (despite reporting a second straight decline in annual profits) amid faster than expected store closures. Finally, Standard Chartered (+1.6%) is in the green following an FT report that Barclays (-0.8%) was looking at a potential merger with rival banks, however source reports denied this news later

Top European News

  • Politics Engulf Euro Junk Bond Market With Big Italy Exposure
  • StanChart Says Focus Is on Strategy, Denting Merger Speculation
  • Boris Johnson Warns May to ‘Get on With It’ and Deliver Brexit
  • Thyssenkrupp’s CEO Under Fire as Activist Elliott Buys Stake
  • Bond Investors Burned by Sanctions Creep Back Into Russian Debt

In FX, the JPY has been a beneficiary of the broad risk aversion which subsequently took USD/JPY below 111.00 during Asia-Pacific trade, thereafter the pair continued to fall victim to selling pressure and took out the widely-watched 200DMA at 110.21 and psychological 110.00 (which holds USD 2bln in option expiries due to roll-off at the NY cut) before eventually taking out Fib support at 109.78. The potential damage for the USD from the JPY has been somewhat offset by the softer EUR (DXY +0.25%) with the shared currency dealt a blow by this morning’s PMI releases which thus far have painted a dreary picture for the Eurozone. IFR highlight that if we get a break of the 1.1700 level to the downside, large stops and gamma below this level could see 1.1500 on the cards. The EUR initially also lost ground to the GBP with the EUR/GBP cross around 0.8750 before the cross was dealt some reprieve by softer than expected UK inflation figures (Y/Y CPI 2.4% vs. Exp. 2.5%) which saw GBP/USD briefly slip below 1.3350. Elsewhere, commodity-linked currencies have been subdued as oil prices retreated from multi-year highs with AUD also dampened after weak construction data, while NZD has seen a bout of pressure after the RBNZ published an article on unconventional monetary policy in which it stated it has significant room for easing in a conventional manner with the OCR at 1.75%. The losses in NZD were then instantly pared given the context of the comments which were made as an implicit argument against adopting unconventional measures, before the broad risk averse sentiment pressured currencies across the FX space and saw NZD/USD test 0.6900 to the downside. Elsewhere, TRY experienced a flash crash which saw the currency drop over 2.5% against the greenback and extend on its recent trend of record lows approaching into next month’s election, in which President Erdogan has vowed to take greater control of the central bank if he wins, although the currency has since pared some of the losses amid a lack of immediate fresh news catalyst behind the latest bout of selling

In commodities, oil extended the losses seen over night in the current risk averse environment, with downward pressure seen from both a rising USD and overnight source reports suggesting OPEC could increase production in June to offset Venezuelan and Iranian shortages. Prices were also dealt a blow by the latest API reports which posted a narrower than expected drawdown in headline crude inventories (-1.3mln vs. Exp. -1.6mln). Elsewhere, gold is trading range-bound with participants tentative ahead of today’s FOMC minutes release, while copper was lacklustre overnight alongside the downbeat risk sentiment. Steel has fallen for the fourth consecutive session hitting one month lows as supply glut concerns continue. OPEC and non-OPEC producers are to discuss potential changes to way in which they assess oil stockpiles, according to sources.

Looking at the day ahead, the highlight is the May PMIs across the globe, which includes the manufacturing, services and composite prints in Europe and the US. Away from that, Q1 employment indicators in France and April’s  CPI/RPI/PPI in the UK is due in the morning (CPI 0.5% mom; core CPI 2.2% yoy expected), while April new home sales in the US is due in the afternoon. The May consumer confidence print for the Euro area is also due in the afternoon, while in the evening the latest FOMC meeting minutes will be released. Also worth noting is the House Foreign Affairs Committee holding a hearing to question Secretary of State Mike Pompeo regarding Trump's foreign policy priorities, and the European Commission publishing country specific recommendations for economic policy.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -2.7%
  • 9:45am: Markit US Manufacturing PMI, est. 56.5, prior 56.5; US Services PMI, est. 55, prior 54.6
  • 10am: New Home Sales, est. 679,500, prior 694,000; New Home Sales MoM, est. -2.09%, prior 4.0%
  • 2pm: FOMC Meeting Minutes
  • 2:15pm: Fed’s Kashkari Speaks in Moderated Q&A in North Dakota

DB's Jim reid concludes the overnight wrap

How time flies. Yesterday was the 5th anniversary of the start of the taper tantrum as Mr Bernanke hinted at an upcoming reduction in stimulus and created a few weeks of mini-panic. Meanwhile we’re only a few months away from the 10th anniversary of the Lehman Brothers collapse and its 6 and half years ago this week that Italy was on the brink with 10 years yields at over 7.25% and around +500bp over Bunds. Makes one feel very old.

Italy continues to grab the headlines even if yesterday was a much calmer day market wise 24 hours after the highest yields since ECB QE started. The main story was confusion surrounding who will be Italy’s next Premier, as La Repubblica reported that President Mattarella still needs time to consider the proposed candidate Giuseppe Conte  while the paper also noted that endorsement from the two populist parties for the Florence University law professor may no longer be certain and that the 5SM Party leader Di Maio may be back in running for the Premier. This morning, Bloomberg noted the President will decide on a PM as soon as today.

In government bonds yesterday, peripherals bonds outperformed with yields on Italian 10y BTPs down for the first time in three days (-5.3bp) while treasuries were unchanged and Bunds partly reversed its gains on Monday (+3.7bp). Meanwhile, 10y Gilts also rose 4.7bp in part as BOE Governor Carney told Parliament that “it made sense to take a bit of time” to assess the economic outlook in light of the soft advance GDP reading for 1Q, while noting that “it's more likely to have been temporary and idiosyncratic factors that slowed the economy”.

Over in equities, US bourses closed modestly lower following President Trump’s comments on trade and North Korea. The S&P initially traded +0.34% higher on news that China will cut import tax on passenger cars from 25% to 15%, but later reversed gains to close -0.31% as Trump noted that trade talks with China “were a start” and that he was “not really” pleased with the recent results so far. Elsewhere on next month’s scheduled summit with North Korea, he noted “there’s…a very substantial chance, it won’t work out” but added that this is “OK” and “that doesn’t mean it won’t work out over a period of time”. Meanwhile in Europe, the Stoxx 600 (+0.27%), FTSE (+0.23%) and Italy’s FTSE MIB (+0.54%) were all modestly higher while the DAX (+0.71%) led the gains as it resumed trading following Monday’s holiday.

As for today when the market isn’t fixating on Italy or North Korea the big focus will be on the flash May PMIs around the globe and the Fed minutes tonight. Overnight we’ve already had the manufacturing reading out of Japan which came in at 52.5 compared to 53.8 in April. In a couple of hours’ time it’ll be Europe’s turn and the current market consensus is for no change in the composite reading for the Euro area at 55.1. Indeed the manufacturing reading is expected to fall a very modest 0.1pts to 56.1 – although this would make it the fifth consecutive monthly decline if so and also the lowest reading since February last year - while the services reading is expected to stay at 54.7. As always with the flash print we’ll also get the data for Germany and France. Germany’s manufacturing reading is expected to also fall very modestly, by 0.2pts to 57.9 while the data in France is expected to fall a marginal 0.1pts to 53.7. Later this afternoon we’ll get the flash PMI data for the US where the manufacturing reading is expected to stay steady mom at 56.5, and the services reading nudge up 0.4pts to 55.0. So all that to look forward too.

This morning in Asia, markets are trading lower with the Nikkei (-1.08%), Hang Seng (-1.01%) and Shanghai Comp. (-0.77%) all down while the Kospi is modestly higher (+0.36%), In the US, President Trump told Reuters he will  propose “new tax cuts prior to November”, when the mid-term elections are due but did not provide more details. Elsewhere, the Lower House has approved a bill (258 to 159 vote) to give regulatory and capital relief to smaller lenders by raising the asset threshold from $50bn to $250bn before lenders face stricter oversight from the Federal Reserve.

Now recapping other markets from yesterday. The US dollar index fell for the first time in seven days (-0.07%), while the Euro dipped -0.10% and Sterling nudged up 0.04%. Elsewhere, the Turkish Lira closed -2.04% vs. the USD yesterday after Fitch noted it was concerned about the erosion of its central bank’s independence. This morning it is down a further c2% to mark another fresh record low. In commodities, WTI oil fluctuated before closing -0.21% lower while precious metals were little changed (Gold -0.11%; Silver +0.21%).

Finally we turn to some Brexit headlines. The BOE Governor Carney has told Parliament that the UK economy is up to 2ppt worse off than they would have been without Brexit, which is equivalent to £900 worse off for each British household, to which Foreign Secretary Johnson quickly refuted “it’s absolutely not the case” but did not elaborate more. Meanwhile Chancellor Hammond noted “…the future trajectory of household income…will depend in part on the quality of the deal that we negotiate as we exit the EU…” Elsewhere, the BOE’s Vlieghe seemed slightly hawkish as he sees one or two rate hikes a year for the next three years, in part as a tightening labour market is supporting wage growth.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the May Richmond Fed manufacturing index rebounded 19pts mom to an above consensus print of 16 (vs. 10 expected). In the details, the shipments and new orders indices rebounded from even weaker April readings and there were more evidence of pricing pressure with the wages component at the highest since 1997 while the prices paid index was the highest in 6 years. These broad trends on pricing pressure were also similar to readings from the NY and Philly surveys. Meanwhile in the UK, the CBI’s industrial trends total order book index fell 7pts mom to -3 in May, marking the softest reading since November 2016. Elsewhere, the April public sector net borrowing ex-banking groups was slightly lower than expected at £7.8bln (vs. £8.5bln).

Looking at the day ahead, the highlight is the May PMIs across the globe, which includes the manufacturing, services and composite prints in Europe and the US. Away from that, Q1 employment indicators in France and April’s  CPI/RPI/PPI in the UK is due in the morning (CPI 0.5% mom; core CPI 2.2% yoy expected), while April new home sales in the US is due in the afternoon. The May consumer confidence print for the Euro area is also due in the afternoon, while in the evening the latest FOMC meeting minutes will be released. Also worth noting is the House Foreign Affairs Committee holding a hearing to question Secretary of State Mike Pompeo regarding Trump's foreign policy priorities, and the European Commission publishing country specific recommendations for economic policy.

Published:5/23/2018 6:26:47 AM
[Markets] U.S. stocks set up for more losses as geopolitical worries persist U.S. stock futures fell on Wednesday as geopolitical and trade concerns continued to nag at investors, taking the wind out of a rally seen at the start of the week. Earnings from Target Corp. and then later the release of minutes from the latest Federal Open Market Committee meeting are among the highlights of the session ahead. On Wednesday, the Dow Jones Industrial Average (^DJI)dropped 178.88 points, or 0.7%, to reach 24,834.41. Published:5/23/2018 2:24:50 AM
[Markets] The Five Most Important Market Indicators

Authored by Alex Kimini via Safehaven.com,

There's a common human tendency to try and understand complex, multi-faceted issues in simple or even simplistic terms. That's why something like the centuries-old Groundhog Day Weather Indicator still has a large following even in this day and age!

Just like weather systems, financial markets are complex and difficult to predict. That's why some indicators like the “First Five Days” indicator that uses the behavior of the market during the first five days of the year to divine the trajectory for the rest of the year are not likely to work.

While not trying to condemn mainstream indicators like P/E, P/S, ROE and others, going beyond what everybody can easily discern can help you gain unique insights into the market. Here are five such indicators that you could be ignoring:

#1 Advance-Decline Line Indicator

Most traders rely on data from stock indexes like the SPX, Dow Jones and Nasdaq Composite to understand how the markets are moving. But these are weighted indexes that are more representative of stocks with large market caps than those with smaller ones.

What if we could have an indicator that gives investors a feel of how many stocks gained or lost regardless of their sizes? That's exactly what the Advance-Decline Line indicator does. The indicator counts the number of stocks that go up and subtracts them from those that go down on any day to arrive at a net advance- decline value for the day.

Many days of these data plotted on a chart can give a nice visual clue of how the market is moving. A rising advance-decline line means most stocks are following the leaders higher which is a positive sign. A falling advance-decline line means most stocks are moving in the opposite direction to the leaders--a trend that is not sustainable.

#2 Small-Cap/Large-Cap Ratio

The small cap/large cap ratio is closely related to the advance-decline line. As the name implies, the ratio compares the number of small-cap stocks (usually in the Russell 2000 index) with large-cap ones in the S&P 500.

A rising small-cap/large-cap ratio means the market is more aggressive and is open to taking more risks, while a falling one means the market is cautious and seeking shelter in blue chips.

#3 Junk Bond Ratio

Junk bonds are credit instruments that are issued by heavily indebted companies. Because of this reason, junk bonds are classified as some of the riskiest investments in financial markets due to the danger of default by the issuing companies.

Investor appetite for junk bonds can serve as a useful indicator of how much risk the markets are willing to take. Specifically, a high ratio of junk bonds to higher quality investment grade bonds tells us that investors are in an aggressive mood. On the other hand, a low ratio can spell trouble for stock markets because it means investors are less interested in taking excessive risks.

#4 Copper/Gold Ratio

The copper/gold ratio is a spin on the more common cash reserve and input prices metrics. It's based on the simple fact that copper is one of the most important industrial metals, while gold is the most prized store of value and hedging tool.

A rising copper/gold ratio means that the copper demand is high and investors are less interested in hedging--a positive sign. Conversely, a falling one says investors are less confident about the economy and are looking to protect their wealth--a bad sign for the market.

#5 Emerging Markets vs. U.S.

Emerging markets are deemed to be more speculative than the more mature U.S. stock market.

A rising emerging markets/U.S. ratio means that investors are willing to take more risk, which bodes well for global markets and the U.S. A falling one usually portends less risk appetite and a more negative mood, which sometimes spills over to global markets and the U.S.

Published:5/22/2018 7:53:34 PM
[Markets] After the Bell: Dow Drops 179 Points, North Korea Replaces China as Market Worry The S&P 500 fell 0.3% to 2724.44, while the Dow Jones Industrial Average dropped 178.88 points, or 0.7%, to 24,834.41. In a press conference with South Korea's President Moon, President Trump suggested that the summit with Kim Jong Un could be on hold or at least delayed," writes Todd Market Forecast's Stephen Todd. Published:5/22/2018 5:55:25 PM
[Markets] An Unexpected Warning From Goldman Sachs: "Something Is Not Quite Right"

It was just over 9 years ago today when we wrote  "The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans" in which we explained how as a result of the growing influence of HFT, quants and central banks, the market itself was breaking. We also highlighted what the culmination of the market's "breakage" could look like:

liquidity disruptions could and will lead to unexpected market aberrations, such as exorbitant bid/ask margins, inability to unwind large block positions, and last but not least, explosive volatility: in essence a recreation of the market conditions approximating the days of August 2007, and the days post the Lehman collapse...

We even laid out some possible catalysts for a possible market crash: "continued deleveraging in quant funds, significant pre-market volatility swings as quants rebalance their end of day positions, increasing program trading on decreasing relative overall trading volumes."

We saw all of the above elements briefly come together when on February 5 the market finally did break in one spam of exploding volatility, as its topology was torn apart by various, disparate elements, resulting in virtually all of the above materializing, if only for a short time, and blowing up the VIX, which soared by the most on record, rising from the lower teens to above 50 in the span of hours, while bankrupting countless vol sellers.

Since then, the same elements that coalesced in 2017 to pressure and keep the VIX at its lowest level in history  reemerged, and the "selling of volatility" once again reappeared as a dominant trading strategy, but not before Goldman Sachs wrote a report in March in which it echoed everything that we warned about over 9 years ago, and which increasingly many have said in the past decade, namely that the advent of algo trading and HFTs have collapsed market liquidity to the point where the market itself has become precariously brittle, prompting increasingly frequent flash crashes, and leading Goldman to conclude that, when it comes to market risk factors, "liquidity is the new  leverage" in a world in which HFTs are the marginal price setters:

One conspicuous consequence of post-crisis evolution is that trading volumes in many markets are now dominated by high-frequency traders (HFTs). While bid-ask spreads and other indicators of trading liquidity appear to indicate liquidity has improved in markets where HFT has grown, the quality of this liquidity has not yet been stress-tested by recession. The recent experience of the “VIX spike” suggests there is good reason to worry about how well liquidity will be provided during episodes of market distress, and this is only the latest example of a “flash crash”. Regulators and researchers increasingly warn that HFT strategies can contribute to breakdowns in market quality during periods of distress.

Ominously, Goldman repeated our conclusion from 2009, almost verbatim, and said that "along with the uncomfortably high number of flash crashes in most major markets, we think “markets themselves” belong on the short list of late-cycle risks to which markets are potentially complacent."

* * *

Fast forward to today when Goldman strategist Charles Himmelberg is back with a new report, which picks up where his last piece left off, defining "Liquidity as the New Leverage", and asking - rhetorically - "Will Machines Amplify the Next Downturn?"

The answer, of course, is "yes" as we have warned non-stop for almost 10 years now, but it is always gratifying to hear some non-tinfoil hat-wearing Goldmanite, i.e. FDIC-insured recipient of taxpayer bailouts, confirm it and that's just what Himmelberg has done, warning that "the rising frequency of “flash crashes” across many major markets may be an important early warning sign that something is not quite right with the current state of trading liquidity."

For those unaware, if and when Goldman says "something is not quite right", it's time to quietly exit, stage left.

These warning signs plus the rapid growth of high-frequency trading (HFT) and its near-total dominance in many of the largest and most widely traded markets prompt us to more carefully consider the possibility (not necessarily the probability) that the long expansion accompanied by relatively low market volatility may have helped disguise an under-appreciated rise in “market fragility.”

To be sure, the topic of rising market fragility is anything but new to regular readers, and we have been covering it extensively over the past two years, although Goldman's growing concern by what was painfully obvious to many traders gives hope that one day the Fed too may be able to grasp just how its actions have broken the market, although that realization will sadly take place just moments before a historic market-wide flash crash send the S&P plummeting by the most ever, resulting in a market that is indefinitely halted.

But how do we get there?

First, it is time for traders, economists and policymakers to realize that, as Goldman recently "discovered", liquidity and not leverage, is now a systemic risk;  ironically, in a world in which traders think there is copious liquidity across all asset classes, the reality is that there is virtually no true providers of liquidity when one needs it. Here is Goldman, which confirms that "Liquidity poses a potential systemic risk."

While investors may be settling for ever smaller premia in exchange for liquidity risk, we see far less scope for systemic risks arising from the post-crisis search for yield.... by flagging the risk that a post-crisis erosion of trading liquidity may be contributing to an under-appreciated rise in “market fragility."

The past 10 years have seen fairly dramatic changes in the regulatory environment, industry composition, and the trading technologies by which liquidity is supplied to markets. The resulting market evolution is one in which algorithms are replacing people, and speed is replacing capital. Exhibits 1 and 2 show how the volume share of algorithmic traders has grown by asset class and across products in futures markets.

But why is Goldman confident that the new market structure is prone to (terminally) breaking? For the simple reason that nobody has ever tested the market's anti-fragility, to borrow a term from Taleb, and the only way such a test can take place is during a violent market crash, one in which central banks do not step in and bail out markets. However, with central bankers all-in asset reflation, that is unlikely. Which leads us to the following point from Goldman:

Is this new market structure more prone to market fragility? It is hard to say, since it has not yet been tested by a recession or major market correction (and this alone is a risk worth flagging). But the rising incidence of “flash crashes” provides little cause for comfort (Exhibit 3). The fact that even some of the biggest, most heavily traded markets appear vulnerable to flash crashes provides plenty of ex-ante reason to worry that these small cracks in the foundation may betray deeper structural issues that have simply not yet been exposed.

Of course, the best, most recent example of such a “small crack”, and the catalyst for Goldman's renewed focus on this question, was the VIX spike, i.e. volocaust, on February 5, 2018, when the VIX had its largest one-day move in its history. There was nothing in the fundamental data to explain a jump of this magnitude. Instead, the VIX spike was clearly a reflection of technical trading dynamics. Goldman here notes that while a number of factors may have contributed to the surprising magnitude of this spike, most importantly the design of certain exchange-traded vol products, it was pretty clearly amplified by poor market liquidity.

While many of the causes leading to the VIX spike were unique to the VIX, our liquidity concerns are driven by developments that could be common to virtually all liquid asset markets.

At this point Goldman, which is clearly growing increasingly worried about an imminent, wholesale market collapse resulting from a break in market structure itself, lays out a grand unified theory why the post-crisis frequency of flash crashes could be symptomatic of a broader rise in "trading fragility", and it all goes back to our old friends, the parasitic frontrunners of orderflow better known as high frequency traders or HFTs, who are there to generously provide liquidity when nobody needs it, and shut down, draining all market liquidity, every time it is needed. Goldman's description is far more poetic:

HFTs know the price of everything and the value of nothing. One theory that has been proposed for why market fragility could be higher today is that because HFTs supply liquidity without taking into account fundamental information, they are forced to withdraw liquidity during periods of market stress to avoid being adversely selected.

Despite this disadvantage under stress conditions, their informational advantage over human trades under normal conditions has allowed them to grow to become the dominant liquidity providers in all of the largest, most liquid markets.

Some more details:

Adverse selection is the enemy of liquidity supply. When shocks of unknown origin cause sudden price declines, HFTs may have reason to assume that the shock is being driven by fundamental news (e.g., if the price decline follows a complex macro surprise or dramatic policy announcement). Under these circumstances, HFTs are at higher risk of being adversely selected by more fundamentally informed traders, so their optimal response is to withdraw liquidity by widening their quotes or by withdrawing them altogether. As selling continues, a feedback loop can arise where the resulting lack of liquidity causes bigger price declines, which then causes HFTs to supply even less liquidity, in some case even switching to strategies that aggressively demand liquidity rather than supplying it.

The big problem is what happens when the "market", which in the past 9 years has been centrally-planned by central banks and hardly if ever "allowed" to drop, is pushed into a mode of forced price discovery and where HFTs no longer provide the much needed liquidity. That is when we will see just how broken and fragile the quote-unquote market has become. It is also when we believe we will see the first marketwide, and indefinite halt of all trading.

The research of Raman et al. and many others suggests that “flash crashes” may reflect such feedback loops. On the historical evidence thus far, the rising incidence of “flash crashes” (including the VIX spike) appears to represent no more than a modest (if occasionally expensive) source of execution risk. We worry this may simply be good luck—the fundamental backdrop has been relatively benign. Under different circumstances, namely scenarios where markets are trying to absorb complex headlines that may indicate a major decline in the fundamental outlook, we worry that such market conditions could discourage the supply of algorithmic liquidity for a more sustained period. Even if this period were to last just one day, that might be enough to fuel a crash on the order of “Black Monday” (October 19, 1987), when the Dow Jones fell over 22% in one day. Such a crash would give buy-side investors time enough to (falsely) infer from falling prices that there had been a shift in market sentiment, in which case a flash crash “bounce” might fail to materialize. Feedback loops between price declines and funding liquidity might further complicate the market’s ability to bounce back.

It gets worse, because all that bad stuff you've read about HFT on this website over the years, well guess what? It was correct. And here is Goldman with the validation:

Indeed, even more to the point, a recent report on the behavior of HFTs in the Eurex Bund Futures market around high-impact macroeconomic news announcements suggests precisely this—that HFTs systematically withdraw liquidity when “complex” (non-routine) information is known to be in the market. Exhibit 4 is borrowed from this report and shows how HFTs behave during the 60-minute interval around major news events. The left chart shows that the overall depth in the market declines sharply around the announcement time (around 70% on average). The right chart displays the participation rate by HFTs, which declines from around 50% 10 minutes before the announcement to 33% at the time of release. This is also a drop of around 70%, suggesting that the drop in market depth is due mainly to the retreat of HFTs.

This HFT reluctance to supply liquidity shown in Exhibit 4 arguably shows the logic of adverse selection at work. When complex fundamental information enters the market, human traders gain the information advantage, and HFTs pull back. This insight cautions against taking comfort from the benign history of flash crashes thus far. Exhibit 4 also shows that, once the fundamental uncertainty clears, HFTs quickly resume supplying liquidity. We worry, however, about a future scenario where the fundamental uncertainty does not immediately clear. These scenarios would not necessarily be standard macro announcements, but rather complex “news shocks” (like unconventional monetary actions) which are not easily quantified by algorithms.

In this world of adverse selection - which as we predicted in April 2009 is due to the pervasive influence of HFTs, quants and central banks, Goldman unveils the most dramatic warning about just how broken the market has become:

"as machines have replaced people, and speed has replaced capital, the ability of the market’s liquidity providers to process complex information may lead to surprisingly large drops in liquidity when the next crisis hits."

Which brings us to Goldman's conclusion, one which can have been taken from any one of our hundreds of articles explaining how HFTs, and central banks, have broken the market, and it begins as follows: "Future flash crashes may not end well."

While we focus on one particular theory for why “trading fragility” may be rising (namely, adverse selection), we see other risks that are in some sense more obvious. For example, the substitution of speed for capital means that ever larger amounts of trading volume are backed by too-thin capital cushions; liquidity supply could collapse on a large  operational loss. Alternatively, if a flash crash were to occur against a more negative macro backdrop, it could inadvertently reinforce the market’s interpretation of “bad news.” Given the rapid evolution of the market, there are many other possible reasons to worry about a rise in trading fragility, not least of which are the “unknown unknowns.”

And here is Himmelberg with what he thinks are the implications for investors:

We see at least two potential implications for investors. First, investors should not be lulled into a false sense of complacency by the degree of macroeconomic stability that has characterized this recovery. As we have previously argued, this “Greater Moderation” in the volatility of growth and core inflation potentially—hence the general feeling that we are on a slower but more predictable growth path—may partly explain why our estimates of the risk premia for bonds and equities have fallen to such low levels in this expansion. But this may overlook the risk that “markets themselves” are a rising source of risk.

Second, the quality of trading liquidity for even the biggest, most heavily-traded markets should not be taken for granted. Tails may be fat, so investors should carefully consider the “vol of vol” when hedging their market risk.

Translation: run for the hills, because while Goldman may have finally grasped what we have said all along about how broken the market is at the micro level, the next "revelation" will be how HFTs have worked in concert with central banks to create the world's most broken capital markets. And the punchline: central banks are now starting to withdraw liquidity, and while still positive for a few more months, starting some time in mid-2018, the central bank net liquidity injection will turn negative for the first time since the crisis.

At that moment, when the market has a sudden, collective "ligthbulb" moment and realizes that the only source of equity upside is now actively deleveraging risk assets, the selling will begin - selling which will be joined by HFTs - but by then it will be too late to sell.

* * *

Finally, for readers who want to read more on just how broken the market truly is, here are some of the most notable warnings from the likes of Bank of America's Benjamin Bowler...

... who explicitly noted the market's increasing fragility on numerous occasions...

... and how the Fed rushed to bail it out on every single occasion...

... as well as Fasanara Capital...

... Matt King...

... Hans Lorenzen...

... Charlie McElligott, Marko Kolanovic...

... Aleksandar Kocic, who first defined the market's current "metastable" state...

... and Artemis Capital,  which too has been warning about the market's growing instability for years.

* * *

We will leave with what we said back in April 2009, as nothing has changed since then:

"what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades....

the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility. Furthermore, high convexity names such as double and triple negative ETFs, which are massively disbalanced with regard to underlying values after recent trading patterns."

February 5 was just the preview of the main event.

Published:5/22/2018 4:52:31 PM
[Markets] Intraday Update: Dow Drops 43 Points as Good News Not Good Enough What does Dow Jones Industrial Average and the rest of the stock market need to do to get some love around here? China just cut tariffs on U.S. vehicles and car parts. The Richmond Federal Reserve became ... Published:5/22/2018 12:21:32 PM
[Markets] Dow industrials turn negative and slip below 25,000 level Dow industrials turn negative and slip below 25,000 level Published:5/22/2018 9:52:47 AM
[Markets] Morning Movers: JC Penney Tumbles as CEO Jumps Ship for Lowe's; Kohl's Climbs The Dow Jones Industrial Average is heading higher this morning as the U.S. and China continue to make progress on avoiding a trade war. Nasdaq Composite futures have gained 0.3%. From the looks of it, progress us being made on to avoid a full-blow trade war. Published:5/22/2018 9:52:47 AM
[World] Need to Know: Meet ‘green gold’ — and the stock for betting on it The Dow is working on getting comfortable back above the 25,000 mark, as lots of people scratch their heads over North Korea, Iran and the Cavs-Celtics series. In these topsy-turvy times, at least we have “green gold.”
Published:5/22/2018 7:50:49 AM
[Markets] US Futures Jump Amid Easing China Trade War; Dollar, Italian Yields Slide

With much of Europe coming back from Whit Monday holiday, the much more liquid market focused on the latest news in the easing US-China trade war and this morning's announcement by Beijing to cut import duties on autos to 15%, with the resulting risk-on mood sending U.S. equity futures back to yesterday’s session highs, while Asian and European stocks were mixed.

It wasn't just China's auto import tariffs however: as the WSJ reports, US and China also reached a broad outline for settling the lingering ZTE issue, in which the export ban could be removed, while the company would have to make board and management changes. Furthermore, other source reports noted that the side were nearing an agreement that would remove a ban on ZTE and would include China pledge to remove tariffs on, as well as increase imports of
US agricultural products.

Yet despite the good trade news, broader European stocks were mixed, and turned modestly negative, driven by declines in the health care sector and utilities after both were downgraded by Deutsche Bank, pushing the Stoxx Europe 600 Index down 0.1% to session low, erasing earlier gains with 11 of 19 industry groups declining. Earlier, Deutsche Bank downgraded Europe's energy sector on risks in oil price development in coming months, and also cut utility stocks as further upside to sector’s price relative implied by PMI forecast only marginal. Meanwhile, the European bank sector outperformed as the bund/BTP spread snapped 11bps tighter (see below), while European automakers gapped higher on China's tariff cut.

Earlier, Asian stocks traded mostly subdued amid holiday closures and a lack of fresh catalysts, which saw sentiment wane from the prior day’s trade-related gains that boosted the DJIA above the 25k level for the first time since March. Australia's ASX 200 weakened -0.7% amid broad losses across all sectors and with telecoms underperforming on continued woes for Telstra shares, while Healthscope was the worst performer after it flagged impairment charges. Nikkei 225 -0.2% traded indecisive as exporters suffered from a firmer currency and with Sony shares pressured after its 3-year strategy and targets was met with disappointment, while the unchanged Shanghai Composite was subdued following a continued net neutral liquidity position by the PBoC and with market closures in both Hong Kong and South
Korea adding to the humdrum tone, although baby-related stocks were underpinned on prospects China could relax its child-policy restrictions.

After hitting a 5 month high on Monday, the USD continued to weaken across the G-10 space forming a distorted head and shoulders topping formation, even as rangebound 10Y yields rose to session highs of 3.078%.

The second consecutive slide in the USD, at least for now, meant some breathing space for Emerging Markets, which have been crushed over the past month, while the month-long slide in EM local-currency government bonds has widened the yield spread they offer over their developed-market counterparts: "What we see is attractive real yields in the emerging markets, coupled with a good underlying fundamental growth," said Richard Lawrence, SVP at Brandywine Global. However, it remains to be seen if the recent dollar weakness will translate into an EM buying spree. For now, the EM FX screen is mostly green with the exception of Turkey (thanks Mark Cudmore).

Meanwhile, in Developed Markets, the euro rose a second day as shorts trimmed exposure amid a rebound in Italian bonds while the Dollar Index retreated after it failed to rise Monday above a strong technical resistance level; EURUSD gained as much as 0.3% to touch 1.1830 high, versus 1.1757 day low, although for now it remains in sell-the-rally mode as sizable offers extend all way to 1.1850, a Europe-based trader told Bloomberg.

The pound looked to erase its Monday drop as comments from Bank of England officials during a testimony in front of lawmakers struck a more hawkish tone than investors were positioned for. More notably, Bloomberg notes that as soon as London stepped in, there was a familiar leveraged bid for the dollar that sent its major peers to fresh day lows. However, the market reversed course as Italian bonds rallied after yields touched the highest in more than a year on Monday.

Elsewhere in global macro, GBPUSD rose as much as 0.5% to touch 1.3492 day high, after BOE’s Gertjan Vlieghe, a dove, said he sees one or two rate hikes a year for the next three amid evidence that a tight labor market is boosting wage growth. At the same time, the USDJPY steadied around 111.00 vs day-low of 110.84 as Treasury yields rose; pair snapped its 6-day advance despite comments from BOJ Governor Kuroda the central bank won’t exit its current monetary policy before 2% inflation is reached. In Africa, the USDZAR was heavily offered as EMFX remains highly reactive to USD moves.

In the biggest news out of Europe, one day after a plunge in Italian bonds following the formation of the new 5-star/League government, BTPs bounced, retracing some of Monday’s panicky leg wider versus Germany as markets became somewhat more orderly as Germans returned from holiday. Italy 10-year yield dropped as much as 10bps, after touching 2.40% on Monday, while BTP yields were lower across the curve by 4-8bps.

Italy's gain was Germany's and America's loss as Bunds were under sharp pressure, while also dragging Treasuries and gilts lower, as EGB spreads erased most of the latest spillover move; Bund spreads vs Spain and France also tightened, by 7bps and 3bps, respectively. Monday’s move was the first clear sign of spillover impacting these spreads and has promptly retracted.

Still as Bloomberg's Heather Burke notes, "Italy's troubles aren't all over: credit default swaps have blown out and small caps may continue to face greater pressure. Plus, investors are worried that mini-BOTs could succeed at addressing Italy's slow growth, undermining the euro project."

Commodity prices are broadly higher in overnight trade in which crude extended on gains boosted by a softer greenback with geopolitics also remaining at the fore after US Secretary of State Pompeo warned of the severity for Iran sanctions. The US also imposed sanctions on Venezuela following the election last weekend, stirring further fears over supply disruption in the region. Elsewhere, gold prices are buoyed as the dollar retreats from YTD highs. Elsewhere, London copper rise for the second day with prices underpinned as the US-Sino trade war fears fade (for now).

In other trade/geopol overnight news, US Trade Representative Lighthizer said on Monday that he still sees the need of real work to achieve changes in China and noted that intellectual property issues are more important than the trade gap. The  US Commerce Department announced it will impose anti-dumping rate of 200% and countervailing rate of 256% on some cold-rolled steel from Vietnam produced using substrate originating from China.  Japan and Russia notified the WTO of potential tariff retaliation for US President Trump's steel and aluminium tariffs. Japan reportedly may impose USD 440mln and Russia may impose USD 538mln in tariffs on US goods.

Italy's M5S leader Di Maio said that Conte will be premier of the government. In related news, Italy's President  Mattarella reportedly expressed concerns with the 5SM/League fiscal plan and is said to need time to mull the PM choice. Furthermore, Mattarella was reported to demand leaders of Italy’s Lower and Upper House to attend a meeting on Tuesday. There were reports that President Mattarella could pick the new Premier on Wednesday or Thursday.

In overnight central banking news:

  • BoJ Governor Kuroda said will take into consideration side effects including impact on financial institutions when guiding monetary policy currently, while he added that he is not seeing conditions rife to study timing of exit and that the BoJ will not exit easy policy prior to reaching 2% price target.
  • BoE's Vlieghe (Neutral) said his central projection will require one or two quarter point rate increases per year over the three-year forecast period. This is a more aggressive path than the BoE's conditioning path of rates derived from yields in the May QIR which assumes just under three quarter point rate increases over the three-year forecast period.
  • BoE's Carney (Neutral) reiterated that Q1 slowdown is likely due to idiosyncratic and temporary factors, but it is right to with for more data.
  • ECB's Liikanen (Neutral) has expectation of rates to stay low for an extended period after QE ends.
  • Fed's Kashkari (non-voter, dove) said wage growth has not picked up and that there may still be slack in the jobs market, while he also suggested the need to allow the economy to continue strengthening.
  • ECB is purchasing the same amount of Italian government bonds under QE programme, as according to traders at primary dealers.

There is little on the calendar today, with the only expected data the Richmond Fed Manufacturing Survey at 10am ET. AutoZone, Eaton Vance, TJX, and Intuit are among companies reporting earnings. Attention will be focused on the ongoing trade talks, the South Korean president's visit to D.C., and oil's continued climb amid a new wave of U.S. sanctions on Venezuela.

Bulletin Healdine Summary from RanSquawk

  • China confirmed they are to cut car import tariffs to 15% (Prev. 25%) and car part import duty to 6%, which will take effect on July 1st
  • TRY suffered an abrupt reversal to plumb fresh record lows against the dollar
  • Looking ahead, highlights include UK/EU trade talks and US 2yr Note Auction

Market Snapshot

  • S&P 500 futures up 0.2% to 2,737.75
  • Brent futures up 0.4% to $79.50/bbl
  • Gold spot up 0.1% to $1,293.91
  • U.S. Dollar Index down 0.3% to 93.38
  • STOXX Europe 600 up 0.07% to 396.16
  • MXAP up 0.1% to 174.45
  • MXAPJ up 0.2% to 569.13
  • Nikkei down 0.2% to 22,960.34
  • Topix down 0.2% to 1,809.57
  • Hang Seng Index up 0.6% to 31,234.35
  • Shanghai Composite up 0.02% to 3,214.35
  • Sensex up 0.1% to 34,663.51
  • Australia S&P/ASX 200 down 0.7% to 6,041.87
  • Kospi up 0.2% to 2,465.57
  • German 10Y yield rose 4.2 bps to 0.565%
  • Euro up 0.2% to $1.1811
  • Italian 10Y yield rose 15.9 bps to 2.127%
  • Spanish 10Y yield fell 7.2 bps to 1.436%

Top Overnight News from Bloomberg

  • China confirms it is cutting import taxes on autos to 15% from 25%
  • WSJ: U.S. and China have agreed outline on a deal to settle dispute over ZTE, according to people familiar
  • Dodd-Frank: House Repubicans to vote on Senate compromise as early as today; broader set of House-passed rollbacks will get a vote later this year
  • Fed’s Kashkari: yield curve could invert by end of year; paying close attention to long-end of UST curve
  • BOE’s Vlieghe: sees one or two 25bps rate hikes a year for the next three years
  • President Donald Trump retreated from imposing tariffs on billions of dollars worth of Chinese goods because of White House discord over trade strategy and concern about harming negotiations with North Korea, according to people briefed on the administration’s deliberations
  • Britain could be facing another vote in 2018 as Prime Minister Theresa May may be unable to find a way to navigate between those in her party who want Britain to leave the EU’s customs union and the majority in Parliament that wants the opposite
  • French President Emmanuel Macron’s trip to Russia this week once threatened to split France from its European allies. Now it’s part of a wider European effort to tie President Vladimir Putin to the Iran nuclear accord
  • The Italian government’s borrowing costs have surged to inauspicious territory as the nation is getting punished in the bond market over the incoming populist government coalition. Novice Prime Minister may face rival puppet-masters
  • Foreign Secretary Boris Johnson has urged Theresa May not to contemplate calling another early election, after reports that members of parliament are preparing for a snap vote later this year due to Brexit turmoil
  • Turkey is paying more than Senegal on its debt, even though it has a higher credit rating and its economy is 60 times bigger
  • Fed’s Minneapolis President Kashkari says U.S. job creation despite lack of evidence that inflation is picking up is an argument for allowing the economy to continue to grow. Philadelphia Fed President Patrick Harker says “in general, on average, the economy is just clicking along just fine”
  • Confidence about the economic strength of Poland, Hungary and the Czech Republic had helped mute the pain of dollar gains that battered their developing peers. But on Monday, Italy’s plans to embark on a populist fiscal path landed them among the biggest currency decliners in emerging markets

Asian stocks traded mostly subdued amid holiday closures and a lack of fresh catalysts, which saw sentiment wane from the prior day’s trade-related gains that boosted the DJIA above the 25k level for the first time since March. ASX 200 (-0.7%) weakened amid broad losses across all sectors and with telecoms underperforming on continued woes for Telstra shares, while Healthscope was the worst performer after it flagged impairment charges. Nikkei 225 (-0.2%) traded indecisive as exporters suffered from a firmer currency and with Sony shares pressured after its 3-year strategy and targets was met with disappointment, while Shanghai Comp. (flat) was subdued following a continued net neutral liquidity position by the PBoC and with market closures in both Hong Kong and South
Korea adding to the humdrum tone, although baby-related stocks were underpinned on prospects China could relax its child-policy restrictions. Finally, 10yr JGBs were lacklustre alongside an indecisive risk tone in Japan and with participants side-lined ahead of 20yr auction which eventually saw a mixed result, while a deluge of comments from BoJ Governor Kuroda also failed to spur price action as he kept to reiterations and suggested the BoJ is still far from an exit.

Top Asian News

  • Singapore Bourse Sued by India Exchange in Futures Dispute
  • Hyundai Motor Caves in to Elliott, Scraps $8.8 Billion Deal
  • Hyflux Is Said to Weigh Court Protection for Creditor Talks
  • Sony to Buy Out EMI Music Publishing for About $2 Billion
  • Indonesia’s Stock Rout Claims Another Victim: The IPO Market
  • Erdogan Imperils Turkey Rating as Bonds Sink Below Senegal’s

Major European equity bourses are trading flat as German traders return to their desks following a public holiday. The outperforming bourse is currently the IBEX (+0.6%), closely followed by the FTSE MIB (+0.4%) which is benefitting from some much desired political 'stability' following the confirmation of the name of the proposed next Premier, Giuseppe Conte; subject to approval from Mattarella. European automotive names have been boosted on the news that China is to cut their car import duties to 15% from 25% (Volkswagen (VOW3 GY) +1.0%, Daimler (DAI GY) +1.2%, BMW (BMW GY) +1.9%). In terms of sector specifics, France’s head of ARCEP saying he could be open to telecom sector consolidation has lead to strength for names such as Orange (ORA FP) +3.5%, Bouygues (EN FP) +3.6% and Iliad (ILD FP) +4.4%. In stock specific news IAG (IAG LN) is set to offer NOK 330/share for Norwegian Air, an acquisition amounting to EUR 1.52bln.

Top European News

  • Deutsche Bank Unit Sells $600 Million Seadrill Claim in Days
  • Italy Bonds Rise as Yields Retreat From the Highest Since 2017
  • French Telecom Regulator Says He’s More Open to Mergers
  • Could Britain Have an Election in 2018? It’s Not Impossible

In FX, there was more USD retracement from best levels for the index amidst a broad Usd pull-back vs counterparts that looks more technical than fundamental at this stage overall. The DXY is trying to stabilise after a dip below 93.300, but remains well off the 94.064 ytd peak set on Monday. GBP: Just shading the non-US dollars as top G10 performer after the first session of the BoE’s QIR testimony in front of the TSC featuring MPC member Vlieghe who delivered a more hawkish policy outlook than the mainstream with a preference for 1 to 2 quarter point hikes per annum over the 3 year forecast horizon (largely based on less slack in the UK economy). Cable extended recovery  gains above 1.3400 in response and almost reached 1.3500 before losing momentum ahead of Governor Carney’s appearance. NZD/AUD/CAD: As noted, all gleaning more from the general Greenback retreat, with the Kiwi back above 0.6950 and Aud briefly revisiting 0.7600+ territory as the Loonie tested 1.2750 with oil prices providing another boost. EM: Consolidation, short-covering and position paring from arguably oversold levels have combined to lift beleaguered currencies from the depths, with the Zar and Mxn regaining various degrees of composure around 12.20 vs 12.69 and 19.74 vs 19.84 (and even high in some cases at worst). However, after a similar recovery rally the Try suffered an abrupt reversal to plumb fresh record lows vs. the dollar circa 4.63.

In commodities, prices are broadly higher during recent trade in which crude extended on gains boosted by a softer greenback with geopolitics also remaining at the fore after US Secretary of State Pompeo warned of the severity for Iran sanctions. The US also imposed sanctions on Venezuela following the election last weekend, stirring further fears over supply disruption in the region. Elsewhere, gold prices are buoyed as the dollar retreats from YTD highs. Elsewhere, London copper rise for the second day with prices underpinned as the US-Sino trade war fears fade (for now).

Looking at the day ahead, in the US the only release scheduled is the May Richmond Fed PMI. Politics should play a greater role with the next round of Brexit negotiations beginning in Brussels, and South Korean President Moon Jae-in due to visit Washington to meet President Trump, in part to discuss whether next month’s US / North Korea summit is still going ahead.

US Event Calendar

  • 10am: Richmond Fed Manufact. Index, est. 10, prior -3

DB's Jim Reid concludes the overnight wrap

It’s certainly been a 24 hours of split trading with the split depending on whether your assets were more sensitive to hopes of a more positive outcome in the global trade war spat or more sensitive to a worsening Italian risk situation. Indeed Italian debt had what can only be called a “mini-shocker” yesterday after increased speculation about the so called issuance of “mini-BOTs” and warnings from Fitch on their debt path. However neither story was new news and the sell-off just seemed to be a building up of the pressure of these and other related issues over recent days.

2y yields underperformed (+16.8bps) versus 10yr (+15.7bps) and 30y yields (+10.9bps). Remarkably 2y yields are up 59.4bps since May 3rd and now the highest since July 2015. Over the same period 2y Bunds are -3.9bps lower for comparison. The 2y BTP/Bund spread is now at 88.1bps and approaching the 2017 high of 99bps. This was as low as 22bps back in February. 10 year Italian yields (2.371%) are now within a couple of basis points from their highest level since November 2014.

Overnight DB’s Clemente De Lucia and Mark Wall have published an update putting the current Italian risk in some perspective. They note that relative to 2011-2012 Italy has achieved some fundamental improvements. In particular 1) a move from current account deficit to surplus and 2) the terming out of debt. They also note that the Five Star-League final programme for government does not directly question Italy's membership of the single currency. However, the proposed fiscal and structural policies, including the mini-BOT, are a challenge to EU rules and the Brussels orthodoxy. This means policy clash and uncertainty. If fully implemented, our economists think that Italy's debt trajectory will no longer be downward sloping. So much depends on the new administration’s policy choices and their ability to pursue them due to the constraints from the President, the constitution, the parliamentary process and of course the markets and the EU. So lots of moving parts. In the report they note that the 2019 Budget is not due to be presented to Parliament until September 20th so plenty of time for markets to go through their whole range of emotions over Italian risk. See the note for more details.

Following on, Italy’s League Party leader Mr Salvini noted in a Facebook video that “we’ve swallowed too many yes sirs” and that Italy must have the freedom to say “no” to Paris, Berlin and Brussels. He added that “…enough is  enough, cuts can kill, austerity can kill….and European limits can kill”. Elsewhere, Mr Salvini has confirmed that he has proposed Florence University law professor Giuseppe Conte to be Italy’s new Premier, while President Mattarella is expected to meet the Senate and Lower house speakers today to discuss next steps.

In equities yesterday, Italy’s FTSE MIB (-1.52%) looked as if it materially underperformed peers, but most of this was due to it being a big ex-dividend day for the index. After adjusting for the 20 companies that have gone ex-div, the underlying index change was closer to -0.3%. Nonetheless, the 5y senior CDS for Italian banks did widened 6-8bps vs. iTraxx Senior Financials at +3.8bp. Elsewhere, the Stoxx 600 (+0.30%) and US bourses (S&P +0.74%; Dow  +1.21%; Nasdaq +0.54%) were all higher as trade tensions eased following US Secretary Mnuchin’s comments around putting the trade war and tariffs on hold. The S&P closed at a 9 week high with all sectors up and gains led by the industrials and telco. sectors.

Over in government bonds, yields on UST 10y were little changed (+0.4bp) while Gilts (-2.5bp) and Bunds (-5.6bp) seemed to benefit from the flight to safety effect, particularly for Bunds which rallied despite Germany’s markets being off on holiday yesterday. In FX, the US dollar index firmed marginally (+0.04%) while the Euro pared back losses to close up for the first time in six days (+0.16%). Elsewhere, WTI oil rose 1.35% to $72.24/bbl ahead of IEA talks with major oil producers on collapsing Venezuelan output.

This morning in Asia, markets are broadly lower with the Nikkei (-0.07%), Shanghai Comp. (-0.41%) and ASX 200 (-0.84%) all down while the Hang Seng and Kospi are closed for holidays. In Japan, BOJ’s Kuroda told the Parliament that “we’ll patiently pursue powerful monetary easing to achieve 2% inflation” and that we’ll “guide monetary policy taking into account its side effects such as its impact on financial institutions”. Over in China, the State Council is planning to scrap all limits on how many children a family can have, potentially as early as 4Q18. Notably, Bloomberg noted that the number of births in China rose c8% in 2016 after the government shifted the policy from one child to two in 2015, but then births fell 3.5% in 2017. Finally, a group of Western and Chinese journalists are arriving in North Korea today to witness the closure of its nuclear test site.

Now turning to the three Fed speakers on rates and the yield curve. Mr Bostic (a voter this year) noted “I think we have two more” rate hikes this year, but added this could change depending on what happens on the economy. On inflation, he reiterated that “I won’t be surprised to see a modest overshoot of our long run target” of 2%. Elsewhere, he noted that “I’m less concerned about (the yield curve) in the sense that we do have a say in that” and it is “very present in all our minds” that there is a correlation between inverted curves and economic downturns. On rates for this year, Mr Harker (a non-voter) “could back a third move (in addition to the March rate hike)…if prices picked up”, although he is not “seeing rapid acceleration in inflation”. Further, he added that we’re on a gradual, prudent path and “let’s go to neutral (rates first) and see how things play out, I would prefer to not be contracting the economy”. On inflation, he noted that it will go somewhere above 2%, but “could even go as high as 2.5%”. Finally, Mr Kashkari (a non-voter) reiterated his dovish views on rates and noted that “we should shift only to a neutral policy stance and not move too quickly, until we see more evidence that wages are climbing…” Elsewhere, he noted that “we could flatten the yield curve by the end of the year” and that it “really depends what happens to the long end of the curve......(and so) that’s something I’m going to be paying close attention to”. He added that “gives us some information where neutral (rate) is, but this is part art and part science”.

Moving onto some trade rhetoric from the US side. President Trump’s economic advisor Mr Kudlow noted that “I’ve heard privately in the discussions…that the Chinese are in fact very willing to open the door to a lot more financial services”, with options such as China allowing US financial firms to set up asset management companies to help tackle China’s bad debt issues. Looking ahead, Secretary of Commerce Ross will return to Beijing for more talks soon. Turning to NAFTA, Secretary Mnuchin noted that “there are still some very significant, open issues” and “we’ll see where we get to over the next few weeks”, although he added that all three countries are “still trying to get a new deal done”.

Before we take a look at today’s calendar, we wrap up with the data releases from yesterday. In the US, the April Chicago Fed national activity index was slightly above market at 0.34 (vs. 0.3 expected), although the prior reading was also upwardly revised by 0.22pt. In the UK, the May Rightmove house price index was up 1.1% yoy (vs. 1.6% previous).

Looking at the day ahead, the April public finances data and May CBI selling prices in the UK are the only prints due in the European session, while in the US the only release scheduled is the May Richmond Fed PMI. Politics should play a greater role with the next round of Brexit negotiations beginning in Brussels, and South Korean President Moon Jae-in due to visit Washington to meet President Trump, in part to discuss whether next month’s US / North Korea summit is still going ahead.

 

Published:5/22/2018 6:51:44 AM
[Markets] Meet ‘green gold’ — and the stock for betting on it The Dow is working on getting comfortable back above the 25,000 mark, as lots of people scratch their heads over North Korea, Iran and the Cavs-Celtics series. In these topsy-turvy times, at least there are still some constants, such as millennials’ love for avocados. It’s a StockTwits duo that is serving up the chart — the social network’s co-founder, Howard Lindzon, and user Matthew Timpane. Published:5/22/2018 6:26:50 AM
[Markets] Dow aims for fresh move past 25,000 as yield and dollar climb pauses Dow futures pointed to a fresh move above 25,000 for the blue-chip index as investors continued to cheer signs of easing tensions between the U.S. and China. Published:5/22/2018 5:52:23 AM
[Markets] Market Snapshot: Dow aims for fresh move past 25,000 as yield and dollar climb pauses Dow futures pointed to a fresh move above 25,000 for the blue-chip index as investors continued to cheer signs of easing tensions between the U.S. and China.
Published:5/22/2018 5:52:23 AM
[Markets] U.S. Stocks Jump as Fears of Trade War Ebb The Dow Jones Industrial Average surged nearly 300 points Monday to its highest level in more than two months as concerns about a possible trade war between the U.S. and China temporarily eased. Trade tensions receded as Treasury Secretary Steven Mnuchin said the U.S. will suspend its efforts to apply tariffs to $150 billion in Chinese imports. “I’m very skeptical that we’re anywhere near a resolution on China,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald. Published:5/21/2018 7:23:37 PM
[Markets] After the Bell: Dow Soars 298 Points as Market Bets Trade Talk Isn't Cheap The Dow Jones Industrial Average jumped nearly 300 points today. If the Dow Jones Industrial Average's slump from its January high was about the potential for a trade war, then one of the biggest impediments to further gains appears to have been removed today. In tweets and other reports, the White House appeared to suggest that it would hold off on placing tariffs on China in favor of negotiations. Published:5/21/2018 5:18:19 PM
[Markets] Wall St. rises on trade war truce; industrials lead U.S. stocks rose on Monday and gains in industrials helped propel the Dow to a more than two-month closing high, after a truce between the United States and China calmed fears that a trade war might be imminent. U.S. Treasury Secretary Steven Mnuchin's comments over the weekend that the two countries had put the prospect of a trade war "on hold" and agreed to hold more talks to boost U.S. exports to China boosted stocks at the opening, with the Dow Jones Industrial Average (.DJI) leading the charge higher. Mnuchin said on Sunday the United States and China had agreed to drop their tariff threats, and China on Monday praised a significant dialing back of tensions. Published:5/21/2018 4:50:43 PM
[Markets] Emerging Markets Monkeyhammered Amid Dollar's Longest Win-Streak Since 2015

Quick guide for all the peasants watching the Royal Wedding tomorrow...

How to spot the monarchy (fwd to 1:35)...

Italy and Emerging Market dominated the market headlines this week.

Italian stocks, bonds, banks, and credit all cratered this week after Five-Star and The League agreed a notably anti-establishment plan...

 

Emerging Market stocks fell modestly on the week (the 3rd drop in 4 weeks) but EM FX and EM Debt collapsed...

 

Small Caps were the week's best performer (all squeezed), Trannies managed gains, but The Dow, S&P, and Nasdaq all ended red

 

The Dow tumbled to perfectly unchanged today at the close with Small Caps the only winners...

 

In the US, Small Caps managed a 3rd record high day in a row... "Most Shorted" Stocks saw a massive short squeeze into the close last night...

 

It appears Bank stocks don't like higher yields or steeper curves...

 

FANG stocks stumbled... worst week in two months (FANG also failed to take out the Fed highs before rolling over)

 

And Tesla tumbled...

 

VIX was up on the week but with some notable volatility intraweek...

 

As Specs swung back to anet short vol position for the first time since the end of Jan...

 

With Stocks and Bonds down this week, it was the worst aggregate loss in two months...

 

Treasury yields ripped lower today, ruining all the "record" move headlines for the week (biggest yield jump in 3 weeks doesn't sound so impressive) -

was this week's melt-up really all about rate-locks on massive IG issuance? Over $30 billion - Monday $17.38b, Tuesday $6.725b. Wednesday $800m, Thursday $5.200b, Friday $750m

30Y Yields stalled at the 3.20% level once again...

 

With 30Y down over 6bps from yesterday's highs...

 

 

The yield curve steepened the most in over 3 months this week with 2s30s up 10bps... (though we do note that 2s30s rolled over after tagging its pre-FOMC Minutes level...

 

And while Russell 2000 outperformed notably, Small Cap banks hugely underperformed, catching down to the flattening yield curve...

 

Emerging Market Debt tumbled for the 7th week in a row - back to Pre-Trump levels...

 

The Dollar rose for the 5th week in a row - the longest win streak since 2015 - and the biggest weekly gain since Dec 2016...

BBDXY

 

We do note that The Dollar remains below pre-Trump-election levels still...

 

Emerging market currencies bloodbath'd - not one Emerging Market saw its currency strengthen this week with Argentine Peso, South African Rand, and Turkish Lira suffering the most...

 

EM FX is down 7 weeks in a row and this week was the worst week since Nov 11th 2016 (Trump election)...

 

And while Ethereum ended the week unchanged, Bitcoin Cash crashed 15%...

 

No wonder really, since Meghan Markle appears to be bigger than bitcoin now...

 

In commodity land, dollar strength weighed heavily on PMs and copper but crude managed gains...

 

Finally, is The Fed about to make a big policy mistake?...

 

 

Published:5/18/2018 3:27:54 PM
[Markets] Dow posts Friday gain but broader market hit by weakness in energy, financials Dow posts Friday gain but broader market hit by weakness in energy, financials Published:5/18/2018 3:27:53 PM
[Markets] Dow Rises Slightly but S&P 500 and Nasdaq Decline as Trade Worries Continue The Dow finished slightly higher on Friday, but the S&P 500 and Nasdaq declined. For the week the Dow dropped 0.47%, the S&P 500 fell 0.54% and the Nasdaq declined 0.66%. Comments late Thursday from President Donald Trump suggest the second stage of trade talks between the world's two biggest economies may not provide the kind of relief investors have been looking for over the past few weeks. Published:5/18/2018 3:27:53 PM
[Markets] Dow Holds Slim Gains as Trade Worries Continue; Nasdaq, S&P Stay Red Trump expresses doubt that "spoiled" trading partners will agree favorable terms. Oil renews march to $80, U.S. gas prices hit $2.93 per gallon, as supply concerns persist. Kiss front-man tells TheStreet Dow 30,000 is two years away. Published:5/18/2018 1:56:54 PM
[Markets] Are US Equity Indexes Reacting to High Oil Prices? Between May 10 and May 17, US equity indexes’ correlations with US crude oil June futures were as follows: Dow Jones Industrial Average Index (DIA): -50.9% S&P 500 Index (SPY): -38.2% S&P Mid-Cap 400 Index (IVOO): -11.1% Published:5/18/2018 9:26:23 AM
[Markets] Wall Street opens lower as tech stocks weigh (Reuters) - U.S. stocks opened slightly lower on Friday due to losses in technology stocks including Applied Materials and Alphabet, while investors kept a close watch on U.S.-China trade talks. The Dow ... Published:5/18/2018 8:55:32 AM
[Markets] The Headlines Are Wrong -- This Is an Extremely Bullish Market With the S&P 500 off 0.3% and the Dow Jones Industrial Average down 0.5% this week that seems like a reasonable observation. aren't powering higher and leading the major indices, it tends to confuse the media narrative. To the business media, the DJIA is the market. Published:5/18/2018 7:55:41 AM
[Markets] Stock market set to move higher with trade talks, yields in the spotlight U.S. stock-index futures indicated a higher start for Wall Street on Friday, with investors shaking off some concerns about trade talks between the U.S. and China, as well as persistently higher bond yields. Dow Jones Industrial Average futures (YMM18.CBT) rose 72 points, or 0.3%, to 24,776, while S&P 500 futures (SM8.AX) rose 4.8 points, or 0.2%, to 2,723.50. On Thursday, the Dow (^DJI) slipped 54.95 points, or 0.2%, to 24,713.98, the S&P 500 index (^GSPC) shed less than 0.1% to 2,720.13, and the technology-heavy Nasdaq Composite Index (^IXIC) gave up 0.2% to 7,382.47. Published:5/18/2018 6:55:23 AM
[Markets] U.S. Stocks Retreat on Trade Worries The Dow Jones Industrial Average fell Thursday as investors seemed unfazed by upbeat earnings and more concerned with renewed trade tensions that could disrupt the global economic upswing that has fueled the stock-market rally. Walmart and Cisco Systems led the blue-chip index lower, despite reporting strong quarterly earnings. “President Trump’s comments today have contributed to a continued lack of clarity on trade,” said Emily Roland, head of capital markets research at John Hancock Investments. Published:5/17/2018 7:23:25 PM
[Markets] After the Bell: Dow Drops 55 Points, Small-Caps Soar to a New High The Dow Jones Industrial Average slipped today, but it was so small I'm not sure anyone noticed. In today's After the Bell, we: •...explain how the Russell 2000's new all-time high could mean it's time ... Published:5/17/2018 4:51:57 PM
[Markets] Bonds Battered, Submerging Markets Slump, & Small Caps Hit Record High

Everything was awesome until Trump dropped the truth bomb about China trade talks...

Small Caps and Trannies outperformed...

 

S&P, Dow, and Nasdaq remain red for the week...

 

The S&P found support at its 100DMA...

 

VIX tested down to a 12 handle once again but bounced...

 

Small Caps  - which dominate the 'most shorted' - soared to another new record high as the short-squeeze continued on...

 

Italian banks remain under pressure...

 

US Homebuilders continue to get hammered

 

The Treasury complex was very mixed with the long-end continuing to get hammered (30Y +3bps) and the short-end bid (2Y -2bps)...

That was the first drop in 2Y Yields in 10 days.

10Y closed at 3.11% - highest since July 2011

 

30Y closed at 3.25% - highest since Sept 2014

 

Which pushed the yield curve to its steepest since the release of The Fed minutes in April...

 

 

 

Emerging Market FX dipped back lower after a brief dead cat bounce yesterday...

 

With the Colombian Peso pounded, Rand routed, and Lira lashed...

 

Crytpocurrencies also slid lower once again - so much for the Blockchain Week Bounce...only Ethereum remains green from last Friday's close...

 

Copper and Silver managed modest gains on the day, oil was flat, gold was lower.,..

 

WTI/RBOB ended the day unchanged despite some vol... (WTI topped $72 and Brent topped $80 intraday)...

 

Silver is notably outperforming gold in the last few days...

 

Finally, we note that as Small Caps make new record highs, relative to The Dow, the Russell 2000 is back at the same level as when Trump was elected...

 

 

 

 

 

Published:5/17/2018 3:22:12 PM
[Markets] Dow, S&P 500 and Nasdaq Decline as Walmart, Cisco Finish Lower Laggards on the Dow included Walmart Inc. Stocks fell on Thursday, May 17, amid a sustained rise in crude oil prices, and as Cisco Systems Inc. Investors were also focused on Thursday's trade summit in Washington, led by China Vice Premier Liu He and U.S. Treasury Secretary Steve Mnuchin, with the two sides aiming to come to an agreement that would prevent the imposition of U.S. tariffs on around $150 billion in China-made goods. Published:5/17/2018 3:22:12 PM
[Markets] Dow drop 100 points, trades near session low as tech stocks slump, energy pares gains The Dow Jones Industrial Average was trading near session lows Thursday afternoon, as technology stocks took a leg lower and the market's best performer, energy, cut its sharp, early gains. The Dow most ... Published:5/17/2018 1:20:37 PM
[Markets] Dow Fluctuates as Walmart and Cisco Trade Lower Stocks were mixed on Thursday, May 17, amid a sustained rise in crude oil prices, and despite Cisco Systems Inc. Leading gainers on the Dow were Coca-Cola Co. Investors were also focused on Thursday's trade summit in Washington, led by China Vice Premier Liu He and U.S. Treasury Secretary Steve Mnuchin, with the two sides aiming to come to an agreement that would prevent the imposition of U.S. tariffs on around $150 billion in China-made goods. Published:5/17/2018 11:28:38 AM
[Markets] Dow Trades Higher Despite Stumbles for Walmart and Cisco Stocks rose on Thursday, May 17, amid a sustained rise in crude oil prices, and despite Cisco Systems Inc. Leading the Dow higher were Coca-Cola Co. Investors were also focused on Thursday's trade summit in Washington, led by China Vice Premier Liu He and U.S. Treasury Secretary Steve Mnuchin, with the two sides aiming to come to an agreement that would prevent the imposition of U.S. tariffs on around $150 billion in China-made goods. Published:5/17/2018 10:50:19 AM
[Markets] Markets Now: Dow Dips 9 Points as Walmart Rises, Cisco's Slump Hits Tech Want to know why the Dow Jones Industrial Average is doing what it's doing? 7:50 a.m. Walmart's (WMT) earnings beat hasn't been able to lift stocks into the green this morning. S&P 500 futures have 0.1%, while Dow Jones Industrial Average futures have declined 9 points. Published:5/17/2018 7:18:59 AM
[Markets] After the Bell: Dow Gains 63 Because Higher Bond Yields Don't Matter After All The Dow Jones Industrial Average flipped yesterday's script on its head, and rose even as Treasury yields climbed higher. It was up, up, and away for bond yields again today, but higher yields didn't put a crimp in the stock market today. Yes, the 10-year Treasury yield rose 0.02 percentage point to 3.1% today, but there was no selloff this time. The Dow Jones Industrial Average advanced 62.52 points, or 0.3%, to 24768.93, while the S&P 500 rose 0.4% to 2722.46, and the Nasdaq Composite gained 0.6% to 7398.3. Published:5/16/2018 5:46:44 PM
[Markets] Stocks stage rebound as traders shake off rising yields, geopolitics U.S. stocks traded higher on Wednesday, as investors appeared to have shaken off fresh North Korea worries as well as fears of rising bond yields. Pyongyang overnight signaled its leader, Kim Jong Un, might pull out of next month’s summit with President Donald Trump if the U.S. insists on denuclearization for the isolated nation. The Dow Jones Industrial Average (^DJI) was up 58 points, or 0.2%, to 24,768. Published:5/16/2018 1:15:16 PM
[Markets] Stocks- Wall Street Flat on North Korea, Treasury Yield Concerns Investing.com – Wall Street was flat on Wednesday as North Korea threatened to withdraw from a meeting with the U.S. and rising Treasury yields weighed on investors minds.The S&P 500 was up over three points or 0.14% to 2,715.12 as of 9:38 AM ET (13:38 GMT) while the Dow composite increased over six points or 0.03% to 24,734.27 and tech heavy NASDAQ Composite rose 11 points or 0.16% to 7,363.25.North Korea threatened to withdraw from a June 12 meeting in Singapore in response to joint U.S. -South Korea military drills on Wednesday. ... Published:5/16/2018 11:44:34 AM
[Markets] Stocks stage tentative rebound as traders try to shake off rising yields, geopolitics U.S. stocks edged higher on Wednesday morning, as investors appeared to have shaken off fresh North Korea worries as well as rising bond yields. Pyongyang overnight signaled its leader, Kim Jong Un, might pull out of next month’s summit with President Donald Trump if the U.S. insists on denuclearization for the isolated nation. The equity market has scored significant gains so far this month, but it suffered a sizable drop on Tuesday, as the Dow halted an eight-session winning streak. Published:5/16/2018 10:43:49 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens flat as gains in retail stocks offset losses in energy shares Wall Street opened little changed on Wednesday as gains in retail stocks led by Macy's offset losses in energy and financial shares. The Dow Jones Industrial Average rose 15.91 points, or 0.06 percent, ... Published:5/16/2018 8:43:25 AM
[Markets] Dow futures edge lower as traders weigh North Korea’s latest posturing U.S. stocks edged lower on Wednesday, with fresh North Korea worries appearing to weigh on sentiment. Pyongyang overnight signaled its leader, Kim Jong Un, might pull out of next month’s summit with President Donald Trump if the U.S. insists on denuclearization for the isolated nation. The equity market has scored significant gains so far this month, but it suffered a sizable drop on Tuesday, as the Dow halted an eight-session winning streak. Published:5/16/2018 8:15:19 AM
[Markets] Dow fights for direction as traders weigh North Korea’s latest posturing U.S. stocks looked set to struggle for direction on Wednesday, with fresh North Korea worries appearing to weigh on sentiment. Pyongyang overnight signaled its leader, Kim Jong Un, might pull out of next month’s summit with President Donald Trump if the U.S. insists on denuclearization for the isolated nation. The equity market has scored significant gains so far this month, but it suffered a sizable drop on Tuesday, as the Dow halted an eight-session winning streak. Published:5/16/2018 3:41:58 AM
[Markets] Dow Industrials Snap Winning Streak U.S. stocks fell Tuesday, with the Dow Jones Industrial Average breaking an eight-session streak of gains, as investors parsed mixed economic data, rising government-bond yields and continuing trade negotiations between the U.S. and China. A rare spurt of synchronized global growth at the end of last year and the beginning of 2018 has underpinned stock markets around the world, so investors are sensitive to any signs of a slowdown. In the U.S., data have also been coming in somewhat below expectations in recent months. Published:5/15/2018 7:10:25 PM
[Markets] GLOBAL MARKETS-U.S. bond yield hits 7-year high, lifting dollar, hurting stocks The yield on the benchmark U.S. 10-year Treasury note hit its highest in about seven years on Tuesday on the heels of a report that indicated a pick-up in consumer spending, lifting the dollar to its strongest level this year and weighing on stocks. Wall Street's main indexes slumped, with the Dow industrials snapping an eight-session streak of gains, hurt by concerns that rising bond yields would undercut stock valuations. Yields had already been increasing earlier on Tuesday before the release of data that showed a moderate rise in U.S. retail sales in April, but also that consumer spending appeared on track to accelerate after slowing sharply in the first quarter. Published:5/15/2018 3:40:36 PM
[World] Market Snapshot: Dow’s win streak comes to a halt as stocks see biggest skid in 3 weeks U.S. stocks fall firmly on Tuesday, with a lengthy winning streak for the Dow coming to an end as a benchmark government bond yield jumps to a multiyear high, challenging appetite for equities compared with climbing rates for risk-free bonds.
Published:5/15/2018 3:40:35 PM
[Markets] Bonds & Bullion Bloodbath As Dow Dumps Into Red For 2018

Someone ask Bob Pisani if the bears are back in charge of the narrative?

Stocks were 'triggered' by retail sales data this morning...

And despite some roller-coastering, stocks largely trod water from the gap down open...

Dow (and Transports) tumbled into the red for 2018...

 

The Dow broke its 8-day win-streak and closed back below its 100DMA...

 

VIX mini-flash-crashed to a 12-handle on the retail-sales print then blasted higher to test a 15-handle...

 

Growth stocks bore the brunt today...

 

Treasuries were a bloodbath as yields at the long-end broke out of recent ranges...

10Y spiked...

To its highest close since July 2011...

 

30Y surged all the way to 3.22% - its long-term trendline resistance - and turned back lower...

We do note however that there is a huge amount of IG issuance this week - yesterday saw over $10 billion priced, putting primary market issuance well on its way to meeting survey estimates calling for $30 billion to $35 billion in weekly sales - and that would suggest rate-locks were actively being placed.

This was the worst day for an aggregate bond and stock portfolio in over 6 weeks...and 2nd worst since the Feb chaos...

 

Bear in mind that bond yields are spiking as economic data is disappointing notably...

 

Notable decoupling between bonds and the dollar today

One final thing of note before we leave bondland, the intraday loss on today's 10bp move (with a 10bn DV01, as detailed here) is roughly $100 billion!!!

The Dollar spiked to new cycle highs...highest since Dec 27th 2017...

 

Argentine Peso managed gains off the 25/USD floor that BCRA enforced ahead of the massive bond rollover today...

 

Cryptocurrencies lost ground against the dollar today with Bitcoin and Bitcoin Cash back flat on the week...

 

The dollar strength left a wake of damage in commodity land (though WTI held on to gains)...

 

Meanwhile, the Brent-WTI spread is at its widest since 2015...

As Bloomberg reports, U.S. oil reached $8.06 below the international benchmark Brent, the cheapest it’s been been since April 2015, when a ban on most American crude exports was still in effect. Geopolitical tensions in the wake of U.S. sanctions on Iran are boosting Brent crude near $80 a barrel, while surging U.S. shale production is keeping West Texas Intermediate in check. The spread between the two may widen to $10 a barrel, according to Walter Zimmermann, chief technical analyst at ICAP-TA. “This having the character of a panic blow-off, it’s probably going to happen pretty quickly.”

Today was an ugly one for precious metals as the dollar spiked. Gold suffered it worst day since Dec 2016, breaking back below its 200DMA and the key $1300 level...

It seems 80x for the gold/silver ratio was resistance once again...

Finally, we note that the odds of 3 or more Fed rate-hikes for the rest of the year just overtook the odds of 2 more hikes...

 

Published:5/15/2018 3:10:15 PM
[Markets] Dow ends down nearly 200 points, snapping 8-day win streak Dow ends down nearly 200 points, snapping 8-day win streak Published:5/15/2018 3:10:14 PM
[Markets] Dow breaks 8-day winning streak U.S. equity markets closed solidly lower on Tuesday with the Dow industrials halting their eight-day advance. The selling on Wall Street was accompanied by a rise in bond yields, with the 10-year Treasury ... Published:5/15/2018 3:10:14 PM
[Markets] Dow's Sharp Decline Threatens the Index's 8-Day Rally Leading the Dow lower were Intel Corp. With the Dow riding an eight-session winning streak, investors were booking profits Tuesday after the U.S. dollar index, a measure of the greenback's strength against a basket of six global currencies, jumped to 93.05, following a sustained move over 3% for the yield on the 10-year U.S. Treasury. The Empire State Manufacturing Survey for May came in at 20.1, up from the prior month's 15.8. Home Depot Inc. Published:5/15/2018 12:38:24 PM
[Markets] Dow industrials down 250 points, with only two components in positive territory Dow industrials down 250 points, with only two components in positive territory Published:5/15/2018 11:37:59 AM
[Markets] Dow drops 240 points in midday trade, gives up 2018 gains as rising rates spook Wall Street The Dow Jones Industrial Average relinquished its hold on a modest year-to-date gain for 2018 in midday trade Tuesday, as blue chips retreated sharply lower amid a rise in benchmark interest rates. The Dow was down 1%, or 240 points, at 24,658, down about 0.3% for the year, according to FactSet data. The 10-year Treasury note yielding about 3.07%, marking its highest rate since 2011 and rattling investors worried that climbing rates will advance faster than economy's rate of growth in the ninth year of expansion. Published:5/15/2018 11:37:58 AM
[Markets] Markets Now: Dow Drops 180 Points as Yield Spike Imperils Stocks Want to know why the Dow Jones Industrial Average is doing what it's doing? The S&P 500 has fallen 0.7% to 2711.33, while the Dow Jones Industrial Average has dropped 180.18 points, or 0.7%, to 24,719.23. The Nasdaq Composite has slumped 0.9% to 7,345.03. Published:5/15/2018 11:08:09 AM
[Markets] Stocks Stumble, Dow's 8-Day Rally Is Threatened Leading the Dow lower were Caterpillar Inc. With the Dow riding an eight-session winning streak, investors might be tempted to book profits Tuesday after the U.S. dollar index, a measure of the greenback's strength against a basket of six global currencies, jumped to 93.24, following a sustained move over 3% for the yield on the 10-year U.S. Treasury. The Empire State Manufacturing Survey for May came in at 20.1, up from the prior month's 15.8. Home Depot Inc. Published:5/15/2018 10:08:10 AM
[Markets] Dow faces uphill battle to extend winning streak — down 130 points early Tuesday Dow faces uphill battle to extend winning streak — down 130 points early Tuesday Published:5/15/2018 9:07:27 AM
[Money & The Economy] Report: Bank Card Defaults Highest in 6 years despite strong economy

By Carl Fox -

S&P Dow Jones Indices and Experian released today data for 2018 through April for their Consumer Credit Default Indices. The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate decreased four basis points to 0.92%. The bank card default rate rose eight basis ...

Report: Bank Card Defaults Highest in 6 years despite strong economy is original content from Conservative Daily News - Where Americans go for news, current events and commentary they can trust.

Published:5/15/2018 9:07:27 AM
[Markets] Dow’s win streak imperiled as 10-year Treasury rate rises Dow’s win streak imperiled as 10-year Treasury rate rises Published:5/15/2018 8:37:40 AM
[Markets] U.S. stocks open lower, Dow poised to end eight-day rally U.S. stocks opened lower on Tuesday, with major indexes on track to end a lengthy streak of gains as bond yields jumped to a multiyear high. The Dow Jones Industrial Average fell 0.5% to 24,779. The blue-chip ... Published:5/15/2018 8:37:39 AM
[Markets] Pain Trade Returns: Dollar Spikes, Yields Rise Above 3% As Stocks, Emerging Markets Slide

The pain trade has returned with a bang this morning as both 10Y Treasury yields and the dollar are grinding higher, the former back above 3.00%...

... the latter at the highest level since last Wednesday as oil continued to advance and soak up liquidity...

... in the process slamming near record Treasury and USD shorts - hence "pain trade" - while leaving a risk-off flavor to markets on Tuesday, with European stocks struggling for traction following declines across Asia, which saw a disappointing set of data out of China overnight , while US futures were roughly 0.2% lower around 7am ET.

European bourses opened on the backfoot but since then are trading mixed (Eurostoxx 50 flat) with the Italy’s FTSE MIB (+0.3%) outperforming its peers with traders watching out for any potential breakthroughs in forming a government. The Stoxx Europe 600 Index slipped a second day despite the weaker euro, before paring the drop to trade little changed amid mixed national gauges.  Bonds across Europe remained under pressure, extending Monday’s decline on the back of hawkish comments from an ECB official.

In the latest economic disappointment out of Europe, Germany reported a sluggish start to the year with Q1 GDP printing at 0.3%, below the 0.4% expected, and down from 0.6% in Q4, with trade losing momentum and domestic demand not strong enough to fill the void. This was the weakest econ performance since Q3 2016.

Earlier equity benchmarks fell in South Korea and Australia, and were flat in Japan. Stocks rose in Shanghai and dropped in Hong Kong after data showed China’s industrial production momentum holding up but investment and spending slowing.

For those who missed it, here is the key China April data again:

  • Chinese Industrial Production Y/Y 7.0% vs. Exp. 6.4% (Prev. 6.0%); YTD (Apr) 6.9% vs. Exp. 6.7% (Prev. 6.8%). (Newswires)
  • Chinese Retail Sales Y/Y 9.4% vs. Exp. 10.0% (Prev. 10.1%); YTD (Apr) 9.7% vs. Exp. 9.8% (Prev. 9.8%)
  • Chinese Fixed Assets Ex-Rural YTD 7.0% vs. Exp. 7.4% (Prev. 7.5%)

In FX trading, the dollar resumed its sharp ascent as 10-year Treasury yield rose above 3% before the release of U.S. retail-sales data; the greenback advanced against more than half of its Group-of-10 peers, while the euro stayed weak after disappointing German growth data. Of note, an index of emerging-market currencies declined the most in two weeks, led by a retreat in the rand, lira and forint. More concerning is that not one of 24 EM currencies tracked by Bloomberg advanced, as a result, the MSCI index of EM FX fell 0.5%.

"A strong U.S. dollar supported by high U.S. Treasury yields with the 10-year once again rising above the psychological level of 3% should curb capital inflows to risky assets,” Rabobank strategists warned, echoing what we said yesterday.

Looking at US TSYs and the yield curve, Fed officials have got the flattening yield curve on their radar screen, but policy makers have different ways of looking at the situation with some worrying about further rate hikes causing it to invert, while others view it as a normal part of monetary policy normalization. "Yield curve flattening in the U.S. tells you that investors are not convinced of the sustainability of this economic upturn - any sign of a less than impressive recovery in consumer spending in 2Q would undoubtedly reinforce those doubts and hurt the U.S. dollar," according to Derek Halpenny, European head of global markets research at MUFG.

In the latest geopolitical developments, President Trump and Canadian PM Trudeau discussed via phone call the possibility of a quick NAFTA agreement, in which US President Trump urged for a prompt NAFTA agreement.

Looking at Brexit, UK PM May admitted that the current options regarding UK customs plan are unworkable. This has subsequently increased fears among Eurosceptics that further delays will mean an extension of the 21-month transition period with a Conservative meeting yesterday leading to a clash between PM May and backbencher Rees-Mogg. Further reports suggested that extending the transition arrangement with the EU could be the only way to find a solution to the Irish border issue.

In overnight central bank news, Fed nominee Clarida said he fully supports Fed dual mandate and will seek to maintain financial resilience, while he added he will take a balanced approach on reaching Fed targets. Elsewhere, Riksbank's Jochnik said that with inflation stable around 2% it is important to begin lifting rates. Underlying inflation remains weak. He added there is no goal for the SEK, but the recent strengthening has been good. Meanwhie, BoJ Governor Kuroda says there are no plans to move the 10yr yield target for the time being as inflation is still at a distance from 2% target, discussions are being had at board level on side-effects of easy policy, but the removal of the time-frame isn't linked to the debate on impact of easy policy on bank profits.

Economic data on Tuesday include retail sales and NAHB Housing Market index. Home Depot and Hydro One are among companies due to release results.

Bulletin Headline Summary From RanSquawk

  • US Treasury 10-year yield above 3%, dollar stands firmer against its peers
  • Sterling off lows as UK real earnings move back into positive territory
  • Looking ahead, highlights include US retail sales, Fed’s Williams and Kaplan

Market Snapshot

  • S&P 500 futures down 0.2% to 2,726.00
  • STOXX Europe 600 down 0.03% to 392.06
  • MXAP down 0.8% to 175.23
  • MXAPJ down 1% to 570.96
  • Nikkei down 0.2% to 22,818.02
  • Topix down 0.04% to 1,805.15
  • Hang Seng Index down 1.2% to 31,152.03
  • Shanghai Composite up 0.6% to 3,192.12
  • Sensex up 0.2% to 35,641.55
  • Australia S&P/ASX 200 down 0.6% to 6,097.82
  • Kospi down 0.7% to 2,458.54
  • German 10Y yield rose 1.0 bps to 0.621%
  • Euro down 0.04% to $1.1922
  • Brent Futures up 0.5% to $78.61/bbl
  • Italian 10Y yield rose 5.6 bps to 1.672%
  • Spanish 10Y yield fell 2.5 bps to 1.307%
  • Brent Futures up 0.6% to $78.66/bbl
  • Gold spot down 0.2% to $1,310.45
  • U.S. Dollar Index up 0.2% to 92.75

Top Overnight News from Bloomberg

  • Italy’s populists are struggling to nail down the final details of their plans to form the next government and tensions are beginning to mount. “Either we get started or we say goodbye to each other,” League leader Matteo Salvini said after talks with President Sergio Mattarella on Monday
  • China’s economic momentum broadly held up in April with industrial production exceeding forecasts, though slowing investment signaled a moderation in the coming months. China says trade dispute impacts haven’t yet shown up in economy
  • Growth slowed across the euro-area economy at the start of the year, with Germany seeing its pace of expansion cut in half amid weaker trade. The 0.3% rise in output in Europe’s largest economy was softer than forecast, and the Dutch and Portuguese economies also cooled more than expected
  • Britons got their first real-pay increase in more than a year in the first quarter as wage growth overtook the rate of inflation. Average weekly earnings excluding bonuses rose 2.9% from a year earlier, the fastest pace since August 2015, while inflation averaged 2.7% in the same period
  • The Turkish lira and bonds declined to new record lows after President Recep Tayyip Erdogan said he plans to take more responsibility for monetary policy if he wins an election next month, spooking investors who worry about his distaste of high interest rates
  • Following President Donald Trump’s inauguration of the U.S. embassy in Jerusalem, Hamas vowed to keep protesters storming the Gaza border on Tuesday, a day after 59 Palestinians were killed in confrontations with Israeli troops, the bloodiest toll in the territory since a 2014 war
  • U.S. regulators planning to drop Volcker Rule assumption that positions held by banks for less than 60 days are speculative and therefore banned, according to people familiar
  • Fed vice chair nominee Clarida favors ’balanced approach’ to policy
  • U.K Mar. Avg. Weekly Earnings 2.6% vs 2.6% est; Earnings ex-bonus 2.9% vs 2.9% est.
  • BOJ’s Kuroda: will not change 10y target under YCC for the time being due to weak inflation
  • German GDP 1Q P GDP q/q 0.3% vs 0.4% est; Destatis note government final consumption expenditure decreased for the first time in just under five years
  • China Apr. Retail Sales 9.4% vs 10.0% est; Industrial Output 7.0% vs 6.4% est; Fixed-asset Investment 7.0% vs 7.4% est

Asian equity markets were subdued with price relatively range-bound following the modest performance in US, where the major indices finished in the green but well off best levels and the DJIA met resistance just shy of the 25k level but still edged its longest run of gains since September. ASX 200 (-0.6%) was lacklustre with the telecoms sector dragged by weakness in Telstra shares while tech outperforms as Link Administration shares rally on reports the Co. is exploring options with Pexa in which it is the 2nd largest shareholder of. Nikkei 225 (-0.2%) traded lacklustre with focus for individual stocks on corporate earnings, while Shanghai Comp. (+0.6%) and Hang Seng (-1.2%) also lacked impetus despite a firm liquidity operation by the PBoC, with profit taking observed in Hong Kong following the recent streak and as varied tier-1 data from China added to the cautious tone after Industrial Production topped estimates but Retail Sales disappointed. Finally, 10yr JGBs were subdued following similar trade in T-notes which extended on the prior day’s losses as the US 10yr treasury yield rose back above 3.000%, while a mixed 30-yr JGB auction added to the subdued tone as it showed a decline in accepted prices. US & China are reportedly closing in on a deal which would give ZTE a reprieve from US sanctions, in exchange for Beijing removing tariffs on billions of US agricultural products, according to people familiar with the matter. In related news, there were also comments from US Ambassador to China Branstad that China and US remain at a far distance on trade and that President Trump wants a dramatic rise in farm exports to China.

Top Asian News

  • China Data Shows a Hint of Slowdown While Factories Still Hum
  • Cliffhanger in Bitter Contest for India’s Swing State Vote
  • Tencent Shares Suddenly Lose $17 Billion One Day Before Earnings
  • Tata Steel Gets Tribunal Nod for Biggest Acquisition Since Corus
  • MUFG Sees Profit Falling More Than Analysts Estimate This Year

European bourses opened on the backfoot but since then are trading mixed (Eurostoxx 50 flat) with the Italy’s FTSE MIB (+0.3%) outperforming its peers with traders watching out for any potential breakthroughs in forming a government. Sectors are also mixed with financials leading the gains while telecom names lag amid downbeat earnings from Vodafone (-3.1%) and Eutelsat (-11.3%). Other individual movers in the wake of earnings include Thyssenkrupp (-4.3%), Iliad (-17.7%), Pandora (-11.7%), easyJet (+2.3%) and Commerzbank (+2.3%).

Top European News

  • Italian Populists Head to Overtime Divided on Coalition Plan
  • German Economy Expands 0.3% Q/Q in 1Q; Est. Expands 0.4% Q/Q
  • Germany Blames Trade for Weakness Aggravating Euro-Area Slowdown
  • Credit Agricole Caught in Fixed-Income Slump Like Rivals
  • Eutelsat Plummets Most in Two Years After ‘Otherworldly’ Results
  • Allianz’s Asset-Management Unit Sees Profit Soar on Inflows

In FX, the Dollar remains on a firmer footing overall after Monday’s late rally that came alongside a rebound in US Treasury yields and has culminated in the 10 year benchmark crossing the 3% threshold again. The index is back above 92.500 within a 92.815-60 range having arrested a relatively pronounced retracement just ahead of 92.200 yesterday. However, retail sales data and more Fed rhetoric could provide further direction and result in another tweak in 2018 rate expectations that have tipped towards 4 hikes for the first time, per CME pricing (and only just at 51%). JPY: Around 0.25% lower vs the Greenback and mildly underperforming other G10 peers, with Usd/Jpy touching 110.00 again following reports of importer demand during Asia-Pacific trade, but the big figure still proving a formidable barrier to overcome, with recent peaks only a fraction above and the 200 DMA not far away if stops are tripped. Marginally less dovish comments from BoJ Governor Kuroda have also helped to cap the pair. AUD: The next biggest loser or victim of the Usd revival among majors as the pair retreats to test 0.7500 where more big option expiry interests lie (some 2.6 bn over today and Wednesday). RBA minutes merely reiterating no reason to raise rates anytime soon given slow wage and inflation developments, while risks associated with Aud strength were also highlighted yet again. GBP: Choppy trade in the run up to UK labour data, with sellers front-running and Cable down to the low 1.3520 area before bouncing towards 1.3550 on an ultimately mixed jobs and earnings report.

In commodities, Brent is currently trading higher, nearing 3 ½ year highs. The widening spread between the two is stated to be due to geopolitical concerns, as well as an anticipated increase in US June shale production (+145k BPD), that is compounded by record crude production. This leaves the US market well-supplied as the world market is squeezed further by OPEC cuts. In the metals sector, gold is currently down for the day (-0.3%) at USD 1310.20. Copper has also fallen slightly on increasing stockpiles of the metal. Dalian Iron ore has hit one-month highs on the back of strong Chinese demand.

Looking at the day ahead, the preliminary Q1 GDP report in Germany is due  (0.4% qoq expected), along with the Q1 GDP report for the Euro area (0.4% qoq; 2.5% yoy expected). In the UK, the March unemployment rate (4.2% expected) and average weekly earnings growth (2.6% expected) along with other employment data are due, while in France the final April CPI revisions are also due. March industrial production data for the Euro area is also due, as well as the May ZEW survey in Germany. In the US the big focus will be on the April retail sales report (0.5% expected for ex-auto), while May empire manufacturing, March business inventories and the May NAHB housing market index print are also due. Fed nominees Clarida and Bowman are due to appear for confirmation hearings while the Fed's Kaplan and Williams are both scheduled to speak. UK PM Theresa May is also  due to meet with her Brexit Cabinet while China Vice Premier Liu He is due to visit Washington and continue trade talks.

US Event Calendar

  • 8:00am: Fed’s Kaplan discusses outlook for energy market, economy
  • 8:30am: Empire Manufacturing, est. 15, prior 15.8
  • 8:30am: Retail Sales Advance MoM, est. 0.3%, prior 0.6%; Retail Sales Ex Auto MoM, est. 0.5%, prior 0.2%
    • Retail Sales Ex Auto and Gas, est. 0.4%, prior 0.3%; Retail Sales Control Group, est. 0.4%, prior 0.4%
  • 10am: NAHB Housing Market Index, est. 69, prior 69
  • 10am: Business Inventories, est. 0.1%, prior 0.6%
  • 10am: Fed nominees Clarida and Bowman testify before Senate panel
  • 1pm: Fed’s Williams to speak at Economic Club of Minnesota
  • 4pm: Total Net TIC Flows, prior $44.7b; Net Long-term TIC Flows, prior $49.0b

DB's Jim Reid concludes the overnight wrap

This morning we’ve already seen the latest Chinese data dump which was a bit mixed. The April retail sales (9.4% yoy vs. 10.0% expected) and fixed asset investment (7% yoy vs. 7.4%) were both lower than expectations, but industrial production rose 1ppt mom and was above consensus at 7% yoy (vs. 6.4% expected). Yesterday our Chinese economist wrote the third part of their series explaining why they had turned bullish on growth. See below in our DB  macro updates section for the link.

The big event today is probably US retail sales but we also have second reading of European GDP, UK employment numbers, the latest UK Brexit cabinet meeting, and possible headlines from the Chinese VP travelling to Washington to continue trade talks. These will be previewed fully at the end.

This is definitely the peak data day of the week and bonds go into it having sold off a fair bit over the last 24 hours especially in Europe. Across the region, Bunds (+5.2bp) and Gilts (+2.8bp) both weakened while peripherals slightly underperformed with losses led by Spain (+6bp) and Italian BTPs (+5.7bp). Over in the US, the yield on the UST 2y rose for the 7 consecutive day (+1.2bp) to the highest since August 2008 while the UST 10y closed marginally above 3% again (3.003%). It wasn’t easy to pinpoint the reason for the fixed income weakness but hawkish ECB speak, rising Oil (WTI +0.25% to $71.14/bbl), and the halo impact of Mr Trump’s weekend scaling back on trade sanctions for China’s ZTE were all cited. On the ECB, Villeroy suggested that the ECB’s “well past” guidance on the first rate hike refers to “at least some quarters, but not years” post the end of QE and that “we’ll probably give additional guidance for the end of the year for the timing of the rate hike and the contingencies”. Not particularly new news but it did seem to impact markets.

Conversely, equities were relatively muted with lower trading volume and volatility yesterday. The S&P initially traded 0.5% higher but pared back gains to close marginally up for the fourth straight day (+0.09%). The move was weighed down by the real estate and utilities sectors as well as Xerox (-4%) after the company abandoned its merger with Fujifilm. Elsewhere, the Dow (+0.27%) and Nasdaq (+0.11%) also advanced while the VIX rose for the first time in eight days (+2.2% to 12.93). In Europe, key bourses such as the Stoxx 600 (-0.05%), DAX (-0.18%) and FTSE (-0.18%) retreated modestly, while Italy’s FTSE MIB edged up +0.26%.

Following on with Italian politics where we’re still waiting for more firm conclusions from the coalition talks. Yesterday, the 5SM and League Party told President Mattarella they need a bit more time for negotiations. The 5SM leader Di Maio noted “a few extra days” may be needed and confirmed that both parties agreed not to publicly name the candidates for the Premiership.

This morning in Asia, markets are broadly lower, with the Hang Seng (-0.90%), Kospi (-0.61%), Nikkei (-0.09% and Shanghai Comp. (-0.22%) all down as we type. Now recapping other markets from yesterday. The US dollar index edged up for the first time in four days (+0.05%), while the Euro dipped -0.13% and Sterling rose 0.1%. Elsewhere, the Argentina Peso dropped 7.7% to a fresh record low vs. the USD as Bloomberg cited unnamed sources that noted the Central bank has shifted its strategy in supporting the Peso, to now allowing the currency to fall within a certain limit. Further, an IMF spokesman noted that it will not set Peso targets as a condition for the credit line currently under negotiations with Argentina. Over in commodities, precious metals weakened (Gold -0.44%; Silver -0.86%) while other base metals broadly retreated (Copper -0.62%; Zinc -0.25%; Aluminium +0.44%).

Now turning to some of the trade headlines. Following President Trump’s conciliatory tweet on the Chinese telco. company ZTE on Sunday, the US Commerce Secretary Ross has confirmed that his department is considering whether “…there are alternative remedies….and that’s the area we’ll be exploring very, very promptly”. Elsewhere, the WSJ reported that the US and China may swap an end to sanctions on ZTE in return for the removal of Chinese tariffs on American farm products. Finally, on the overall views on trade between US and China, Mr Ross has warned that “gaps remain wide” with Beijing. So lots bubbling along ahead of this week’s trade talks.

Moving onto the two Fed speakers on rates and yield curve. The Fed’s Bullard reiterated that “we’re at some risk of an inverted yield curve later this year or early 2019” and that “it’s been the Fed, I think, that has flattened the curve more than worries by investors on the state of the economy”. On rates, he repeated that “....the Fed does not need to be so aggressive that we invert the yield curve”. Conversely, the Fed’s Mester noted the Fed should continue on its current, gradual path of monetary tightening and that the Fed may eventually need to raise rates above its  neutral rate of about 3%. On inflation, she believes it will trend to the 2% target, but doesn’t expect it to rise sharply, in part as some of the pick-up reflects higher commodity prices and some of the recent strength are likely temporary, as low readings from last March drop out of the calculations.

Finally we highlight some of DB’s macroeconomic research from overnight. In the US, our colleagues Quinn Brody and Torsten Slok have published a preview of the mid-term congressional elections, including implications for the economy
and markets. They believe that investors should monitor polls and betting odds ahead of the November elections for different market scenarios. Volatility may rise regardless of the outcome, but, based on historical relationships, equities may be more likely to rise if Republicans manage to maintain control of Congress. In China, our team noted that April land sales remained strong, particularly in lower tier cities while property prices continued to rise. Overall, they believe this is positive for growth and investment. Their macro view remains unchanged: growth should sustain at 6.6% in 2018, with risks to the upside. In Europe, Peter Sidorov has reviewed the recent trends in private sector credit in the euro area to reverse engineer the rate of credit growth implied by the GDP forecasts. Their GDP forecast implies credit growth will rise to around 5% yoy by the end of 2019. With the euro area set to move from passive deleveraging to an outright releveraging mode by the end of 2018, his note also thinks about the sustainability of the euro area credit cycle.

There were limited data releases yesterday. In France, the April Bank of France industry sentiment index edged down 1pt mom to 102 (vs. 103 expected).

Looking at the day ahead, the preliminary Q1 GDP report in Germany is due  (0.4% qoq expected), along with the Q1 GDP report for the Euro area (0.4% qoq; 2.5% yoy expected). In the UK, the March unemployment rate (4.2% expected) and average weekly earnings growth (2.6% expected) along with other employment data are due, while in France the final April CPI revisions are also due. March industrial production data for the Euro area is also due, as well as the May ZEW survey in Germany. In the US the big focus will be on the April retail sales report (0.5% expected for ex-auto), while May empire manufacturing, March business inventories and the May NAHB housing market index print are also due. Fed nominees Clarida and Bowman are due to appear for confirmation hearings while the Fed's Kaplan and Williams are both scheduled to speak. UK PM Theresa May is also  due to meet with her Brexit Cabinet while China Vice Premier Liu He is due to visit Washington and continue trade talks.

Published:5/15/2018 7:08:09 AM
[Markets] Dow’s 8-session win streak in jeopardy as U.S. stock futures dip U.S. stock futures edged lower Tuesday, indicating the Dow could struggle to stretch its eight-session winning streak into another day. The yield on the 10-year Treasury note (XTUP:TMUBMUSD10Y=X)was poking back above the 3% handle, and traders were bracing for readings on retail sales and the housing market, as well as Federal Reserve speeches. Dow Jones Industrial Average futures(YMM18.CBT)slipped 62 points, or 0.3%, to 24,824, while S&P 500 futures (ESM18.CME)eased 7.40 points, or 0.3%, to 2,723.50. Published:5/15/2018 4:05:57 AM
[Markets] After the Bell: Dow Gains 68 Points, But Is That a Warning Sign I See? The Dow Jones industrial and the other major indexes managed to hold onto their gains today. •...take a look at the S&P 500's biggest loser—Viacom (VIAB)—and biggest winner—Symantec (SYMC). The recent gains have many observers feeling upbeat, with some even positing that the S&P 500 has finally resumed its uptrend. Published:5/14/2018 5:33:21 PM
[Markets] Dow books longest win streak in 8 months as trade fears ebb U.S. stock indexes posted modest gains Monday, and the Dow ended with an eighth gain in a row, extending an uptrend on signs of easing trade tensions between the U.S. and China. The Dow Jones Industrial Average (^DJI) closed up 68.24 points, or 0.3%, to 24,899.41, marking its eighth straight advance and the longest positive streak since one that ended Sept. 20. Published:5/14/2018 4:33:13 PM
[Markets] Dow's 8-session winning streak is longest since September Dow's 8-session winning streak is longest since September Published:5/14/2018 3:32:41 PM
[Markets] Dow Clings To Longest Win Streak In 8 Months; Dollar & Bond Yields Rise

Just when you thought the China trade-war was easing...

 

The Dow is up 8 days in a row - longest streak in 8 months...BUT look where the Dow stalled today - at its 50% retrace from the Feb tumble...

 

Russell 2000 ripped up to test its all-time closing high (1615.52), then tumbled back into the red...

And a weak close spoiled the party....

 

Wondering what sparked the selling at the close? Simple...

VIX bounced after pushing down to a 12 handle...

 

Tech stocks led the way early helped by NXP's surge after hope that Trump's backing down on ZTE opened the door for QCOM's acquisition...

 

FANG pumped and dumped for the 3rd day in a row...

 

Treasury yields were marginally higher on the day...(chatter of a lot of IG issuance suggested that rate-locks were responsible for some of the rise in yields)...

 

10Y remains below 3.00%...

 

The Dollar Index traded in a very narrow band all day, slightly lower overnight and then gaining strength through the US session and rising a little after Wilbur Ross comments in the afternoon...

 

Meanwhile, Argentina's Peso crashed again...holding at 25.00 where BCRA said it would buy $5bn in pesos.

And its default risk exploded higher...as its Century bond yields hit a record high at 8.45.

 

But we note that EM FX Carry broke its uptrend...

As Nedbank noted, the carry index is an important “canary” to monitor. The index has broken out of the bull trend at 260 and has rallied from the 255 neckline on Friday to test 260 from below. The next few days will be important, as a consolidation below 260 would confirm a major reversal. A break below the neckline at 255 and below the wave-A high at 252 would project substantial downside (to below the (red) wave-C low of early 2016). The MACD has also confirmed the break out of the bull trend.

Additionally, EM bond yields are spiking...(Dollar and local currency debt costs are soaring)

 

As Blockchain Week starts, crypto was bid today with Litecoin best since Friday's close...

 

WTI managed to hold on to gains despite the dollar strength but PMs and copper slipped during the US day session...

 

Finally, the market seems to have forgotten about risk again...

The Bank of America Merrill Lynch GFSI Market Risk indicator, which hasn’t posted a weekly gain since March and fell to its lowest level since Jan. 22, is at a point indicating there is less stress than normal.

Published:5/14/2018 3:03:08 PM
[Markets] Stock market pares gains but Dow still on track for 8-day win streak U.S. stock indexes rose Monday afternoon, though off their best levels, suggesting the recent uptrend in stocks could remain intact, particularly amid signs of easing trade tensions between the U.S. and China. If the Dow were to close in positive territory, that would mark its eighth straight advance, the longest positive streak since one that ended Sept. 20. The Nasdaq Composite Index (^IXIC) rose 17 points, or 0.2%, to 7,419. Published:5/14/2018 1:02:12 PM
[Markets] General Electric: 5 Steps to a Buy General Electric (GE) is not the worst-performing stock in the Dow Jones Industrial Average this year—that honor goes to Procter & Gamble (PG)—which means that 2018 should count as an improvement over the last. Reason #1: The Right People Bergner argues that by putting Chief Executive John Flannery and Chief Financial Officer Jamie Baker, who turned around the industrial giant's health care and transportation businesses, in charge, the picked the right people for the job. "CEO John Flannery and CFO Jamie Baker are taking the right steps to drive free cash flow, surface asset value, and simplify the company," Bergner writes. Published:5/14/2018 12:03:14 PM
[Markets] Has Oil Bolstered US Equity Indexes? On May 4–11, US equity indexes had the following performances: The S&P 500 Index (SPY) rose 2.4%. The Dow Jones Industrial Average Index (DIA) rose 2.3%. The S&P Mid-Cap 400 Index (IVOO) rose 2.2%. Published:5/14/2018 11:31:44 AM
[Markets] Dow Rises for Eighth Day as Prospects for China Trade Deal Improve Asian shares closed Monday's session with solid gains after Donald Trump pledged to support China's ZTE Corp. Stocks rose Monday, May 14, and Asian markets posted gains as Donald Trump's pledge to support a Chinese telecommunications company raised the prospect of a near-term agreement on trade with China. The Dow Jones Industrial Average rose 103 points, or 0.42%, to 24,934, the S&P 500 was up 0.42%, and the Nasdaq gained 0.65%. Published:5/14/2018 10:02:04 AM
[Markets] Here’s a thought: Maybe the stock market won’t crash this year because it can’t Just when it feels like the market might finally topple and give desperate bears their long-awaited told-ya-so moment, a stubborn streak like the one the Dow is currently riding proves again who has the upper hand: The bulls. The blue chips’ stretch of seven positive sessions is the longest run since November of last year, and much of the backbone of this little rally can be attributed to a steady diet of stellar corporate earnings. It’s still pretty early, but, according to a recent Goldman Sachs (GS) report, S&P 500 companies are on track to announce a record $650 billion in buybacks this year. Published:5/14/2018 9:02:29 AM
[Markets] Morning Movers: Qualcomm, NXP Jump as China Restarts Merger Review, Perrigo Drops on Drug Review The Dow Jones Industrial Average appears set for a higher open this morning after President Donald Trump tweeted that he's working to get China's ZTE "back into business" following U.S. sanctions, a sign that a trade war might not be imminent. Dow Jones Industrial Average futures have risen 54 points, or 0.2%, while S&P 500 futures have ticked up 0.1%, and Nasdaq Composite futures have advanced 0.2%. Tigress Financials's Ivan Feinseth notes that not only is Trump working with China on ZTE, but that China has reopened an antitrust review of Qualcomm’s (QCOM) potential acquisition of NXP Semiconductor (NXPI). Published:5/14/2018 8:32:40 AM
[Markets] Reversal-Oriented Trading Continues For The 5 Major U.S. Averages The five major averages have been in consolidation mode since January for the Dow Jones Industrial Average, S&P 500, Dow Transports and Russell 2000 and since March 13 for the Nasdaq Composite. The Dow (14,831.17 on May 11) is 6.7% below its Jan. 26 all-time intraday high of 26,616.71, but back above its annual pivot of 24,666 and below its quarterly risky level of 25,280. The Nasdaq (7,402.88 on May 11) is just 3.1% below its March 13 all-time intraday high of 7,637.27 and is above its annual and semiannual value levels of 6,928 and 6,782, respectively, and is just above my quarterly pivot of 7,381 with this month’s risky level at 7,545. Published:5/14/2018 8:00:44 AM
[Markets] Need to Know: Relax. The stock market won’t crash this year — it can’t!?! — and here’s why Just when it feels like the stock market might finally topple and give desperate bears their long-awaited told-ya-so moment, a stubborn streak like the one the Dow is currently riding proves who has the upper hand: The bulls.
Published:5/14/2018 6:00:26 AM
[Markets] ZTE, Xerox, Tesla and NXP - 5 Things You Must Know U.S. stock futures rose Monday, May 14, and Asian markets posted gains as Donald Trump's pledge to support a Chinese telecommunications company raised the prospect of a near-term agreement on trade with China. The Dow has risen for seven straight days - the index's longest streak of consecutive daily gains since November - and last week rose 2.34%. Earnings reports are expected Monday from Agilent Technologies Inc. Published:5/14/2018 6:00:26 AM
[Markets] Trump's Neocon Folly: Goodbye Nuke Deal, Hello Global Debt Crisis

Authored by Tom Luongo,

At least it is confirmed for us.  Donald Trump wants regime change in Iran.  His cancellation of the JCPOA was a decision born his myopia.  He has surrounded himself with people who reinforce his view and manipulate him via his vanity.

And the price of implementing his current plan will be a global debt crisis which no one will escape.  The problem will be very few will see the links.

He wants to remake America and the world in his image while undoing anything President Obama touched.  Most of this I’m wholly on board with.  Obama was a vandal.  So, however, were Bush the Lesser and Bill Clinton.

We’re All Neocons Now

We have a leaked (yeah, right) memo explaining this is the plan.  But, we didn’t need this if we were being honest with ourselves.  Nothing Trump has done since he’s been in office has been contra to this goal; overthrowing the theocracy in Iran.

In fact, it has been a step-wise move in this direction with each decision he’s made.  Commentators I respect and have learned at the knee of still want to give Trump the benefit of the doubt.  Not me.

It’s right there in plain text.

Trump has capitalized on the insane Deep State opposition to his presidency to politicize this goal and get his base to ab-react for regime change, when he explicitly said that was off the table at his inauguration.

If the Democrats and Merkel want to stay in the deal, then the deal must be bad.  Obama Bad, Trump Good.  Trump is Orange Jesus.  He knows stuff, man.

What was a worry about Israeli influence in his administration in 2017 has now morphed into a call to duty to create chaos in Iran to assuage the American ego by saving the Iranian people from themselves.

You have to hand it to these folks, they understand how to run a successful mass psy-op.  Beware the Master Persuader, as Scott Adams would put it, his skills can be put to any use.

These men and their Deep State handlers/billionaire donors have had a strategic goal for decades, remake the Middle East for Israel and the Oil Complex, bottle up Russia and China.

Donald Trump’s patriotism is revealed to be jingoism.  But, he made this clear in his speech to the U.N. last year.  At some point you have to put away childish things and face the world we’ve got.

And that world is one of extreme uncertainty.

Back to the Future

As I said the other day, Trump wants to reset the clock back to 2012.  Bottle up Iran, cut its ties to the world.  Remove 1 million barrels of oil per day from the markets (for his Saudi weapons customers “Look!  Yuge JOBS!”). And bully our allies into getting the plan to atomize Syria back on track.

But, it’s not 2012.  It’s 2018 and everything is different.  Iran has friends it didn’t have then.  Yes, there is local unrest and unhappiness which could grow.  The rial is falling like a rock, people in Iran can’t get dollars.  Not solely because Trump has cut them off from the dollar but because Iran has.

It anticipated this move by him and the chaos of today turns into the de-dollarization of tomorrow.  These people still think destroying a national currency is the path to political change. It’s a dangerous gambit that doesn’t always work.

It didn’t work with Russia in 2014/5.  It’s not working in Venezuela today. And if those countries have friends, China for Russia in 2015, Russia and others for Venezuela today, then the longer the regime stays in power once the worst of the crisis hits, the lower the probability regime change becomes.

I told everyone last year the Saudi gambit to isolate Qatar wouldn’t work.  If they didn’t get regime change in Doha within two weeks, then the government would survive.  It has and now it is free to pursue whatever it wants, having finally bought a 19% stake in Russian state oil giant Rosneft.

Trump has been signaling this moment for almost two years.  Do you think Russia, Iran and China have not been game-planning this?  When the attack on the ruble began in 2014, Putin did the unthinkable.  In doing so revealed his central bank’s disloyalty.

By demanding to free-float the ruble, under objection from his economic advisor Alexander Kudrin and central bank President Elvira Nabullina, Putin stabilized the situation quickly.  Then he ordered the Bank of Russia to assist payment of more than $50 billion in Russian corporate debt denominated in dollars from central bank reserves.

China opened up ruble/yuan swap lines to help funnel dollars into Russia.  The Bank of Russia had to abandon IMF-style austerity and serve Russian interests first rather than continue playing into the hands of U.S. hybrid war tactics.

Iran has these people as its friends now.  They are committed to its survival.  They may not be committed to the IRGC staying in Syria post-ISIS/Al-Qaeda, but they are committed to an Iran aligned with them for the road ahead.  And that Road has a Belt attached to it.

Because they know that if they lead the opposition to U.S. aggression, then they will gain allies over time.  In acting this way Trump is revealing the U.S. to be the repressive, messianic global oligarch of the world order it claims the Iranian Islamic Republic to be over its citizens.

Everyone will get in line behind the Orange Emperor or suffer his wrath.  Why?  Because Bibi Netanyahu can’t sleep at night?  Get that psychopath a plushie and leave a night light on for pity’s sake.

It also has an EU wanting to establish itself as a separate power from the U.S.  Angela Merkel and French Poodle Emmanuel Macron both want an independent EU foreign policy and a Grand Army of the EU to put down any internal rebellions.

China can and will assist Iran in overcoming the sanctions.  So will Turkey, who did so in 2012. Will it be enough save the Islamic Republic?  Possibly.  If that happens will the U.S. get what it wants?

Most probably not.  National Security Advisor and Certified Crazy Person John Bolton wants to put the Saudi-backed MEK (Mujahedeen-e-Khalq), a cult-like Sunni group with zero support in Iran.  You’ll hear in the coming days about how great these guys are.

Just like U.S. NGO-backed Russian agitator Alexei Navalny is promoted in the Western press even though he can’t get 2,000 people to march in Moscow on the day of Putin’s inarguration.

Sanctions Cut Both Ways

Russia, ultimately, has the sanctions hammer in its control of the uranium market.  It’s also a major supplier of both titanium and aluminum.  The U.S. has never considered sanctioning the first two and it’s plan to sanction Rusal has been close to a disaster.

Trump believes in the primacy of the U.S. threat both militarily and financially so much that he’s willing to project it everywhere and at everyone to get what he wants in Iran.  We thought he reluctantly signed those new sanctions last summer.  Nonsense.

If so, he wouldn’t be using those new powers in ways that are the height of hubris.  Explicit in his threats to Iran and his demands that are, as Alexander Mercouris put it at The Duran yesterday, “so extreme that no sovereign state could ever accept them and retain its independence.”

So, let’s again put away childish things and think that Trump will not take this to whatever point he thinks is necessary to get his desired outcome.

But, in doing this he will upset world financial markets already fragile from a decade of QE and an explosion of cheap dollar-denominated debt.  The Fed is raising interest rates. Bond traders are resisting raising rates at the long-end of the U.S. Treasury yield curve, causing it to flatten dangerously.

Trump wants a continued weaker dollar but geopolitical uncertainty creates dollar demand because so much of the world’s debt and trade is based in it.  For over a year Foreign Central Banks have been parking U.S. Treasury purchases with the Fed as the dollar weakened.

Now that trend has firmly changed.

The Dollar Debt Bomb

Moreover, the ECB is trapped at the negative-bound.  Mario Draghi keeps telling everyone he has no Plan B.  He will keep being the marginal (or only) buyer of EU sovereign debt until the market finally pukes all over him.

If Trump is serious about putting sanctions on any foreign entity that does any business with Iran then that will set off chain reactions around the globe.  It’s why I’m not sanguine about EU leadership standing up to Trump in the long run.

But it’s a real opportunity for Merkel et. al. to establish a new pole in the proposed multi-polar world advocated by Putin and Chinese Premier Xi Jinping.

The worry now is a technical breakout of the U.S. 10 year above 3.05%.  U.S./EU credit spreads   With the dollar strengthening low loan servicing costs become big quick.  Anyone who has/had an adjustable rate mortgage understands this viscerally.

With China no long buying U.S. debt, it is free to funnel dollars to Iran through proxies and its own oil trade to keep things from escalating.  That lack of recycling of its trade surplus is part of what kept the dollar weaker longer.  Now that the dollar is rising, we can safely say that that effect has been over-run.

China can and will put pressure on the Saudis by buying more Iranian oil.  Expect Iran now to cut it’s monthly tender price to undercut Saudi Arabia on a forward basis.  In 2012 U.S. sanctions made it difficult for shippers to insure oil shipments and that was part of the reason they were initially so successful.

With the Fed tightening, reserves of the U.S. banking system are falling thanks to excess reserves being mobilized. The U.S. budget will strain from rising debt servicing costs, now above 8.6% of total outlay, compared to less than 8% this time last year.  Again this puts upward pressure on the dollar as foreign markets are starved of dollars.

Next, Trump wants more balanced trade with China and Europe and he’s willing to guy global trade to do it.  But that also means a stronger dollar in the long run as debt still needs to be serviced while trade is falling.

Again, fewer exported dollars while the budget deficit grows.  Emerging Markets are already suffering horrendous capital outflows.  Just wait until things actually get bad.

Eurodollar markets have been drained of their liquidity in recent months as U.S. corporates repatriate funds and, like Apple, buy back their stock.

All of this points to reaping a whirlwind of dollar strength, not weakness, which to me, looks like the spark of the global debt crisis the Fed delayed for over a year by not raising interest rates sooner.  It bowed to IMF pressure in 2014/15 to delay raising rates.

And the world is not prepared for the dollar spiking 20 or 30% over the next year.  It is not prepared for a shift in risk assets stocks to bonds.  A spiking dollar will create a perfect storm of debt defaults that will unleash chaos which will topple governments (and not Iran’s).

Trump will not react well to this, claiming, like all U.S. Presidents that China is manipulating its currency down to harm us.  That’s utter nonsense.  As I’ve laid out, Trump is creating the very whirlwind he’s trying to avoid.

It’s why the DOW is holding above 24,000.  And why the euro is about to collapse.

Survival is Winning

So, here we are.  This is why I keep saying China, Russia and Iran’s best moves politically are to do nothing overt.  Iran was not the aggressor the other day.  That’s another of Bibi’s blatant lies.

Russia looks weak by not responding to Israel’s spastic flailing the other day, but it knows that time is on its side.  The SAA/IRGC and Russian forces continue to destroy pocket after pocket of resistance in Syria.

Putin will continue to hold his water, waiting for the opportune moment to reverse his opponent.  Russia’s limit has not been reached in Syria yet.  Putin always does this.  It drives his critics and his supporters crazy.

It’s geopolitical judo and he’s the master at it.  And when that reversal comes and Israel has been thrown flat on its back, Trump’s only move will be to settle.  Why speculate on what he’ll do.  Just watch and wait it out.  The signs are all there.

When that happens John Bolton will retreat farther into madness, hopefully he’ll throw himself off a building and put us all out of his misery.  Let’s hope someone’s iPhone captures it for posterity’s sake.

After a brief spasm in the financial markets thanks to Trump’s insane aluminum tariffs, Russian equities and the ruble are rallying.

In fact the MICEX Index just put in its all-time highest weekly closing price.  Its sovereign debt markets are stable and the yield curve is widening.  Capital is flowing into Russia despite horrific U.S. sanctions.

This is the model for Iran’s resistance.

Russia is winning the financial war of attrition and the stronger it gets the more it can support Iran in the long run alongside China.

This is the limit of Trump’s unwillingness to update his worldview from 2003.  He’s held this view of Iran his entire life and surrounded himself with the ‘experts’ to take Iran out.  Even if the Mullahs fall, the backlash from the process whatever form it takes will set the global debt markets aflame, a bonfire of Trump’s vanity.

*  *  *

To support work like this and find out how you can de-stress your investment portfolio as we live through a period of global geopolitical strife sign up for my Patreon and subscribe to the Gold Goats ‘n Guns Investment Newsletter.

Published:5/12/2018 7:51:32 PM
[Markets] This Is What The Slow-Motion LBO Of The Stock Market Looks Like

When it comes to stock buybacks - an increasingly politically charged topic - 2018 has already been a historic year: as we first reported three months ago, as a result of Trump tax reform which made offshore cash repatriation far more economical, corporations would use much of this redomiciled cash to buyback $650 billion of their own stock in 2018, an all time high (for an extended analysis of the market and political implications of record cash flows, see ""Day Of Reckoning" Nears As Goldman Projects A Record $650BN In Stock Buybacks")

A few weeks later, JPM followed up with its own stock buyback analysis, calculating that no less than $840 billion in stock would be repurchased courtesy of the new tax law, a staggering number as shown in the chart below.

Fast forward to last week, when the WSJ expounded on the stock buyback tsunami, reporting that "U.S. companies are buying back their shares at a record pace, providing support for the stock market when many investors have rushed for the exits."

S&P 500 companies that have reported earnings for the first three months of 2018 bought $158 billion of their own stock in the first quarter, according to S&P Dow Jones Indices. That is on pace for the biggest amount in any quarter, based on data going back to 1998. About 85% of S&P 500 components have reported so far.

Indeed, this largely debt-funded activity - or rather extremely cheap debt-funded activity...


... has been a panacea to corporations and their management teams, eager to boost not only their stock price but also their equity-linked compensation, in the process sending the overall S&P to new all time highs, as more and more shares outstanding are quietly taken out of circulation.

"The reason these companies are buying their stock is that they’re smart enough to know that it’s better for them than anything else,” said Charles Munger, vice chairman of Berkshire Hathaway Inc., at the company’s annual meeting last weekend.

It is hardly a surprise then that Berkshire Hathaway recently became the 3rd largest holder of Apple stock: having lost the ability to innovate, Tim Cook is now the single largest repurchaser of stock in the S&P500...

... having just bought back a
record amount of AAPL shares:

Apple

Incidentally, Buffett's brief infatuation with IBM was for the same reason: until recently, Big Blue had been the biggest, most reliable repurchaser of its own stock. That all ended in 2014 when as we reported at the time, the company's leverage became too big to sustain the surge in buybacks, sending both IBM stock price, and Buffett's interest in it, tumbling.

Going back to the direct impact of buybacks, contrary to the false public perception that buybacks do not work, perhaps as a result of charts such as this one by Goldman which suggests that buybacks have done little to boost stock prices, which in retrospect is absolutely wrong...

... the WSJ found that repurchases have been especially effective in raising stock prices at a time when most others - both retail and institutional investors - have been selling. In fact, according to the Journal, companies repurchasing their stock have outperformed the broader market by over 170%:

Of the 20 S&P 500 companies that spent the most on buybacks over the first quarter, nearly three-quarters have outperformed the index so far this year. The group has risen an average of 5.2% in 2018, compared with the S&P 500’s 1.9% gain, according to a Wall Street Journal analysis of S&P Dow Jones Indices data.

Some examples:

Apple Inc., the largest U.S. company by market value, said last week that it would embark on a $100 billion buyback program. The stock surged 4.4% the following day and 13% for the full week—marking its biggest one-week percentage gain since October 2011.

Microsoft Corp.’s stock has risen 14% this year, after the company bought back $3.8 billion in shares in the first quarter. Boeing Co. , JPMorgan Chase & Co. and UnitedHealth Group Inc. are up this year after big first-quarter buybacks.

To be sure, buybacks have not worked for everyone: Amgen, the second-largest buyer of its stock among reporting companies in the first quarter, repurchased $10.6 billion of shares in the first three months of the year, and yet its shares are down 1.8% this year. That, however, hasn’t stopped companies from continuing to pump cash into buybacks. Amgen expects to buy back between $2 billion and $4 billion more of its stock in the second quarter, the pharmaceutical giant said.

How much longer can this continue?

The answer may well be "indefinitely", especially with debt interest rates still very low relatively to the pre-central planning era, which means companies will be able to keep issuing debt, gobbled up by yield-starved managers of other people's money, for the foreseeable future, until one of two things happens: i) rates jump to the point where it is no longer economic to repurchase stock at the expense of incremental interest expense, or ii) there is no more public stock to repurchase.

While the second may appear to be a joke, an analysis by JPM on Friday found that at the current rate of stock buybacks, all else equal - i.e. assuming no new stock issuance - the S&P will LBO itself in about 77 years. Here is the math from JPM's Nikolaos Panigirtzoglou:

The Divisor of the S&P500 Index, proxied here by the ratio of the free float market value divided by the price, is shown in Figure 2. Between 2014 and 2017 the S&P500 Index Divisor had been declining by 1.3% per annum. YTD it declined by 0.5% which annualized stands 20% above last year’s pace.

And this is what the accelerating LBO of the S&P500 looks like:

Some additional observations from JPM:

while our expectation remains that corporate buyback activity will increase this year vs last year due to repatriation flows as well as strong earnings growth and corporate tax cuts, thus far in 2018 it seems that most of the increase is concentrated to a few large companies and the share buyback increase for the overall US equity market has been more modest.

Others disagree, such as BofA managing director Jake Mendelsohn, who leads the desk that does corporate buybacks: "Activity is very widespread and we’re seeing it executed in a lot of ways."

And while nothing appears able to stop, or even slow down, the slow-motion LBO of the entire market, the reality is that while rewarding shareholders in the short-term while boosting your own stock price does miracles for management morale (by way of equity-linked comp), the trade off is the vibrancy, productivity and global leadership of America's corporations: critics say spending on buybacks comes at the expense of spending on R&D, hiring and equipment upgrades — things they believe are the ultimate drivers of growth over the long run. Of course, we all know what also is true about the "long run"...

Meanwhile, the topic of buybacks is so controversial, not even Charlie Munger can stop himself from yet another episode of demented hypocrisy, saying that buying shares just to keep the stock up is "insane and immoral." Ironic, considering Berkshire just announced it bought another 75 million shares in the world's biggest repurchaser of stock...

Published:5/12/2018 5:20:58 PM
[Markets] Dow Jones 30 and NASDAQ 100 both show signs of strength during the week The Dow Jones 30 and the NASDAQ 100 both rallied during the week, breaking above the top of hammers from the previous week. The market looks likely to continue to go higher, as the US stock market in general has shown a proclivity to find value hunters every time it dips. Published:5/12/2018 4:17:13 AM
[Markets] U.S. Stocks Post Biggest One-Week Gain Since March Bets on inflation remaining muted helped push investors back into the stock market, driving the S&P 500 and Dow Jones Industrial Average to their biggest one-week gains since March. Stocks have rebounded in recent sessions, with the Dow rising seven straight sessions through Friday—its longest such streak since November. Data on producer and consumer prices suggested inflationary pressures are still soft, reassuring investors that prices aren’t rising at a pace that would force the Federal Reserve to accelerate its pace of interest-rate increases. Published:5/11/2018 10:46:27 PM
[Markets] Dow marks longest win streak in 6 months as stock gauges log sharp weekly gains U.S. stocks ended mostly higher Friday, with the Dow posting its longest win streak since late last year. Few economic reports on inflation or the economy were able to deter Wall Street from tentatively buying assets perceived as risky. Although comments by President Donald Trump proposing sweep changes to health-care policy briefly pushed the main benchmarks to intraday losses before rebounding. Published:5/11/2018 4:14:48 PM
[Markets] Dow ends higher for seventh straight day as health-care stocks rally Dow ends higher for seventh straight day as health-care stocks rally Published:5/11/2018 3:19:56 PM
[Markets] Stocks Surge But Cryptos Tanked, ARS Spanked, & Dollar Bid Yanked

So... Trump stirs up the Middle-East by withdrawing from JCPOA and... The Dow gains 600 points (best week in 2 months), VIX tumbles to a 12 handle (lowest close since Jan), Oil rises just 1.25% on the week (but at 4 year highs), Gold managed a modest gain (the first weekly rise in a month) and The Dollar and The Long Bond end the week unchanged...

BTFINDWD!!

 

But it all started last week...

 

VIX was monkeyhammered to a 12 handle...

VIX lowest close since Jan..

The Dow found resistance at the 100DMA...

 

AAPL was set for the longest daily win streak since 2010... but closed lower today...

 

Symantec was clubbed like a baby seal..

 

TSLA stock remains decoupled from reality...

 

Healthcare-related stocks dipped then ripped on Trump's announcement...

 

Bank stocks started to fade a little relative to the market in the last two days as the yield curve collapsed...

 

Treasury yields were very mixed on the week with the long-end lower and short-end higher...

 

Which meant massive flattening across the curve:

  • 5s30s -6bps to 27bps (flattest since Aug 2007)
  • 2s30s -5bps to 57bps (flattest since Aug 2007)
  • 2s10s -2bps to 43bps (flattest since Sept 2007)
  • 7s10s -2bps to 2.7bps (flattest on record)
  • 10s30s -3bps to 13bps (flattest Jul 2007)

As CPI sparked a significant dump...

 

30Y Yields peaked midweek then were bid into the weekend...

Once again 30Y yields find resistance at around 3.20%...

10Y Yields rejected 3.00% again...

 

The Dollar Index closed the week flat as the early week bid evaporated on Thursday and Friday...

 

ARS was spanked early on before BCRA piled in with massive $1 billion intervention to rescue the day (but in context the bounce is marginal ahead of next week's massive liquidity needs)...

 

Cryptocurrencies suffered this week as MtGox liquidation rumors, Nvidia forecasts, and a South Korean exchange raid sparked FUD...

 

The dollar's wild ride left all commodities green on the week, though we note that WTI gave back a lot of the mid-week gains...

 

Finally, we leave it to Gluskin-Sheff's David Rosenberg for some much-needed context...

 

Published:5/11/2018 3:19:56 PM
[Markets] Dow tips higher, but knocked around, after Trump proposes sweeping change to health-care policy The Dow Jones Industrial Average briefly turned negative Friday afternoon, as President Donald Trump announced a series of changes intended to overhaul health-care policy in the U.S. At last check, the ... Published:5/11/2018 1:47:36 PM
[Markets] Dow on track for 7th straight win as stocks climb broadly U.S. stocks rose modestly on Friday, with the Dow looking to post its longest winning streak since late last year, with few economic reports on inflation or the economy deterring Wall Street from tentatively buying assets perceived as risky. The Dow Jones Industrial Average (^DJI) rose 46 points, or 0.2%, to 24,788. If the blue-chip average were to end in positive territory, that would mark its seventh straight positive session, its longest winning streak since the one that ended the week of Nov. 8, 2017. Published:5/11/2018 12:43:12 PM
[Markets] The stock market has had the most trouble breaking through this key line in the sand Wall Street has been mostly running around in circles so far in 2018. U.S. equity markets have been extremely volatile in 2018, with massive swings in both directions on a near-daily basis. The Dow Jones Industrial Average (^DJI) and the S&P 500 index (^GSPC) have recently shown signs of strength, but they’ve also wallowed in correction territory—defined as a drop of 10% from a peak without a gain of 10% from that bottom—for the longest stretch since the financial crisis. Published:5/11/2018 12:14:41 PM
[Markets] Markets Now: Dow Gains 95 Points as Confidence Returns to the Market Want to know why the Dow Jones Industrial Average is doing what it's doing? 10:34 a.m. A little confidence goes a long way, even if it wasn't the consumer confidence index that sent stocks on an upward trajectory this morning. The Dow Jones Industrial Average rose 95.46 points, or 0.4%, to 24,834.99, while the S&P 500 has increased 0.2% to 2728.74, and the Nasdaq Composite is little changed at 7403.99. Published:5/11/2018 10:12:43 AM
[Politics] Consumer Spending Update: Consumer Confidence Back On Path of Growth?

With the Dow Jones Industrial Average still more than 20% higher than during President Obama’s last full-month in office and last week’s report from the Bureau of Labor Statistics showing the unemployment rate dipping below four percent (4%) for the first time since December 2000, Americans seem to have let go of March’s rocky month on the stock market and are again thinking more positively about the economic outlook.

(Want a free daily e-mail update? If it's in the news, it's in our polls). Rasmussen Reports updates are also available on Twitter or Facebook.  

The survey of 1,500 American Adults was conducted on May 1-2, 2018 by Rasmussen Reports. The margin of sampling error is +/- 2.5 percentage points with a 95% level of confidence. Field work for all Rasmussen Reports surveys is conducted by Pulse Opinion Research, LLC. See methodology.

Published:5/11/2018 9:43:00 AM
[Markets] Dow's early Friday rally takes it to highest level in 8 weeks The Dow Jones Industrial Average's steady climb over the past seven sessions has pushed it to its highest level since mid March in early Friday action, underscoring the blue-chip gauge's resurgence--however ... Published:5/11/2018 9:12:23 AM
[Markets] Dow sets sights on seventh straight gain as it rises modestly at opening bell Dow sets sights on seventh straight gain as it rises modestly at opening bell Published:5/11/2018 8:42:31 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens little changed, tech drags Wall Street indexes opened little changed on Friday as losses in Symantec and Nvidia offset gains in healthcare and telecom sectors. The Dow Jones Industrial Average rose 19.11 points, or 0.08 percent, ... Published:5/11/2018 8:42:31 AM
[Markets] Morning Movers: Verizon Rises, Sarepta Gains, Kohl's Crumbles S&P 500 futures have advanced 0.1%, while Dow Jones Industrial Average futures have ticked up 24 points, or 0.1%. Nasdaq Composite futures are little changed. Yes, the S&P 500 has stopped making lower highs, but that doesn't mean the market is inevitably breaking out. Published:5/11/2018 8:14:09 AM
[Markets] [$$] S&P 500 poised for best week in over two months US stock-index futures are marching higher on Friday, boosted by softer than expected inflation data and stronger oil prices this week following the White House’s withdrawal from an international nuclear deal with Iran. With about an hour to go before the markets open, futures for the S&P 500, the Dow Jones Industrial Average and the Nasdaq 100 were all up 0.2 per cent. Investors have been breathing easier after Thursday’s consumer price index report showed that inflation is rising at a steady but unspectacular pace. Published:5/11/2018 7:44:42 AM
[Markets] Dow’s bid for 7th-straight winning session in play Shares of The Trade Desk, Nvidia, Dropbox, PPG could be activeUSA TODAY SportsDow industrials will aim for a seventh straight win on Friday. U.S. stock futures were inching higher on Friday, with the Dow industrials poised to post the longest winning streak since late last year, as investors breathed a bit easier over inflation and dollar’s swift pace of gains slowed. Dow Jones Industrial Average futures (YMM18.CBT) rose 42 points, or 0.2%, to 24,732, while S&P 500 futures (ESM18.CME) inched up 3.8 points, or 0.1%, to 2,722.50. Published:5/11/2018 4:43:11 AM
[Markets] U.S. Stocks Climb as Inflation Fears, Volatility Ebb U.S. stocks rose Thursday and market volatility continued to fade, as fears of runaway inflation abated to help send the Dow Jones Industrial Average higher for a sixth consecutive session. The Dow rose nearly 200 points to notch its longest winning streak since February after investors got another sign that inflation may be rising, but not so rapidly that the Federal Reserve would have to take aggressive actions to keep the economy from overheating. Meanwhile, the volatility that rocked the stock market this year and sent major indexes into correction territory has gradually faded, giving some money managers hope that stocks are gaining upward momentum. Published:5/10/2018 7:09:11 PM
[Markets] Here’s why he stock market has its swagger back—for now Fading inflation fears are one piece of the puzzleAFP/Stocks are floating higher. Don’t look now, but U.S. stocks are in a decided uptrend as a period of market anxieties appear to have faded—at least for the moment. In its wake is a rally has ensued, with the Dow Jones Industrial Average (^DJI) on Thursday matching its longest win streak—six straight days—since a similar stretch ended Feb. 16, according to FactSet data. Published:5/10/2018 6:10:12 PM
[Markets] After the Bell: Dow Jumps 197 Points as Stocks Live the Dream It was a marvelous day for a Dow dream, as everything came together for the major market indexes. The Dow Jones Industrial Average advanced 196.99 points, or 0.8%, to 24,739.53, while the S&P 500 gained 0.9% to 2723.07, and the Nasdaq Composite rose 0.9% to 7404.97. The market got off to a roaring start this morning after the release of April's consumer-price index, which showed that that there's nothing to fear from inflation and, therefore, perhaps not from the Federal Reserve either. Published:5/10/2018 4:44:35 PM
[Markets] Stocks Jump For 6th Straight Day As Dollar, Yield Curve Dump

CPI's 'miss' prompted another day of 'bad is good' as wage growth slowed and stocks (and bonds) ripped...

Goldilocks is back, bitches...

 

Buy it all... (Small Caps showed the first signs of momo lag after Europe closed)...

 

On the week, it's all fun and games with Nasdaq leading...

 

Despite all the excitement The Dow remains red for 2018...The S&P managed to hold green for the year today...

 

S&P Small Cap 600 ramped to a new record intraday high...Quadruple Top, anyone?

 

VIX tumbled to a 12 handle...

Bank stocks love the collapsing yield curve...

 

Now where have we seen that pattern before?

 

Tesla Bonds ain't loving it...

 

So - to summarize - The Dow is up over 1200 points in the last 7 trading days... and 30Y Treasury yields are unchanged.

SPOT THE ODD ONE OUT!!

Meanwhile, the Treasury curve continues to collapse... 30Y Yields are now lower on the week...

 

5s30s broke below 30bps for the first time since 2007

 

2s30s tumbled 5bps to 47bps! 2s10s flattened 4bps to 43bps...

and 7s10s flattened 2bps to 2.5bps!!

 

The Dollar looks like it broke its momo run...biggest drop in 2 months

 

And then there's Malaysia where stocks ramped as FX did not... who do you trust?

 

Cryptos were treading water most of the day until they suddenly kneejerked lower for no good reason...Unconfirmed chatter was that MtGox custodian was dumping 2000BTC blocks...

 

Dollar weakness helped the entire commodity space...

 

WTI closed above $71 and RBOB extended its gains post-Trump...

Either Copper needs to rip, Gold needs to dip, or 10Y notes are due a big rally...

Published:5/10/2018 3:09:25 PM
[Markets] US STOCKS SNAPSHOT-Wall St rises on easing inflation concerns Wall Street jumped on Thursday, and Apple Inc inched closer to a $1 trillion stock market value, as tepid inflation data eased worries of faster interest rate hikes this year. The Dow Jones Industrial ... Published:5/10/2018 3:09:25 PM
[Markets] Dow poised for 6th straight gain as tech extends rally; Apple at record U.S. stocks rose on Thursday, with equities advancing in a broad rally that was set to give the Dow Jones Industrial Average its longest winning streak since February. Technology stocks are leading the way, in keeping the trend so far this month. The Dow Jones Industrial Average (^DJI) rose 190 points, or 0.8%, to 24,732. Published:5/10/2018 2:09:34 PM
[Markets] Markets Showing Strength, Shaking Off Oil Pressures as Dow Jumps The Dow Jones Industrial Average is looking to extends its five-day win streak. U.S. crude continues to test four-year highs, taking gas prices to $2.86 per gallon. Iran and Israel traded rocket fire over the Golan Heights Thursday as Gulf tensions escalate. Published:5/10/2018 1:38:51 PM
[Markets] California Mandates Solar Panels For Most New Homes

Most new homes built in California will be required to have rooftop solar panels beginning in 2020, a mandate expected to add around $9,500 to the cost of a new house - but provide around $19,000 in energy savings over a 30-year period.

Regulators agreed on Wednesday to approve the historic plan, making California the first state in the country to mandate solar-energy installations on the majority of single-family homes and multi-family residential buildings up to three stories - including condos and apartment complexes. 

"We cannot let Californians be in homes that are essentially the residential equivalent of gas guzzlers," said CA energy commission member David Hochschild, prior to the vote. "This really puts us on a path to a more efficient future."

Experts, however, warn that forcing builders to require solar panels will just worsen the state's already horrendous affordable housing crisis

The California Energy Commission approved the mandate 5-0 as part of the state's 2019 update to energy efficiency standards, and an ongoing effort to reduce greenhouse gases. According to the California Air Resources Board (CARB), the state's robust building sector is the second largest source of greenhouse gasses when fossil fuel burning power plants are factored in. 

"This is an undeniably historic decision for the state and the U.S.," said Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, a trade association with about 1,000 member companies. "California has long been our nation's biggest solar champion, and its mass adoption of solar has generated huge economic and environmental benefits, including bringing tens of billions of dollars of investment into the state." -CNBC

The new mandate caused solar stocks to jump on Wednesday - sending SunPower up 6%, Sunrun 4% and First Solar 3%. 

Dave Fanger, CEO Swell Investing - whose Green Tech and Renewable Energy portfolios hold solar investments says that "Overall, we expect with California's mandate some companies within the solar and broader renewable industry stand to benefit positively, including those who make panels and component parts, as well as those who assist with installation and ensure efficient use of energy."

The new energy efficiency standards also apply to everything from indoor air quality to current ventilation systems, which we're sure won't drive costs up in the golden state. Every three years the state updates their efficiency standards, with the ultimate goal of "net-zero" energy homes which have very small carbon footprints. 

California in transition

California's renewable portfolio standard requires power companies to adopt at least 50% of their total energy sources from renewables such as solar, wind, geothermal and hydroelectric by 2030. Meanwhile, around 15-20% of single-family houses built in the state have solar panel installations. As CNBC notes, at least seven cities in the state have solar mandates of one type or another, including San Francisco. 

"Adoption of these standards represents a quantum leap in statewide building standards," Bob Raymer, the technical director for the CBIA said in remarks to the energy commission prior to the vote in Sacramento. "No other state in the nation will have anything close to this — and you can bet every one of the 49 other states will be watching closely to see what happens."

Raymer also applauded state regulators for working with builders "to significantly reduce overall compliance costs and to provide increased design flexibility." He said that cooperation "was the key to gaining industry support from these first-of-a-kind regulations." -CNBC

The new solar mandate includes compliance credits for the installation of battery storage technology - meaning that homeowners whose rooftop system store energy during the day for use at night when rates are higher. 

Falling costs

Rooftop solar systems have fallen in price considerably over the last several years, while the technology has become more efficient and aesthetically pleasing - such as ones which look like traditional roof shingles. 

Solar shingles are photovoltaic cells designed to look like and integrate with conventional asphalt roof shingles. First commercially available in 2005, solar shingles were much more costly than traditional “bolt-on” photovoltaic panels, and thus were used mainly by those wanting to go solar but maintain a traditional roofline. But more recently solar shingles have become price-competitive with bolt-on panels, and are getting much more popular accordingly. Eco-conscious home and building owners might find solar shingles especially attractive when they are re-shingling anyway since the solar shingles also double as functional, protective and weatherproof roof shingles in their own right. -Scientific American

The largest name in solar shingles is Dow's Powerhouse brand, which uses copper indium gallium selenide solar cells (aka "thin-film solar") to generate 12 watts per square foot and are designed for structures already connected to the power grid which can send power back (known as "grid-tied"). 

Affordable Housing woes

CNBC notes that the new solar initative will strain an already-painful affordable housing crunch throughout California.

"Affordable housing is maybe the number one issue for Californians right now," said Lucas Davis, an associate professor at the Haas School of Business at University of California-Berkeley. Davis thinks CA regulators may be making a huge mistake.

"You don't need a mandate here — we already have vast amounts of solar in California," said Davis. "Half of U.S. solar is installed in California, so it's not at all clear to me you needed the mandate. We're actually paying other states to take our electricity during daylight hours."

Davis thinks that electricity rates will rise as the solar mandate kicks in due to a "cost shift" to non-solar homeowners who will be forced to pay higher electricity costs.

"We already have some of the highest electricity rates in the country, and this will only be exacerbated by this mandate," he said. "As more and more rooftop solar gets installed, that pushes the cost onto all the non-solar customers."

Realtor.com's chief economist Danielle Hale said that the mandate could "cause builders to hurry to complete projects before the mandate kicks in Jan. 1, 2020," adding that "affordable new construction already lags demand" and could get worse as a result of the solar mandate. 

Only one question; what will California regulators mandate in 5-15 years when there are tons and tons of dead lithium ion batteries which need a landfill to call home for the next few millennia? 

Published:5/10/2018 12:09:25 PM
[Markets] Markets Now: Dow Jumps 143 as Investors Bet Glass Is Half Full Want to know why the Dow Jones Industrial Average is doing what it's doing? The Dow Jones Industrial Average has increased 143 points, or 0.6%, to 24,685.54, while the S&P 500 has risen 0.6% to 2712.56, and the Nasdaq Composite has gained 0.6%, to 7380.71. North Korea, after all, is heading to the bargaining table and even released three Americans being held prisoner. Published:5/10/2018 10:11:29 AM
[Markets] Dow up 85 points in opening minutes; daily gain would be sixth straight Dow up 85 points in opening minutes; daily gain would be sixth straight Published:5/10/2018 9:10:05 AM
[Markets] Dow on track for 6th straight gain The Dow Jones Industrial Average is on track for the longest winning streak since February on Thursday, with U.S. stocks rising as investors digested benign inflation data and jobless claims that pointed ... Published:5/10/2018 9:10:05 AM
[Markets] Dow’s 6th straight day of gains on the line as traders look to inflation data The Dow could be ready to cinch the longest winning streak since February on Thursday, with U.S. stock futures rising ahead of inflation data that could help decide the path of future Federal Reserve policy. Dow Jones Industrial Average futures (YMM18.CBT) rose 22 points, or less 0.1%, to 24,525, while S&P 500 futures (ESM18.CME) rose 5.50 points, or 0.2%, to 2,701.50. The Dow (^DJI) on Wednesday booked a fifth gain in a row, rising 182.33 points, or 0.8%, to 24,542.54, for its longest winning run since February, when the benchmark advanced for six sessions in a row. Published:5/10/2018 7:38:19 AM
[Markets] Need to Know: ‘Keep believing in this market’ as freed Korean-Americans come home The Dow might make it six up sessions in a row today. Are the recent good vibes linked to the three American detainees who just got back from North Korea? Yes, according to CrackedMarket’s Jani Ziedins, who provides our call of the day.
Published:5/10/2018 6:08:09 AM
[Markets] ‘Keep believing in this market’ as freed Korean-Americans come home The Dow might make it six up sessions in a row today — and then one fine morning, maybe even flip green for the year. Are the recent good vibes for markets linked to the three American detainees who just got back from North Korea? Yes, according to CrackedMarket’s Jani Ziedins, who provides our call of the day. Published:5/10/2018 6:08:09 AM
[Markets] Dow set for 6th straight day of gains as traders look to inflation data The Dow industrials was Thursday on track for its longest winning streak since February, with stock futures moving higher ahead of inflation data that could help decide the path of future Federal Reserve policy. Dow Jones Industrial Average futures (YMM18.CBT) rose 26 points, or 0.1%, to 24,528, while S&P 500 (ESM18.CME) rose 4.5 points, or 0.2%, to 2,700.75. The Dow (^DJI) on Wednesday booked a fifth gain in a row, rising 182.33 points, or 0.8%, to 24,542.54, for its longest winning run since February, when the benchmark advanced for six sessions in a row. Published:5/10/2018 5:08:41 AM
[Markets] Market Snapshot: Dow set for 6th straight day of gains as traders look to inflation data The Dow industrials was Thursday on track for its longest winning streak since February, with stock futures moving higher ahead of inflation data that could help decide the path of future Federal Reserve policy.
Published:5/10/2018 5:08:41 AM
[Markets] The Stock Market Is Being Incredibly Silly to crash 1,700 points as Trump verbally ripped Iran to shreds (and pulled out of the Iran deal). The Dow instantly tanked 80 points one sentence into Trump's latest global spectacle. and we have been hearing for weeks now in earnings season," writes TheStreet's founder Jim Cramer over on RealMoney on the weird move in the markets Tuesday. Published:5/9/2018 7:04:28 PM
[Markets] These factors are making small-cap stocks one of the strongest segments of Wall Street Small-capitalization stocks, as measured by the Russell 2000(^RUT) , have been quietly outperforming of late, surging past their large-cap peers, which remain stubbornly range-bound. The group has returned to within striking distance of record levels, while both the Dow Jones Industrial Average(^DJI)and the S&P 500(^GSPC)have been stuck in correction territory for their longest stretch in a decade. Over the past three months, the Russell is up 8.1%, easily outperforming the 1.6% gain of the Dow Jones Industrial Average and the 3.1% rise of the S&P 500. Published:5/9/2018 3:34:26 PM
[Markets] Dow rallies to fifth straight gain, stocks buttressed by energy, tech gains U.S. stocks ended solidly higher on Wednesday, with major indexes shaking off early weakness as both energy and technology gains led broad markets higher. The Dow Jones Industrial Average gained 0.8% to ... Published:5/9/2018 3:06:03 PM
[Markets] Dow extends winning streak to 5 as energy, tech sectors gain Dow extends winning streak to 5 as energy, tech sectors gain Published:5/9/2018 3:06:03 PM
[Markets] Oil Surges, 10Y Yield Back Over 3%, Futures Jump In Iran Deal Fallout

For those curious what the fallout from the US withdrawal from the Iranian nuclear deal looks like in the capital markets, the answer is as follows: higher US stock futures, a stronger dollar (at least initially, the greenback has since turned slightly negative) ahead of a $25BN 10Y auction (which may carry the first 3.00% cash coupon in almost 7 years), and perhaps critically, a 10Y Treasury yield rising back above 3.00% again.

But the most closely watched response was how oil would react, and sure enough the bulls have enjoyed the upper hand for now with WTI reversing Tuesday’s "fake CNN news" inspired slump to briefly surpass $71 per barrel, a new 4 year high, while Brent nudged $77 as the market came to terms with a U.S. message that buyers of Iranian crude have six months to curb their purchases.

Oil's rise has been predicated by fresh concerns what the US withdrawal from the Iran deal means for oil markets: while Trump warned sanctions will be extremely strong for Iran, and any nations collaborating with it, Treasury Secretary Mnuchin said the US will be working with allies on a comprehensive deal, also states that firms can seek waivers or special licenses to operate in Iran, sending conflicting messages. Meanwhile, the Iranian parliament is set to vote on "proportional and reciprocal" action vs. the US after leaving the nuclear pact, while the Iranian deputy oil minister says the nuclear deal can exist without the US.  Meanwhile, UBS estimates that sanctions could lead to the reduction of Iran oil exports by 200-500k BPD over the next 6 months, although both China and India have said they will continue importing Iranian oil.

In global markets, the MSCI Asia Pacific index started off on the wrong foot, dropping 0.3% on weakness in Japan and China, however, sentiment reversed when Europe opened, and the Stoxx Europe 600 Index rose a fourth day as energy companies surged, while US equity futures were trading solidly in the green.

In what may prove to be the most notable development, however, 10-year Treasury yields extends yesterday's rally to again cross 3% for the first time since late April, ahead of today's 10Y auction; investors waiting to see if the new bonds will carry a 3% coupon for the first time in almost seven years.

Having erased its 2018 losses earlier this week, the greenback gave up an earlier advance; the biggest losses against the dollar were in the Japanese yen, while Sweden’s krona was the largest gainer. As shown below, the BBDXY initially rose for a fourth day, touching its highest level in more than four months before paring gains, and was unchanged as of 7am ET. 

Still, the next big move in the dollar is likely even higher: "with the dollar unable to fall further and U.S. rates steady in a higher range, pressure on short positions was slowly but surely growing,” said Kit Juckes, a strategist at Societe Generale.

In any case, the ongoing dollar strength continues to complicate the picture for emerging markets as traders digest the U.S.’s decision to walk away from the nuclear deal with Iran. And while the EMs were largely a sea of red again...

... it was a little shallower today, with the TRY the outlier. As discussed earlier, Turkey’s lira reversed losses to surge 1.4% against the dollar on speculation policy makers will take action to support the battered currency; President Erdogan was said to be meeting later on Wednesday with economic officials, including the central bank’s Governor, Murat Cetinkaya. Meanwhile, Indonesia’s rupiah fell to a fresh 29-month low on worries about capital outflows from emerging markets.

Elsewhere, Swedish inflation data released Wednesday supported the possibility of the Riksbank tightening policy later this year and pushed the krona higher. Meanwhile, the euro’s weakness persists, with the currency touching a 4 1/2-month low versus the dollar, while the British pound was weighed down by dismal retail sales data and ongoing political battles within the U.K. on Brexit.

In overnight geopolitical developments, Mexico proposed a 70% regional content requirement for autos in response to US proposal, according to sources. Elsewhere, US Secretary of State Pompeo is expected to return from North Korea with 3 detainees, according to South Korean press reports.

In the commodity sector, aside from the latest burst higher in oil prices, gold prices have continued the slide seen on Tuesday (-0.58%), as the USD held strong on higher treasury yields. Copper currently up 0.4% at USD 6773.50/tonne as Chinese demand remains strong. This demand is not seen in Chinese rebar however, which is currently down for the fourth straight Wednesday, at USD 559.90/t 

Economic data on Wednesday include PPI and wholesale trade sales. Mylan, 21st Century Fox and Booking Holdings are among companies due to release results

Bulletin Headline Summary from RanSquawk

  • WTI breaks USD 71/BBL and Brent over 77/BBL as US pulls out of Iran nuclear accord
  • USD firm above 93.000 as US 10 year yield revisits 3%
  • Looking ahead, highlights include DoEs, Fed’s Bostic, RBNZ and US 10yr Auction

Market Snapshot

  • S&P 500 futures up 0.3% to 2,679.00
  • STOXX Europe 600 up 0.2% to 390.84
  • MXAP down 0.3% to 172.96
  • MXAPJ down 0.03% to 564.77
  • Nikkei down 0.4% to 22,408.88
  • Topix down 0.4% to 1,772.91
  • Hang Seng Index up 0.4% to 30,536.14
  • Shanghai Composite down 0.07% to 3,159.15
  • Sensex up 0.4% to 35,368.63
  • Australia S&P/ASX 200 up 0.3% to 6,108.02
  • Kospi down 0.2% to 2,443.98
  • Gold spot down 0.6% to $1,306.27
  • U.S. Dollar Index up 0.1% to 93.25
  • German 10Y yield rose 2.1 bps to 0.582%
  • Euro down 0.2% to $1.1844
  • Brent Futures up 3% to $77.06/bbl
  • Italian 10Y yield rose 10.5 bps to 1.61%
  • Spanish 10Y yield fell 0.6 bps to 1.314%

Top Overnight News

  • The European Union joined the fight to keep the Iran nuclear deal alive as President Donald Trump’s opponents warned his decision to withdraw the U.S. from the pact could lead America into another war in the Middle East
  • Iranian President Rouhani said his country will continue to work with the other participants -- though he warned that it could step up enrichment of uranium if those talks don’t yield tangible results
  • Crude oil held near $70 a barrel after Trump withdrew from the Iranian accord and the U.S. told buyers of Iranian crude they have six months to curb their purchases or face tough penalties
  • A company tied to a Russian oligarch sent $500,000 last year to an entity that Trump’s lawyer, Michael Cohen, used to pay hush money to porn actress Stephanie Clifford, her attorney claimed
  • U.K. PM May suffered multiple defeats over her key Brexit law as legislators ripped up her plans and demanded that she keep the U.K. in the EU’s single market
  • President Trump said the U.S. will withdraw from the 2015 accord to curb Iran’s nuclear program and reinstate financial sanctions on the Islamic Republic
  • U.K. Prime Minister May suffered multiple defeats over her Brexit law as legislators ripped up her plans and demanded she keep the U.K. in the European Union’s single market
  • Argentina asked the IMF for financing to help stem a rout in the peso that is sparking a surge in interest rates and threatening to derail the country’s economic recovery
  • Deutsche Bank is considering a sweeping restructuring in the U.S. that could result in the firm cutting about 20% of staff in the region, according to people briefed on the matter
  • Japanese human-resources and consumer-information provider Recruit Holdings has agreed to buy Glassdoor for $1.2b in cash. Recruit will gain access to the U.S. website’s extensive cache of content

Asia stocks traded mixed after a lacklustre close in the US as markets digested US President Trump’s decision to withdraw from the Iran nuclear agreement which in turn underpinned oil prices. ASX 200 (+0.2%) was kept afloat as energy names coattailed on the upside in oil, although gains were limited by weakness in financials after Australia’s largest lender CBA reported earnings. Elsewhere, Nikkei 225 (-0.4%) failed to benefit from JPY weakness and traded subdued, in which electricity names took a power dive on the higher input costs, while both Shanghai Comp. (+0.1%) and Hang Seng (+0.5%) were initially weaker after a daily net liquidity drain by the PBoC and the verbal spat between US and China envoys at the WTO. However, Chinese markets later recovered with Hong Kong leading the rebound as money market rates eased, in which the 1-month HIBOR declined for a 6th consecutive session. Finally, 10yr JGBs were uneventful despite the cautious risk tone and BoJ’s presence in the market for over JPY 1tln in 1yr-10yr JGBs. This was amid gains in yields which tracked upside in their US counterparts with the US 10yr yield homing in again on the 3.000% level.

Top Asian News

  • Asia High-Yield Bonds Continue Sell-Off in Near ‘Perfect Storm’
  • Foreign Investors Pull Most Cash From Taiwan Stocks Since 2012
  • Emerging-Market Currencies Say Adios to 2018 Gain Amid Iran Risk
  • Fosun International Increases FF Group Stake to 15%
  • Tencent Music Names Five Banks to Arrange U.S. IPO: IFR

Major European bourses are trading mostly higher (Eurstoxx 50 +0.3%), with outperformance in the FTSE MIB . UK’s FTSE 100 (+0.5%) is buoyed by energy names amid higher oil prices post-Trump (Shell +2.4% and BP +2.1%). On the downside, Peugeot (-1.4%), Renault (-1.0%) and Airbus (-1.1%) are at the foot of the CAC 40 on their ties to Iran. Moving onto independent factors, Imperial Brands (+4.7%), Siemens (+4.5%) and Heidelbergcement (+1.4%) are higher following promising earnings while Compass Group (-6.1%) and Prosiebensat (-9.4%) are taking a hit on dissapointing metrics. Burberry (-6.2%) is lagging on the FTSE 100 after Belgian tycoon Albert Frère is to sell his whole GBP 520mln shareholding in the company.

Top European News

  • Burberry Slumps After Billionaire Frere Sells Entire 6.6% Stake
  • Germany’s Tightening Labor Market Might Spell More Trade Trouble
  • Siemens Lifts Profit Outlook on Demand for Factory Software
  • Pound Approaches Four-Month Low as Retail Sales Data Add to Woes
  • Compass Sinks as Earnings Miss, Margins Narrow, Jefferies Says
  • Dialog Semi Gains After Apple Hint Leaves Room for Optimism

In FX, The Dollar’s bull run continues and the index has duly posted another new 2018 peak in the process just above 93.400 and inching closer to the well-flagged next key technical resistance level at 93.522. This comes amidst broad-based Greenback gains, albeit with Turkey’s beleaguered Lira regaining some poise on increased efforts by the CBRT to stem the tide via direct intervention and ahead of a midday (BST) meeting between the PM and Economy Ministry to discuss currency market developments and the overall state of the economy (Usd/Try back below 4.3000 from 4.3700+ at one stage). JPY: The biggest G10 loser as the Buck extends its winning streak, with reaction to US President Trump’s withdrawal from the Iranian nuclear accord and threat of severe sanctions largely confined to crude that has spiked higher, and limited risk-aversion or contagion thus far. Hence, Usd/Jpy as bounced firmly from sub-109.00 lows above 109.50 and towards recent peaks just above 110.00, with the 200 DMA and a key Fib (around 110.19 and 110.24 respectively) also lying in wait beyond the big figure. EUR: Yet more bearish fundamentals (via Italian and French data misses) to compound the positional and Dollar related downside for the single currency below 1.1850, and having relinquished 1.1900 on Tuesday there is little in the way of technical support before 1.1800 aside from a late December 2017 low (1.1812), though the round number may offer some sentimental respite given that a major Fib sits just below (1.1790).

In commodities, oil prices have continued upwards on Wednesday after President Trump confirmed the withdrawal of the US from the Iran nuclear agreement and imposing of sanctions on the nation; WTI and Brent June ’18 futures at USD 71.00 (+2.8%) and USD 76.89 (+2.7%) respectively. Said sanctions could lead to the reduction of oil exports by 200-500k BPD over the next 6 months for the middle-eastern nation, according to UBS. Gold prices have continued the slide seen on Tuesday (-0.58%), as the USD held strong on higher treasury yields. Copper currently up 0.4% at USD 6773.50/tonne as Chinese demand remains strong. This demand is not seen in Chinese rebar however, which is currently down for the fourth straight Wednesday, at USD 559.90/t

Looking at the day ahead, the main focus is likely to be the April PPI report in the US ahead of the all important CPI tomorrow. March wholesale trade sales and inventories data will also be released while in Europe the only data of note is the March industrial production print in France. The Fed's Bostic is also due to speak again, later in the evening. It's worth noting that Japan PM Abe is also due to host South Korean President Moon Jae-in and Chinese Premier Li Keqiang.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -2.5%
  • 8:30am: PPI Final Demand MoM, est. 0.2%, prior 0.3%;
    • PPI Ex Food and Energy MoM, est. 0.2%, prior 0.3%; PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.4%
    • PPI Ex Food and Energy YoY, est. 2.4%, prior 2.7%; PPI Ex Food, Energy, Trade YoY, prior 2.9%
  • 10am: Wholesale Trade Sales MoM, prior 1.0%; Wholesale Inventories MoM, est. 0.5%, prior 0.5%
  • 1:15pm: Fed’s Bostic Speaks on Economic Outlook and Monetary Policy

DB's Jim Reid concludes the overnight wrap

After much speculation Mr Trump last night announced that the US will leave the Iran Nuclear deal which has been the focal point for markets this week. The mini-roller coaster ride for WTI oil started a few hours earlier as it dropped -4.38% following a CNN story which noted the Iran accord may not collapse altogether. It then pared back losses after President Trump announced the US will leave the accord and re-impose the sanctions on Iran. Notably, the sanctions are subject to 90-180 days of wind down (petroleum related transactions have 180 days) and he also added that the US is willing to negotiate a new deal with Iran. As we type this morning, WTI has recovered to $70.64/bbl ($68.11 at yesterday’s lows), slightly below Monday’s intra day YTD highs and c.17.5% up in 2018.

In terms of other initial reactions, the EU leaders and Iran’s President Rouhani noted they will aim to continue to comply with the deal’s terms, although France’s President Macron added “we’ll work collectively” on a wider accord. Elsewhere, Treasury Secretary Mnuchin said he didn’t expect the sanctions to raise the oil price, since “to a certain extent, some of this was already in the market on oil prices”.

Following on, DB’s Michael Hsueh noted that because of the 180-day winddown period, neither Iranian oil production nor exports will drop before the 5 November 2018 effective date. In fact, if behaviour follows the example from 2012, there is the possibility of a short spike in Iranian exports just before the effective date, after which a slow decline may set in. In his note, he considers the possibility of a pullback in the oil price as a result of the 5 remaining JCPOA partners continuing to import Iranian oil at existing levels. However, with increasing likelihood of a third year of crude oil market deficit in 2019, and no sign of OPEC retreat, he would look for opportunities to accumulate long exposure on Brent weakness. Refer to his note for more details.

Over in equities yesterday, US bourses fluctuated before closing virtually flat (S&P -0.03%; Nasdaq +0.02%; Dow +0.01%). Have the 3 main bourses ever collectively closed so close to being unchanged? Within the S&P, modest  gains in the energy and financials sectors were broadly offset by losses from telco and utilities stocks. Across the pond, European equities were broadly lower (DAX -0.28%; FTSE -0.02%), weighed down by the Italian FTSE MIB (-1.64%) as Bloomberg reported that the leaders of the two largest parties opposed the idea of a “neutral government”, thereby raising the likelihood of fresh elections, potentially as early as 8th July.

Now moving to government bonds, the yields on UST 10y nudged up 2.6bp to 2.977% (2.985% in Asia) in part as Fed Chair Powell endorsed the market pricing on rates, indicating that “…market participants' expectations for policy seem reasonably well aligned with policymakers' expectations” and that “markets should not be surprised by our actions if the economy evolves in line with expectations”. He added that “there is good reason to think the normalisation of monetary policies in advanced economies should continue to prove manageable” for emerging economies. Over in Europe, the yields on 10y Italian BTPs jumped to the highest since late March (+10.3bp) given the aforementioned political developments, while Bunds (+3.3bp), Gilts (+4.5bp) and OATs (+4.0bp) also rose in sympathy.

This morning in Asia, markets are trading mixed with the Nikkei (-0.38%) and Kospi (-0.27%) both down while the Hang Seng (+0.40%) and Shanghai Comp. (+0.06%) are up. Elsewhere, the UST 10y yield is up c1bp.

Back to yesterday and the US dollar index firmed for the third consecutive day to the highest since late December (+0.40%). The Euro fell -0.49% while Sterling was marginally lower at -0.07%. Over in EM, the Argentina Peso pared losses to -2.43% vs. the Greenback yesterday, in part as Argentina’s President Macri said he has “spoken with IMF Director Lagarde (for assistance), and she confirmed we would start working on an agreement”. Reuters and local newspaper Clarin noted Argentina is seeking a US$30bln financing deal with the IMF to “strengthen growth” and help avoid crises as in the past.

Away from the markets, there seemed to be more political traction in North Korean. China’s President Xi has met with North Korea’s leader Kim Jong Un over the past two days and the Xinhua press agency has quoted Kim saying “as long as relevant parties eliminate the hostile policy…against North Korea….(we) do not need to have nuclear weapons, and de-nuclearisation is achievable”. Elsewhere, President Trump has despatched US Secretary of State Pompeo to Pyongyang to prepare for the upcoming summit between himself and Kim later on.

Now reverting back to Italian politics, our European economists believes that while a July election is unusual for Italy, it is a possibility, in part as the other option of voting in September may be too risky in the eye of the president, as there is no guarantee that a clear majority might emerge. Further, a vote in September may not leave enough time to approve the budget, while a July election would reduce the risk of not changing 2019 budget which currently includes a VAT increase that could seriously damage the Italian recovery. Overall, they believe in the coming days we will see if the moral pressure of the President on the parties to support this neutral government will bear fruits or not.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the JOLTS job openings rose to an all-time high and was above expectations at 6.55m (vs. 6,1m). Meanwhile the quits rate rose to a new cyclical high of 2.3%, signalling that job seekers may be increasingly inclined to leave their jobs in search of a better deal. Elsewhere, the April NFIB small business optimism index was slightly above market (104.8 vs. 104.5 expected). In Europe, Germany’s IP print was above expectations and rose the most since November, leading to an annual rate of 3.2% yoy (vs 3% expected). The March trade surplus was €25.2bln (vs. €22.5bln expected) as exports outpaced a decline in imports (4.0% yoy vs. 1.6% yoy). Overall, our European economists interpret these data as being consistent with their estimate that the German economy grew 0.3% qoq in Q1. Elsewhere, the UK’s April Halifax house price index fell to 2.2% yoy (vs. 3.2% expected).

Looking at the day ahead, the main focus is likely to be the April PPI report in the US ahead of the all important CPI tomorrow. March wholesale trade sales and inventories data will also be released while in Europe the only data of note is the March industrial production print in France. The Fed's Bostic is also due to speak again, later in the evening. It's worth noting that Japan PM Abe is also due to host South Korean President Moon Jae-in and Chinese Premier Li Keqiang.

Published:5/9/2018 6:33:08 AM
[Markets] After the Bell: Dow Makes a Roundtrip to Nowhere as U.S. Exits Iran Deal The Dow Jones Industrial Average spent most of the day in the red, but managed to finish higher after President Donald Trump announced that the U.S. would pull out of its nuclear agreement with Iran. The Dow advanced up 2.89 points to 24,360.21, while the S&P 500 dipped 0.71 point to 2671.92, and the Nasdaq Composite ticked up 1.69 points to 7266.9. The immediate reaction from Iran and from Europe was to agree to remain bound by the deal for the time being as they commence talks. Published:5/8/2018 7:28:28 PM
[Markets] After the Bell: Yes, the Dow Gained 95 Points, but This Is Not Supposed to Happen Yes, the Dow Jones Industrial Average rose 94.81 points, or 0.4%, to 24,357.32, while the S&P 500 advanced 0.4% to 2672.63 and the Nasdaq Composite gained 0.8% to 7265.21. "Just to put into context how uncommon the simultaneous rallies in the US Dollar Index and WTI are, the current period represents only the 11th time since 1983 that crude oil rallied more than 10% during the same four-week stretch that the US Dollar Index gained more than 3%," he explains. "Market-based (bond yields, inflation expectations, oil prices) indicators of global growth continue to improve and fundamental indicators (global PMI’s EISI Economic Diffusion Indices) have stabilized at healthy levels," writes Evercore ISI's Dennis DeBusschere. Published:5/8/2018 12:14:24 AM
[Markets] Social Media, Not Religion, Is The Opium Of The People

Via Global Macro Monitor,

Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people. – Karl Marx,  A Contribution to the Critique of Hegel’s Philosophy of Right

Social media is becoming the new whipping boy and poster child for all that ills our culture and contributing to its decline.

We added our two cents in a recent post,  Why Google Is A Short,

…social media probably generates negative productivity.  We read some time ago the average American spends 40 minutes per day playing Farmville.   How does planting virtual corn add to the GDP?

Though we are more ambivalent about Google, Facebook is doing some severe psychological damage to an entire generation, including my 15-year daughter.   They spend much of their time competing with trophy photos loaded up on Instagram.  Never gonna win that game, which leads to increased anxiety and depression for an entire generation.

The Google Short

That brings us to the Google (we are old school and can’t bring ourselves to call it Alphabet) short.

Imagine when a politician has his/her epiphany that all those porn searches they have done over the years on Google are stored somewhere and could be hacked and released to the public?  That will ignite a prairie fire of potential legislation, which will spread faster than you can say SNAP.  – GMM, Apr 24th

Our Friend Weighs In

We received this email from a very close friend yesterday,

Yesterday I downloaded the data Facebook has stored on me.  407 pages including every message I sent, every like, every picture, on and on.  Below I pasted just one of these pages, the list of advertisers who requested all my data.  I know nothing about most of these companies and to my knowledge do not use them. Just saying.

Psychological Damage On Children

In 2013, one of my daughters was seeing a therapist to help her work through the psychological complications of her just diagnosed epilepsy.   She is  in good company –  Julius Caesar and Chief Justice Roberts.

The therapist had all the right credentials from all the right institutions,  Harvard grad, Ph.D. from Stanford.   Until I asked her about the damage smartphones are doing to children.

She began to justify, almost saying they were good for kids.

The takeaway quote I recall, she had just attended a seminar and smartphones are good for children, “it is changing their brains.”

No shit.  I fired her on the spot.

Moreover, I can’t tell you how many conversations I have had with friends who have trouble with their children’s use of social media.

Nefarious Activity On Social Media

By the way, I came out of that meeting with my daughter’s therapist to find my trading account had lost several thousand dollars as some dickhead  ‘bots hacked into AP’s twitter account posting the White House had been bombed and President Obama was injured.   Stocks plunged and I was sold out of my long postions by deep out-of-the-money stops.

 The FBI and SEC are to launch investigations after more than £90bn was temporarily wiped off the US stock market when hackers broke into the Twitter account of the Associated Press and announced that two bombs had exploded at the White House, injuring Barack Obama. – The Telegraph

I couldn’t figure out what happened to my account as the S&P was higher than before I entered the meeting.  Until I looked at the chart.

F-tards!

We are not as negative on Twitter as much as Facebook but this is just another example of why the government has to take a closer look at social media.   Furthermore,  and more important, many believe that even the  fate of democracy hinges on the future of clickbait.

Noah At Bloomberg Opines

The great Noah Smith of Bloomberg penned a must-read yesterday,  Social Media Looks Like the New Opiate of the Masses, with the subtitle, Researchers have found some troubling parallels with addictive drugs.

Here are the non-wonkish money quotes:

  • I suspect it will be many years before the true scale and scope of the changes are appreciated, and even then much will never be fully understood. The era when humans interacted mainly by gathering in physical space, or maintained personal networks through one-to-one connections, has drawn to a close, and the next generation won’t even really understand what that era was like. Social media has changed the meaning of human life itself.

  • But many of us who lived through the shift from Internet 1.0 to the new age of social media can’t help but feel a nagging worry. In addition to concerns about privacy, electoral influence and online abuse, social media seems like it has many of the qualities of an addictive drug.

  • Research isn’t conclusive on whether social-media addiction is real. But it certainly has some negative side effects that loosely resemble the downsides of recreational drugs.

  •  experiments found that smartphone deprivation induced anxiety among young people, a phenomenon that certainly has parallels to drug withdrawal.

  • once the internet offered an escape from the real world, now the real world is a much-needed escape from the internet.

  • If social media really does act on many users in a manner loosely analogous to cigarettes or heroin, that means the benefits are less than people’s willingness to pay. Junkies would pay quite a lot for their fix, but that doesn’t mean the money would be well-spent.

  • before we conclude that social media is like tobacco. And even if it is, the harm would need to be very substantial in order to get government policy involved in limiting social-media use.

  • Whereas Karl Marx declared that religion is the opiate of the masses, our modern capitalists may have invented a better one.

Upshot

Who in their right minds would have thought five years ago we would be comparing Facebook use to tobacco addiction?

We are less sanguine than Noah on the future of our social media economy.

More so, not because of the addiction thing, but because of privacy issues.  The behemoths will surely try and adapt their business models to survive. Will you pay $120 per year for Facebook?   There is no free lunch, right?

That brings us to investing.

Are the toothless F$%Gs out of the woods?  Hardly.  It is only two outs in the top of first, in our opinion.   The blowback is just getting started.

For the above reasons,  a long-term sword of Damocles is hanging over the market and these companies, in particular.  Their stocks, which have heavy weights in the indices,  will experience fits of volcanic eruptions and existential crises to periods of calm and euphoria.   In other words, prepare for a Key Stone Cops chase scene.

Is Our Social Media Economy Good For The Economy

This is one issue where the president is right-freaking-on.    Building a ballroom trumps building a chatroom, as it creates more income and real wealth.

Think back when GM and Ford dominated the economy.   How many secondary jobs were created when a car rolled off the assembly line?   Gas stations, tire shops, mechanics, smog inspectors, auto body painters?

They still do with imported BMWs (especially German cars, they are so expensive to repair) but the input multiplier is not as great.

We won’t fix our economic problems by reducing trade, especially with tariffs, but by making auto workers more productive with both human and physical capital investments.  Maybe 3-D printed cars will eventually rule the day?

This type of anufacturing is more likely (cannot say with certainty, we have not done the research) to have a greater jobs multiplier than the social media economy, and is more egalitarian in income and wealth distribution.

We will concede that the social media jobs  multiplier is not zero.  For example, vendors of, say, banana flavored condoms can sell their junk over these platforms.   But, come on, man!

The Bigs And AI

The one big caveat to our view is that the Facebooks and Googles are big spenders and on the cutting edge of artificial intelligence (AI), which is subsidized by their advertising revenues.  Soomeday they may be big players in the AI/robotic manufacturing displacement that is already here and only  surely to accelerate.

But will they have enough time? Uhh...probably.

Published:5/6/2018 1:48:55 PM
[Markets] US stock markets recover nicely during the week The Dow Jones 30 and NASDAQ 100 both fell initially during the week, but as you can see on the chart as we found quite a bit of support in both markets, showing signs of strength yet again. Published:5/5/2018 6:06:08 AM
[Markets] US stock markets show strength on Friday The Dow Jones 30 and the NASDAQ 100 both took off to the upside on Friday after the jobs report came out. While it was a little bit of a mess on the headline number, it shows a lack of wage pressure, which means a lack of major inflation. This keeps the specter of interest rate hikes under control for most stock traders. Published:5/5/2018 5:36:35 AM
[Markets] U.S. Stocks Rise, Lifted by Late, Broad-Based Rally U.S. stocks rebounded Friday, shaving away much of the S&P 500 and Dow Jones Industrial Average’s midweek losses but leaving both indexes down for a second consecutive week. Friday’s moves allowed the stock market to end on a high note following a rocky stretch that included lukewarm earnings reports and economic data. Recent reports have pointed to a slowdown in growth across much of the U.S. economy in April, smaller-than-expected job creation and still-sluggish wage growth, which has renewed questions among investors about whether the economy’s momentum is slowing. Published:5/4/2018 7:33:49 PM
[Markets] After the Bell: Dow Gains 332 Points as Payrolls Resuscitate Goldilocks The Dow took its cue from Force Day this May the 4th, and levitated higher. The Dow Jones Industrial Average gained 332.36 points, or 1.4%, to 24,262.51 today, while the S&P 500 rose 1.3%, to 2663.42 and the Nasdaq Composite climbed 1.7% to 7209.62. The unemployment rate slipped to 3.9%, the lowest since 2000, while worker's wages grew by just 0.1% month over month. Published:5/4/2018 6:33:55 PM
[Markets] Apple adds nearly 50 points to Dow's 360-point rally after report that Buffett bought 75 million shares The Dow Jones Industrial Average slashed an opening 150-point drop to trade sharply higher Friday afternoon, on the back of a pop in Apple Inc. . Shares of Apple were contributing about 50 points to the price-weighted Dow after a report from CNBC late Thursday said Warren Buffett's Berkshire Hathaway Inc. acquired some 75 million additional shares of the iPhone maker during the first quarter. Shares of Apple were up about 4%, or $7, contributing about 48 points to the Dow, with a $1 move in any one of the blue-chip gauge's 30 components equating to a 6.89-point swing. Published:5/4/2018 3:01:54 PM
[Markets] Dow's nearly 400-point intraday surge yanks blue-chip average out of negative territory for the week A surge of around 400 points on Friday afternoon for the Dow Jones Industrial Average has erased a weekly slide for the blue-chip gauge. The Dow was most recently up 397 points, or 1.7%, at 24,322, with less than 2 hours left of regular trade. The daily jump was sufficient to push the benchmark in to positive territory for the week, up less than 0.1%, along with the Nasdaq Composite Index , which was showing a daily advance of 1.9% at 7,219, with a weekly return of 1.5%. Published:5/4/2018 2:02:10 PM
[Markets] Apple adds 45 points to Dow's 336-point rally after report that Buffett bought 75 million shares The Dow Jones Industrial Average slashed an opening drop to trade sharply higher Friday afternoon, on the back of a pop in Apple Inc. . Shares of Apple were contributing about 45-points to the price-weighted ... Published:5/4/2018 1:02:32 PM
[Markets] Dow's 300-point rally puts blue-chip benchmark on track for best 1-day rise in 3 weeks The Dow Jones Industrial Average was trading around its highest level of the session Friday afternoon, putting the gauge on track to book its best daily return in about three weeks. The Dow [ was up 302 points, or 1.3%, at 24,232, at last check, which would be, if it holds, the sharpest daily return since April 10, when the average climbed 429 points, or 1.8%. The jump comes after a weaker-than-expected jobs report for April showed that 164,000 jobs were created during the month, less than an expected 188,000. Published:5/4/2018 12:39:00 PM
[Markets] Apple adds 40 points to Dow's 200-point rally after report that Buffett bought 75 million shares The Dow Jones Industrial Average was trimming an opening drop to turn positive early Friday, on the back of a pop in Apple Inc. . Shares of Apple were contributing about 30-points to the price-weighted Dow after a report from CNBC late Thursday said Warren Buffett's Berkshire Hathaway Inc. acquired some 75 million additional shares of the iPhone maker during the first quarter. Shares of Apple were up about 3.4%, or $6.07, contributing about 40 points to the Dow, with a $1 move in any one of the blue-chip gauge's 30 components equating to a 6.89-point swing. Published:5/4/2018 10:00:25 AM
[Markets] Apple is top gainer as Dow industrials reverse early decline Apple is top gainer as Dow industrials reverse early decline Published:5/4/2018 9:11:23 AM
[Markets] Dow falls 130 points at open as April jobs report fails to inspire buying Dow falls 130 points at open as April jobs report fails to inspire buying Published:5/4/2018 9:00:05 AM
[Markets] Wall Street opens lower after U.S. jobs data (Reuters) - U.S. stock indexes opened lower on Friday after data showed weaker-than-expected U.S. jobs and wages growth in April, while unemployment rate dropped to a 17-1/2-year low. The Dow Jones Industrial ... Published:5/4/2018 9:00:04 AM
[Markets] Freeport-McMoRan: What to Expect Moving Forward Freeport-McMoRan (FCX) is having a dismal run in 2018. Based the company’s closing prices on May 2, the stock has fallen 20.3% this year. The SPDR Dow Jones Industrial Average ETF (DIA) has lost 2.8% during this period. Looking at other miners, Antofagasta (ANTO) and Teck Resources (TECK) have lost 2.5% and 4.4%, respectively. However, Southern Copper (SCCO) has risen 9.0% year-to-date. Published:5/4/2018 7:30:57 AM
[Markets] All Eyes On Payrolls, But The Real Story Is The Ongoing EM Rout

While US equities surged on Thursday, reversing a nearly 400 point drop in Dow Jones after several reports predicted that today's US-China trade talks were going well would have a successful conclusion, hours ago the Mnuchin-led delegation departed Beijing having accomplished nothing. So far, however, this has had no impact on US equity futures (it has hit the Chinese Yuan however), which are hugging the flatline, while Asian stocks dropped and Europe edged higher ahead of the April payroll report due shortly (full preview here).

Europe's Stoxx 600 Index was modestly in the green ahead of US payrolls data, with the outperforming bourse the SMI (+0.6%). The CAC (-0.1%) underperforming due to disappointing results from Société Générale (-6.9%). This  alongside further financial misses for HSBC (-3%) and BNP Paribas (-2.7%) is dragging on the financial sector, currently down -0.4%. Basic materials and technology companies offset the financial weakness and led gains in the Stoxx Europe 600 index as the euro slipped amid mounting concern about the region’s economic outlook.

Stocks from Sydney to Hong Kong retreated earlier.

Meanwhile, the dollar initially slumped only to bounce back sharply ahead of today's main event, the nonfarm payrolls report due at 830am EDT. Bloomberg’s Dollar Spot Index rose 0.1%, after slipping 0.1% in Asia; the dollar is set to strengthen versus all of its G-10 peers this week, and is heading for a third week of gains.

The euro slipped after economic data from the region continued to disappoint, while the pound stayed above 200-DMA support against the greenback amid discussions within the U.K. government about the need to extend the Brexit transition period. The Japanese yen was the only currency to edge higher versus the dollar on Friday; The Japanese yen was the only currency to edge higher versus the dollar on Friday as Japan remained closed for a holiday, with local Treasury trading shut.

The key overnight news was the lack of news after the 2-day trade talks in China, where the US asked China to narrow trade surplus by USD 200bln by 2020 to halt its subsidies in manufacturing plan; this was revealed in a document issued to China in advance of trade talks this week. This comes as well as Chinese officials believing that the US trade delegations proposals were unfair. The US trade delegation has now left Beijing.

How will the USD react to today's payroll print: "Given the fears of higher inflation and what that means for the Fed, it will be the hourly earnings data that will determine financial market reaction,” said Derek Halpenny, European head of global markets research at MUFG. “But, with equity markets so fragile, it is not clear how the dollar would respond to a strong wage print."

However, while payrolls will come and go, the big story remains the recent surge in the dollar and the accelerating rout in Emerging Markets, where a bevy of currencies, including the TRY, ZAR, INR, IDR and especially the Argentina Peso most recently, have all gotten crushed, in many cases sliding to all time lows, prompting some to ask if another 1997-style EM crisis is on the horizon.

Worse, Emerging Market Bond markets are getting crushed, with the EMB tumbling to a level not seen since the Chinese post-deval crisis in late 2015. A few more point of decline here, and we will have big problems.

There was no instability in U.S. Treasuries, whose yields dropped modestly overnight, trading in a tight range between 2.93% and 2.95%

In commodities, oil is taking a breather from its recent bull run, with WTI (-0.2%) and Brent (-0.2%) off recent highs. Price action has been supported by the looming geological risk from possible new US sanctions against Iran. Iran’s foreign minister said yesterday that US’s demand to change its 2015 nuclear agreement was unacceptable as the May 12th deadline set by US President Trump approaches. Looking ahead, the weekly Baker Hughes rig count  will take focus later in the session.

In the latest Brexit news, Ireland reportedly has the support of EU leaders to veto Brexit trade agreement and collapse discussions next month if PM May fails to push through a customs agreement which averts a hard border for Northern Ireland. Furthermore, reports added that EU officials warned that negotiations on future partnership will be suspended at European summit next month until there is a solution to the customs issue. Ministers were told during a briefing earlier this week that UK may not be able to leave customs union for another 5 years as it may take that long to prepare the technology required to operate the border.

In geopolitical developments, President Trump was said to order the Pentagon to consider a reduction in the number of US troops in South Korea, while there were also reports from South Korean press that North Korea agreed to fully denuclearize by 2020.

Looking at the day ahead, in the US the April employment report will be due. The Fed's Quarles, Dudley, Williams, Bostic, George and Kaplan are all due to speak. Berkshire Hathaway, Alibaba, HSBC, BNP Paribas and Societe Generale are due to report earnings.

Bulletin Headline Summary from RanSquawk

  • Cautious trade seen ahead to key US NFP data
  • US trade delegation leaves Beijing with no take-aways
  • Looking ahead, highlights include US jobs and Fed’s Quarles, Dudley, Williams, Bostic, George and Kaplan speaking

Market Snapshot

  • S&P 500 futures down 0.2% to 2,627.75
  • STOXX Europe 600 up 0.3% to 385.62
  • MXAP down 0.4% to 172.36
  • MXAPJ down 0.7% to 559.60
  • Nikkei down 0.2% to 22,472.78
  • Topix down 0.2% to 1,771.52
  • Hang Seng Index down 1.3% to 29,926.50
  • Shanghai Composite down 0.3% to 3,091.03
  • Sensex down 0.5% to 34,934.03
  • Australia S&P/ASX 200 down 0.6% to 6,062.89
  • Kospi down 1% to 2,461.38
  • German 10Y yield rose 0.4 bps to 0.536%
  • Euro down 0.2% to $1.1967
  • Brent Futures down 0.3% to $73.39/bbl
  • Italian 10Y yield fell 5.0 bps to 1.485%
  • Spanish 10Y yield fell 0.4 bps to 1.25%
  • Brent Futures down 0.3% to $73.42/bbl
  • Gold spot down 0.2% to $1,309.28
  • U.S. Dollar Index up 0.2% to 92.55

Top Overnight News from Bloomberg

  • The odds of a deal between the U.S. and China reduced -- the U.S. delegation, led by Treasury Secretary Steven Mnuchin, asked China to decrease the trade deficit by at least $200 billion by the end of 2020 compared with 2018, according to a document seen by Bloomberg News that was sent ahead of the trade talks in Beijing
  • Donald Trump seems set on pulling out of the Iran nuclear deal next week, with U.S. officials suggesting that any initial diplomatic turbulence will be followed by negotiations for a new accord
  • The Brexit transition period will need to be extended potentially for years because any new customs regime will not be ready to come into force in time, according to senior British officials; In local council elections, Britain’s main political parties benefited from the collapse of the U.K. Independence Party, but results saw Jeremy Corbyn’s Labour continue to struggle outside London
  • President Mauricio Macri of Argentina is starting to try the patience of global investors. More than two years into his efforts to revive South America’s second- largest economy, his government is suddenly being tested by an abrupt decline in the peso
  • Bank of England will refrain from raising rates next week but is still set to start normalizing policy, according to the National Institute of Economic and Social Research
  • RBA sees slightly higher core inflation and unemployment in 2018 as it edged up core inflation and unemployment forecasts for 2018 and reaffirmed that tighter policy will be needed “at some point”
  • Barclays, which stood firm last week as banks tore up their outlooks, has joined the exodus after the purchasing managers index showed the sector failed to “rebound convincingly” last month
  • HSBC’s new Chief Executive Officer John Flint announced a $2b share buyback to placate investors as he works to bolster growth
  • The euro-area economy looks set for further weakness in May after private-sector activity slowed for a third month in April, further adding doubts on the ECB’s plan to end its stimulus program

Asia stocks traded with a subdued tone following a yo-yo session in US where stocks finished mostly negative although well off worst levels, while the absence of Japan and looming US NFP jobs data added to the lacklustre tone. ASX 200 (-0.5%) was negative with the index dragged by financials and most commodity-related sectors, while KOSPI (-0.7%) also traded downbeat as index heavyweight Samsung Electronics slumped on its re-open from a 50-to-1 stock split. Elsewhere, Shanghai Comp. (-0.1%) and Hang Seng (-0.3%) conformed to the gloom following another liquidity drain by the PBoC and amid IPO activity in which Ping An Insurance unit Good Doctor failed to set-off fireworks on its debut, however mainland losses were stemmed amid encouraging Caixin Composite and Services PMI data. PBoC injected CNY 20bln via 7-day reverse repos for a net weekly drain of CNY 110bln

Top Asian News

  • Samsung Electronics’ Post-Split Comeback Drags Korea Equities
  • There’s a Bond ETF Boom in Taiwan, Thanks to Life Insurers

European equities tracking higher ahead of US NFP data later on in the day, with the outperforming bourse the SMI (+0.6%). The CAC (-0.1%) underperforming due to disappointing results from Société Générale (-6.9%). This alongside further financial misses for HSBC (-3%) and BNP Paribas (-2.7%) is dragging on the financial sector, currently down -0.4%. Some encouragement found in BASF (+1.1%), as well as EDF (+0.8%), whom announced the largest energy acquisition of the year.

Top European News

  • Euro-Area Economy Heads for More Weakness After April Slowdown
  • Corbyn Has Little to Celebrate in Britain’s Local Elections
  • Constancio: Unconventional Tools Should Be Used Whenever Needed

In FX, the dollar remains relatively firm overall, and especially against EM currencies that continue to collapse (ie Lira slumping to fresh record lows vs the Greenback near 4.2600). However, the DXY is still consolidating off recent peaks set before the FOMC (new 2018 high around 92.800), with bulls perhaps wary about getting too carried away after hawkish Fed expectations were somewhat overdone, or at least undone by the shift to a symmetrical inflation target. Technically, the aforementioned new ytd best forms nearest resistance, while there is little of note on the downside ahead of 92.000. JPY: A marginal outperformer within the G10 basket and pulling back further from highs just above 110.00 to test bids/buying interest at 109.00 and briefly below overnight, but with trading volumes still impacted by the lack of Japanese participants. Decent 108.75-85 option expiry interest (1 bn) could come into play on a weak US jobs report or bad news on the US-China trade talks front. AUD/NZD: The tussle down under rages on, and the Aud is stretching its legs having overtaken the Kiwi late yesterday with the cross staging a firmer rebound above 1.0700 and Eur/Usd down through 1.5900 in wake of firmer than forecast Chinese Caixin PMIs, rather than anything fresh or Aud supportive from the RBA’s SOMP. Meanwhile, Nzd/Usd is looking precarious again close to 0.7000. CHF/GBP/EUR/CAD: All softer vs the Dollar after Usd/Chf dabbled with parity again on Thursday, while Cable is testing reported bidding interest between 1.3550-20 again and only a few pips off the 200 DMA (1.3539) on more negative Brexit impulses and another UK GDP downgrade. Eur/Usd capped by its 200 DMA (1.2015-20) and a 1.2000 expiry, but still looking ‘comfortably’ supported ahead of a major Fib (1.1936) and the 2018 base (1.1916). Usd/Cad remains bid circa 1.2800 and toppy near 1.2900, but the Loonie is still suffering to an extent after yesterday’s trade data revealed a record deficit – IVEY PMI due later

In commodities, oil is taking a breather from its recent bull run, with WTI (-0.2%) and Brent (-0.2%) off recent highs. Price action has been supported by the looming geological risk from possible new US sanctions against Iran. Iran’s foreign minister said yesterday that US’s demand to change its 2015 nuclear agreement was unacceptable as the May 12th deadline set by US President Trump approaches. Looking ahead, the weekly Baker Hughes rig count (1800BST/1200CDT) will take focus later in the session. Moving onto metals, gold (-0.1%) prices have steadied ahead of key US jobs data due later today. In terms of base metals, copper has seen modest gains, while the red metal also weathered an early wobble seen in Dalian iron ore futures which slipped 2% at the open during the 1st day foreign investors were permitted to trade Chinese iron futures. Elsewhere, London base metal prices rose today, led by the rise in aluminium, climbing as much as 1.9% having fallen 2.3% in the previous session.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 192,000, prior 103,000;
    • Change in Private Payrolls, est. 190,000, prior 102,000
    • Change in Manufact. Payrolls, est. 20,000, prior 22,00
  • Unemployment Rate, est. 4.0%, prior 4.1%; Underemployment Rate, prior 8.0%
  • Average Hourly Earnings MoM, est. 0.2%, prior 0.3%; YoY, est. 2.7%, prior 2.7%
  • Average Weekly Hours All Employees, est. 34.5, prior 34.5
  • Labor Force Participation Rate, est. 62.9%, prior 62.9%

DB's Jim Reid concludes the overnight wrap

Today we’ll learn more about the state of the US labour market with special attention focused at the moment on earnings. As of this morning the market consensus for the payrolls print is 192k. As a reminder this follows that much lower than expected 103k reading in March and the bumper 326k reading in February. Random number generation at its finest. Our US economists have a 185k forecast for this afternoon and expect payrolls to rebound from last month’s weather distorted data, especially as the construction sector experienced the largest drop since April 2007 last time out. Given all the talk in markets is about US inflation and wages at the moment, arguably the more significant aspect of today’s report will be the average hourly earnings number. The consensus for that is +0.2% mom which would keep the annual rate at +2.7% yoy. Our colleagues expect a slightly stronger +0.3% mom to send a broadly consistent signal to the stronger ECI data last week (which hit a post crisis high). If this expectation is correct, our economists’ estimate would actually push the annual rate up to +2.8% yoy and just below the hurricane-induced spike in September 2017 that set the high water mark for this recovery. The other important data to watch is the unemployment rate which is expected to fall to 4.0% after remaining stuck at 4.1% for the last six months, the longest streak with a stable unemployment rate since the late 1960s. Our economists note that four percent unemployment could be an important development, as they have previously noted that the wage Phillips curve tends to steepen around this level, suggesting that further unemployment declines will begin to exert increasing upside pressure on wages. Anyway, that data is due at 1.30pm BST this afternoon.

Ahead of this there were a lot of mildly negative news around yesterday which compounded up to create a decent slug of global risk off that peaked just before Europe went home. At this point the S&P 500 traded down -1.56%. However from there stronger tech stocks and White House economist Mark Calabria’s comments on US-China trade talks being “fairly positive” so far seemed to help the S&P recover and to close at -0.23%, while the Dow also recovered c400pts to end higher for the day (+0.02%).

Knocking sentiment earlier, we had Euro CPI sharply lower, some downplaying rhetoric from China and the US about the chances of success at their trade summits, Tesla and AIG falling -8.6% and -9.6% respectively after results, the ISM non-manufacturing a bit weaker, the US bank index trading down to c5 month lows as yields fell, and Argentina dragging down EM with a 300bps hike to go with the same seen last week.

There was a similar mini-roller coaster ride over in government bonds, the yield on 10y Bunds initially increased a couple of bps early in the session to 0.589%, but dropped as much as -6.6bp following the softer than expected CPI print (more below), ending the day at 0.528% (-4.9bp). Elsewhere, yields on UST 10y (-2bp) and OATs (-4.2bp) were also lower while Gilts fell -7bp after a weaker than expected rebound in the services sector PMI.

The Argentinian story was fascinating. Their central bank hiked rates 300bps to 33.25% only 6 days after the same sized move, as the bank took the action to “guarantee the process of disinflation and is ready to act again if necessary”. The Peso dropped -5.6% vs. the Greenback yesterday (-20.2% YTD), while yields on its 10y bond (USD) jumped 30.7bp to 7.535%. Remember it was only around a year ago that Argentina did a 100 year bond. This traded down -1.94 to a cash price of 85.697 during the day. One to keep an eye on.

This morning in Asia, markets are trading lower with the Kospi (-0.64%), Hang Seng (-0.35%) and Shanghai Comp. (-0.12%) all modestly down while Japanese markets are closed for holidays. In Beijing, Treasury Secretary Mnuchin said the US and China are having a “very good conversation” ahead of the today’s meetings. Datawise, China’s April Caixin composite PMI edged up 0.5pt mom to 52.3 while the services PMI was also better than expected at 52.9 (vs. 52.3).

Now recapping other markets performance from yesterday. The US dollar index weakened for the first time in four days (-0.11%) while the Euro rose +0.31% and Sterling ended broadly flat. European bourses were all lower, weighed down by the stronger Euro and softer than expected corporate results. Across the region, the Stoxx 600 (-0.73%), DAX (-0.88%) and FTSE (-0.54%) were all softer. WTI oil firmed +0.74% to $68.43/bbl following further tensions between US and Iran.

Away from the markets, the European Commission has kept its latest forecasts for 2018 and 2019 GDP growth unchanged at 2.3% and 2% respectively. In terms of the recent softening in economic indicators, the ECB’s Praet noted that “temporary factors may also be at work. We will also need to monitor whether…these developments reflect a more durable softening in demand”. He also reiterated that inflation developments remain subdued and an ample degree of monetary stimulus remains necessary. Elsewhere, the ECB’s Hansson seemed relatively upbeat and sees “moderate wage growth pressure” that will ultimately allow the bank to exit QE.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the macro data was mixed. The April ISM nonmanufacturing index fell 2pts mom to a four month low (56.8 vs. 58 expected) but  still consistent with US growth being above trend. In the details, the activity index fell 1.5pts to 59.1 but the new export orders index jumped 2.5pts to a 12-month high of 61.5. The March trade deficit narrowed to a six month low (-$49bln vs. -$50bln expected) as growth in exports outpaced imports. Elsewhere, the 1Q nonfarm productivity came in below market at 0.7% (vs. 0.9% expected) while the March factory orders was above expectations at 1.6% mom (vs. 1.4%). In labour markets, the weekly initial jobless (211k vs. 225k expected) & continuing claims (1,756k vs. 1,835k expected) were both lower than expectations, with the former hovering near its 48 year low. Lastly, the final reading for April Markit composite and service PMI was revised up 0.1-0.2ppt to 54.9 and 54.6 respectively, while the core capital goods orders was revised down by 0.3ppt to -0.4% mom. Following the above, the Atlanta Fed’s GDPNow estimate for Q2 GDP growth is now at 4.0% saar.

The Eurozone’s April core CPI was weaker than expected at 0.7% yoy (vs 0.9%) and fell 0.3ppt mom. Our European economists believe this mainly reflects the impact of Easter timing on services prices (core goods inflation rose a tenth to 0.3% yoy), so they expect core inflation to rebound to around 1.0% yoy in May. Elsewhere, the March PPI was in line at 2.1% yoy. In the UK, the April Markit services PMI (52.8 vs. 53.5 expected) and composite PMI (53.2 vs. 53.7 expected) were both softer than expected as it continues to show the weaker momentum trend of late.

Looking at the day ahead, in the US the April employment report will be due. In Europe the final April services and composite PMIs will be released, while France's March trade balance and the Euro area's March retail sales data will also be out. The Fed's Dudley and ECB’s Constancio are due to speak. Berkshire Hathaway, Alibaba, HSBC, BNP Paribas and Societe Generale are due to report earnings.

Published:5/4/2018 6:34:52 AM
[Markets] Global Stocks Mixed as China Trade Talks, US Jobs Report Keep Investors Cautious Global stocks were mixed in early Friday trading as investors awaited developments from a key trade summit between the U.S. and and China and kept a cautious stance ahead of today's April jobs data from the Bureau of Labor Statistics. shares were also on the back foot, falling 2.8% in Frankfurt and holding down gains for the DAX performance index after news late Thursday that former CEO Martin Winterkorn had been charged with conspiracy by the U.S. Department of Justice for his role in the firm's diesel-gate scandal. Early indications from U.S. equity futures slipped lower, however, drifted lower, with futures contracts tied to the Dow Jones Industrial Average pointing to an 7 point decline at the opening bell while those linked to the S&P 500 suggested a 0.33 points decline for the broader benchmark. Published:5/4/2018 3:32:40 AM
[Markets] Dow Industrials End Slightly Up After Clawing Back Earlier Losses The Dow Jones Industrial Average recouped a nearly 400-point plunge to end slightly higher, a sign of the stock market’s resilience despite indications of lackluster corporate earnings, weakening economic data and rising interest rates. Just 28% of individuals believe the stock market will be up six months from now, according to the American Association of Individual Investors’s most recent weekly survey, down from 37% the previous week and below the historical average of 39% going back to 1987. Several mediocre earnings reports dragged on major indexes Thursday, and shares came under further pressure after data showed that the pace of growth across much of the U.S. economy slowed in April. Published:5/3/2018 7:57:20 PM
[Markets] The Wall Street Journal: Activision blames erroneous headline for stock drop Dow Jones Newswires prematurely published headlines on Activision Blizzard Inc.’s quarterly earnings ahead of a Thursday afternoon embargo, including an incorrect revenue figure that the company blamed for a significant drop in its stock price.
Published:5/3/2018 7:57:20 PM
[Markets] After the Bell: Dow Gains 5 Points as Market Makes Narrow Escape It could have been so much worse for the Dow Jones Industrial Average and other major indexes. Just look at this chart: At its low, the Dow was off nearly 400 points. "The stock market is about as choppy as I can remember," writes Todd Market Forecast's Stephen Todd. Published:5/3/2018 4:58:16 PM
[Markets] Thank Boeing, 3M's stocks for the Dow's attempt at a midday comeback Boeing and 3M Co.'s stocks on Thursday afternoon were contributing virtually all of the Dow's afternoon gains, helping the blue-chip gauge erase a 400-point slide early in the session. The Dow Jones Industrial Average was about 8 points, or 0.1%, higher at 23,928, with the benchmark slumping by as many as 394 points at its intrasession nadir. The turnaround, if it holds, can mostly be credited with component Boeing Co. , up 2% or $6.52, and 3M Co. , up 0.9% or $1.80. Published:5/3/2018 1:25:31 PM
[Markets] Stocks shrug off most early losses and the Dow has recovered nearly 400 points Stocks shrug off most early losses and the Dow has recovered nearly 400 points Published:5/3/2018 12:57:49 PM
[Markets] Seasonality screams sell, but here’s why retail investors shouldn’t listen With the Dow Jones Industrial Average (^DJI) deep in the red and volatility (^VIX) spiking, “sell in May” and “avoid the midterm election cycle” sound like timely advice. First, Carmel tackled the second year of a president’s term, which, as you can see by the chart below, is generally considered to be the weakest of the four-year cycle for the stock market. Published:5/3/2018 12:25:46 PM
[Markets] The Tell: Seasonality screams sell, but here’s why retail investors shouldn’t listen Investors prone to timing seasonal patterns are probably scurrying for the exits right now. With the Dow deep in the red and volatility spiking, “sell in May” and “avoid the midterm election cycle” sound like timely advice. Don’t be so easily shaken.
Published:5/3/2018 12:25:46 PM
[Markets] This one man may be to blame for the recent weakness in stocks, says analyst The U.S. stock market has struggled recently, with the Dow on track for its fifth straight daily decline despite one of the best earnings seasons on record. On April 24, Caterpillar Inc. (CAT) reported its quarterly results. “While we expect strong operating margins for the rest of the year, which is defined as within or better than the Investor Day ranges, we don’t expect to repeat first-quarter operating margin at the consolidated level,” Bradley Halverson said on the company’s earnings call. Published:5/3/2018 11:29:50 AM
[Markets] The Tell: This one man may be to blame for the recent weakness in stocks, says analyst The U.S. stock market has struggled recently, with the Dow on track for its fifth straight daily decline despite one of the best earnings seasons on record.
Published:5/3/2018 11:29:50 AM
[Markets] Stock market investors are overreacting to trade-war threat, these charts say Global equity markets are increasingly sensitive to fears of a global trade war. The S&P 500 index (^GSPC) fell 1.3% in morning trade, while the Dow industrials (^DJI) were down more than 300 points, or 1.4%, on track for a fifth straight losing session. Over the past two years, markets have largely done what would be expected when trade tensions are on the rise, said Jamie Thompson, head of macro scenarios at Oxford Economics, in a note. Published:5/3/2018 10:56:04 AM
[Markets] Twenty-nine of 30 Dow components in red as Thursday decline exceeds 350 points Twenty-nine of 30 Dow components in red as Thursday decline exceeds 350 points Published:5/3/2018 9:59:30 AM
[Markets] S&P, Dow Test Critical Support; Goldman Dumps To 7-Month Lows

Well, this is not what the asset-gatherers and commission-rakers said would happen...

The Dow hit its 200DMA...

 

The S&P is testing its 200DMA...

 

And Small Caps broke their 50- and 100-DMAs...

 

And Goldman Sachs is not helping..

 

As the global synchronous growth story collapses...

 

Published:5/3/2018 8:58:24 AM
[Markets] Dow's 5th straight tumble drives it below a key level for first time in a month The Dow Jones Industrial Average on Thursday was trading lower for a fifth straight session, with the early morning drop putting the gauge in position to end beneath its long-term average for the first time since early April, a potentially bearish sign for the market. The Dow was down 181 points, or 0.9%, at 23,726, slipping below its 200-day moving average at 23,750.30, according to FactSet data. Market technicians use moving averages to gauge long-term and short-term momentum in an asset. Published:5/3/2018 8:58:24 AM
[Markets] Global Stocks, Dollar Slide As Nervous Traders Eye US-China Trade Talks

It has been a confusing 24 hours, with US futures slumping after yesterday's unexpectedly hawkish-yet-dovish FOMC, which first slammed the dollar, then sent the USD surging, and sparking an equity selloff even as rates remained relatively unchanged. Today's this confusion spilled over into international markets, with both Asian and European shares retreating, as traders are on edge ahead of the US-China trade talks taking place today and tomorrow.

The weakness continued this morning, when another disappointing euro-zone core CPI number (1.1%, Exp. 1.2%, last 1.3%) led to sharp rally across EGBs, dragging Treasurys higher in response, and bull-flattening the curve as 10Y yields slumped.

And while U.S. equity futures are slowly trying to grind higher from overnight lows, the response among US equities to what has so far been an impressive earnings season has left most of the bulls very disappointed, and judging by recent analyst commentary, 2018 is clearly not going according to plan (to echo what Citi said last month): 

"A slightly disappointing growth reaction thus far to the late 2017 tax cuts, no sign of a meaningful pick-up in inflation pressures and uncertainty generated by the potential for a trade war were always likely to commit the Fed to a steady as she goes message,” said Lee Ferridge of State Street Global Markets. "There might also be a little concern over recent market moves, with stocks flat so far in 2018 while US Treasury yields have moved meaningfully higher, doing some of the Fed’s tightening work for it."

European equities opened on the backfoot (Eurostoxx 50 -0.2%), perhaps anxious as US-China trade talks start in Beijing. Major bourses are lower on the day whilst Switzerland’s SMI 20 outperforms its peers. Most sectors are in the red with the exception of energy and IT. Logitech (+7.0%) shares soared following earnings, buoying the IT sector along with it. Financials underperform after euro-zone inflation data.

Asian equity markets traded mostly negative following the late US slump on Wednesday, with the Fed seen to remain firmly on track for a June hike. Nonetheless, ASX 200 (+0.9%) was the regional outperformer and gained across all sectors with miners underpinned amid upside in metals, while NAB was among the laggards after a decline in H1 cash profit. Elsewhere, Shanghai Comp. (-0.2%) and Hang Seng (-1.7%) declined after a daily net liquidity drain by the PBoC and amid trade concerns ahead of talks between US and China, with tech and telecoms related stocks pressured after reports the US is considering equipment sales restrictions on Chinese telecom firms over national security concerns. As a reminder, Japan is shut for the remainder of the week.

Of note, the Hang Seng China gauge dropped as much as 2.2% ahead of trade talks between U.S. and China which begin later on Thursday, and dragged the MSCI Asia Pacific lower by 0.2%.

"When you think about the things that have been weighing on the market -- the potential for trade war with China, Nafta breaking up, rising rates and of course the potential rolling over in growth -- I think the one that is really weighing the most heavily is trade and that’s why the market tends to swing the most violently on every new piece of news,” RiverFront Investment Group Chairman Michael Jones told Bloomberg TV.

Meanwhile, as TSY yields slumped overnight, the USD predictably weakened across the board, undoing some of yesterday's post-FOMC spike: the Bloomberg dollar index fell for first time in four sessions.

Elsewhere, in FX, the pound erased an earlier advance after U.K. services data undershot forecasts, before fading the move to claw back a 0.2% gain; while the euro pared gains after the euro-area CPI estimate for April came in below the median forecast, it was still higher for the first time in four days; The TRY spiked to a new record low against the USD after both core and headline CPI surprised to the upside with the backdrop of Erdogan's increasing pressure against higher rates. NOK stronger as Norges Bank does not hint at any dovish changes to rate path. The AUD was the best performing G-10 currency after a larger-than-expected trade surplus.

Treasuries edged higher while emerging-market currencies rebounded from a four-month low; European government bonds all rose following poor Eurozone inflation data, while Australia's 10-year yield steady at 2.80%.

In commodities, oil prices recovered from yesterday's post-DoE sell off with prices continuing to factor in the risks surrounding Iranian-US relations with the latest source reports suggesting that US President Trump is reportedly all but decided to end the nuclear agreement with Iran. In other energy newsflow, China's Sinopec is planning to cut Saudi crude oil loadings by 40% in June for a 2nd month on high prices; according to a UNIPEC official. In the metals scope, spot gold is sitting in modest positive territory following yesterday's FOMC release and a slightly softer USD. Elsewhere, aluminium prices have risen for the second consecutive session, as attention turns to developments on  US-China trade talks being conducted today. Copper was flat overnight with trade contained amid opposing forces of rising metal prices in China during early trade and a broad risk averse tone.

In geopolitical news, Reuters reported that Trump has all but decided to end nuclear agreement with Iran, according to sources which added it is unclear how he will withdraw from the agreement. Meanwhile, the WSJ added that the US is said to be considering equipment sales restrictions on Chinese telecom firms over national security concerns. In related news, a Chinese trade official commented that China will not accept pre-conditions in trade discussions and that China is more prepared than the US to cope with a trade war.

In central bank news, Norges Bank Interest Rate Decision 0.50% vs. Exp. 0.50% (Prev. 0.50%). Comments stated that outlook and balance of risks have not changed substantially, inflation is below target, as such policy rate will be raised after summer 2018. Krone is weaker than expected as measured by the import weighted exchange rate. There was little new information about growth in the Norwegian economy.

Riksbank's Jansson said that there is a limit for how expansionary policy can be, but haven't reached there yet, hopes next step will be tightening of policy; Riksbank's Skingsley not at the point where rate hikes can begin; Riksbank Governor Ingves says the rate path is a forecast, not a promise.

Today's busy calendar includes data on jobless claims, trade balance and factory orders. DowDuPont, Bombardier, Cigna and Ferrari are among companies reporting earnings

Bulletin Headline Summary from RanSquawk:

  • Norges Bank maintains post-summer hike guidance, Riksbank sticks to end of year
  • UK Services PMI and Eurozone CPI miss expectations
  • Looking ahead, highlights include US trade, weekly jobs, ISM non-mfg, factory orders, a slew of speakers and earnings

Market Wrap

  • S&P 500 futures up 0.2% to 2,633.50
  • STOXX Europe 600 down 0.2% to 386.55
  • MSCI Asia Pacific down 0.2% to 172.83
  • MSCI Asia Pacific ex Japan down 0.5% to 563.89
  • Nikkei down 0.2% to 22,472.78
  • Topix down 0.2% to 1,771.52
  • Hang Seng Index down 1.3% to 30,313.37
  • Shanghai Composite up 0.6% to 3,100.86
  • Sensex down 0.05% to 35,159.39
  • Australia S&P/ASX 200 up 0.8% to 6,098.28
  • Kospi down 0.7% to 2,487.25
  • German 10Y yield rose 0.2 bps to 0.583%
  • Euro up 0.4% to $1.2002
  • Italian 10Y yield rose 0.5 bps to 1.535%
  • Spanish 10Y yield fell 0.9 bps to 1.302%
  • Brent futures up 0.2% to $73.52/bbl
  • Gold spot up 0.6% to $1,313.06
  • U.S. Dollar Index down 0.1% to 92.40

Top Overnight News from Bloomberg

  • The dollar fell after the Federal Reserve seemed less hawkish than some had positioned for; the Bloomberg Dollar Spot Index slipped for the first time in four days; 10-year Treasuries rose for the first time in three days
  • The greenback weakened against all its G-10 peers; Norway’s krone saw the biggest advance Thursday after the Norges Bank reiterated that it could lift interest rates after the summer
  • The pound erased an earlier advance after U.K. services data undershot forecasts, before fading the move to claw back a 0.2% gain; while the euro pared gains after the euro-area CPI estimate for April came in below the median forecast, it was still higher for the first time in four days
  • Stocks in Europe followed Asian peers lower as investors began to switch their attention away from the Fed and back to earnings and the outlook for global trade ahead of talks between Chinese and U.S. officials
  • China won’t succumb to “threats” from the U.S., a senior government official said, hours before talks are to begin Thursday with a delegation of the Trump administration’s top trade policy officials
  • Federal Reserve officials made doubly sure to convey a relaxed attitude toward inflation rising above 2%, mentioning the “symmetric” nature of their target twice in a statement Wednesday that signaled no intention to accelerate a gradual tightening of monetary policy
  • The U.S. Treasury announced it will lift long-term debt sales by $73b this quarter
  • If billionaire bond investor Bill Gross is right, most of this year’s excitement in the Treasury market is done and yields won’t see a substantial move from here
  • Theresa May is facing a crisis after pro-Brexit ministers paired up with Conservative hardliners to demand a clean break from the European Union’s customs system
  • Eurozone Apr. CPI Estimate y/y: 1.2% vs 1.3% est; Core CPI 0.7% vs 0.9% est; Services CPI 1.0% vs 1.5% prev.
  • U.K. Apr. Services PMI: 52.8 vs 53.5 est; Markit note the underlying performance of the economy has continued to deteriorate
  • Norges Bank holds rates at 0.50% as expected; says upturn in the economy appears to be continuing broadly in line with the March policy report
  • Turkey Apr. CPI y/y: 10.9% vs 10.5% est; Core CPI 12.2% vs11.5% est

European equities opened on the backfoot (Eurostoxx 50 -0.2%) as US-Sino trade talks start in Beijing. Major  bourses are lower on the day whilst Switzerland’s SMI 20 outperforms its peers. Most sectors are in the red with the exception of energy and IT. Logitech (+7.0%) shares soared following earnings, buoying the IT sector along with it. Glencore (+1.1%) is at the top of the FTSE following pleasing production numbers. Other individual movers post-earnings include: Veolia (+2.5%), Gerberit (+3.1%), Infineon (+0.9%), Vonovia (-1.4%) and Smith & Nephew (-6.0%).

Top European News

  • U.K. Services Disappoint as Economy Stays Stuck in Slow Lane
  • Norway Sticks to Tightening Plan as Rate Held at Record Low
  • Danske Bank Is Slammed by Regulator in Money Laundering Probe
  • Starwood Capital Sells $1.1 Billion Portfolio of U.K. Hotels

Asian equity markets traded mostly negative following the weakness on Wall St post-FOMC, with the Fed seen to remain firmly on track for a June hike. Nonetheless, ASX 200 (+0.9%) was the regional outperformer and gained  across all sectors with miners underpinned amid upside in metals, while NAB was among the laggards after a decline in H1 cash profit. Elsewhere, Shanghai Comp. (-0.2%) and Hang Seng (-1.7%) declined after a daily net liquidity drain by the PBoC and amid trade concerns ahead of talks between US and China, with tech and telecoms related stocks pressured after reports the US is considering equipment sales restrictions on Chinese telecom firms over national security concerns. As a reminder, Japan is shut for the remainder of the week. US is said to be considering equipment sales restrictions on Chinese telecom firms over national security concerns. In related news, a Chinese trade official commented that China will not accept pre-conditions in trade discussions and that China is more
prepared than the US to cope with a trade war.

Top Asian News

  • Mahathir Probed Under Malaysia Fake News Law for Sabotage Claim
  • Fed Adds to List of Reasons Why Asia Stock Investors Are Jittery
  • Little Known China Biotech Firm Lures Top Global Stock Fund
  • Turkish Investors Get Reality Check After Inflation Accelerates

In FX, it has been very choppy trade for the DXY in the FOMC aftermath, but ultimately the index has pulled back from fresh 2018 highs around 92.830 made in the run-up to circa 92.500. To recap, the Fed’s latest assessment acknowledged inflation rising to within a whisker of its target rate, but was less upbeat on the pace of economic activity and unexpectedly added a degree of flexibility around the 2% price mandate, which has been perceived dovishly.  CAD: Another beneficiary of the broad Greenback downturn amidst rebounding oil prices and looking ahead to Canadian trade data that is expected to reveal a narrower deficit. Usd/Cad is back down in the low 1.2800 area and eyeing residual bids from 1.2820-00 that were not quite filled recently. EUR/GBP: Both movers on independent factors, as Eur/Usd revisited sub-1.1950 lows on the back of weaker than consensus Eurozone CPI and Cable retreated from 1.3600+ again in wake of the UK services PMI miss that has dragged BoE hike expectations for next week down to single digits from almost odd-on this time last month. Tech supports eyed in Eur/Usd still the major 1.1936 Fib and for Cable 1.3550. NOK/SEK: Contrasting fortunes for the 2 Scandi Crowns as the Nok is underpinned by the Norges Bank reaffirming intentions to hike ‘after Summer’ this year, but the Riksbank reiterates no tightening until the end of 2018. However, Eur/Nok and Eur/Sek are both softer on a weaker single currency

In commodities, oil prices have recovered from yesterday's post-DoE sell off with prices continuing to factor in the risks surrounding Iranian-US relations with the latest source reports suggesting that US President Trump is reportedly all but decided to end the nuclear agreement with Iran. In other energy newsflow, China's Sinopec is planning to cut Saudi crude oil loadings by 40% in June for a 2nd month on high prices; according to a UNIPEC official. In the metals scope, spot gold is sitting in modest positive territory following yesterday's FOMC release and a slightly softer USD. Elsewhere, aluminium prices have risen for the second consecutive session, as attention turns to developments on  US-China trade talks being conducted today. Copper was flat overnight with trade contained amid opposing forces of rising metal prices in China during early trade and a broad risk averse tone.

Looking at the day ahead, the April CPI report and March PPI for the Euro area will be out while the latest European Commission forecast updates will be released. For core CPI, consensus expects a +0.9% yoy print after holding at +1.0% yoy for the last 3 months (headline CPI 1.3% yoy expected). The final April services and composite PMIs in the UK will also be out in the morning. In the US preliminary Q1 nonfarm productivity and unit labour costs data are due, along with the March trade balance print, April ISM non-manufacturing, weekly initial jobless claims, March factory orders and the final March durable and capital goods orders data. Away from the data, the ECB's Villeroy, Praet, Constancio and Coeure are due to speak.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior 39.4%
  • 8:30am: Nonfarm Productivity, est. 0.9%, prior 0.0%; Unit Labor Costs, est. 3.0%, prior 2.5%
  • 8:30am: Initial Jobless Claims, est. 225,000, prior 209,000; Continuing Claims, est. 1.84m, prior 1.84m
  • 8:30am: Trade Balance, est. $50.0b deficit, prior $57.6b deficit
  • 9:45am: Bloomberg Consumer Comfort, prior 57.5
  • 9:45am: Markit US Services PMI, est. 54.5, prior 54.4; Markit US Composite PMI, prior 54.8
  • 10am: ISM Non-Manf. Composite, est. 58, prior 58.8
  • 10am: Durable Goods Orders, prior 2.6%; Durables Ex Transportation, prior 0.0%
  • 10am: Cap Goods Orders Nondef Ex Air, prior -0.1%; Cap Goods Ship Nondef Ex Air, prior -0.7%
  • 10am: Factory Orders, est. 1.4%, prior 1.2%; Factory Orders Ex Trans, prior 0.1%

DB's Jim Reid concludes the overnight wrap

After the football last night Jim is too emotionally drained to contribute today as Liverpool did their best to avoid making the final of the Champions League. However they just about got there and I think he’ll be busy dusting off his rolodex for clients in Kiev later today.

Unlike the football, it wasn’t quite so easy to get excited about last night’s Fed meeting but there were still one or two interesting statement changes to highlight. Our US economists believe that the statement moved incrementally in a more hawkish direction and also towards brevity. In their view, it recognized that inflation has moved close to and is expected to continue to run near the Committee’s 2% objective. As expected, it also emphasized that the 2% objective is a “symmetric” one, allowing for some overshoot as well as undershoot of inflation – a modestly dovish modification in their view. They also note that having just about reached the inflation objective, they dropped the need to continue monitoring inflation developments closely – a hawkish innovation.

Meanwhile, with inflation about on target and with risks to the Fed’s labour market objective running to the upside with the unemployment rate seen as low and the labour market expected to “remain strong”, one interesting point that our economists made in their note (link) yesterday was that they believe a change in the balance of risks language is coming, possibly as soon as June when the Chair will have an opportunity to explain things. In a nutshell our colleagues expect to learn from the minutes to this meeting, as well as upcoming Fedspeak, that should point to a more hawkish stance of policy at the June meeting, absent any unexpected events before then.

For markets, while moves were fairly modest, they did seem to interpret the statement as overall leaning very slightly more dovish. Perhaps that reflected the removal of the sentence “the economic outlook has strengthened in recent months” however we tend to agree with our economists in that this line was just removed simply as an acknowledgment of soft Q1 growth, which was widely anticipated. In any case, Treasury yields closed off their intraday highs with 2y yields finishing at 2.489% after trading as high as 2.517% while 10y yields ended broadly unchanged at 2.967% after being at 2.994%. The 2s10s curve finished at 48bps and nearly 2bps steeper on the day. It’s worth noting that June is 97% priced in for a hike now – which is little changed compared to the day prior.

The big mover in markets yesterday was the Greenback however. The Dollar index was initially strong leading into the Fed, however proceeded to fall -0.47% after the statement was released, but then rallied +0.66% off the lows into the close. EM currencies appeared to be on the receiving end of that with the Colombian Peso, Brazilian Real, Russian Ruble, Turkish Lira and Argentine Peso down between 1% and 3%. Some headlines about the US potentially increasing sanctions on Russia didn’t seem to help the Ruble weakness in particular. In any case the rally for the US Dollar did appear to weight on US equity markets with the S&P 500 and Dow both closing -0.72% despite Apple doing its best to lead markets higher post results.

This morning in Asia, market are broadly lower with the Hang Seng in particular down -1.66%, weighted down by tech and financials stocks, while the Nikkei (-0.16%), Kospi (-0.38%) and Shanghai Comp (-0.16%) have also trended lower. Ahead of today’s China/US trade talks today, Bloomberg cited unnamed Chinese government officials indicating that Beijing will not agree to preconditions that include abandoning its advanced manufacturing program and cut the trade gap by a fixed amount.

Moving on. While monetary policy came under review, there was also some focus on the fiscal side of things yesterday too with the US Treasury quarterly refunding announcement, however there were no great surprises with a $1bn increase to all maturities which was roughly in line with expectations, representing an additional $27bn of new issuance for the upcoming quarter.

Away from the Fed, earlier in the day the focus was on some of the data in Europe. Particularly in the spotlight was a first look at the Q1 GDP print for the Euro area however there were no real surprises with the +0.4% qoq/+2.5% yoy print coming in bang in line with expectations. The Q4 2017 reading was also revised up a tenth to +0.7% qoq. While Q1 was the slowest QoQ rate of growth in the Euro area since Q3 2016, it’s interesting to note that this is the first time ever that Europe has outpaced the UK for 5 consecutive quarters. Keep in mind that the UK outpaced Europe, with the exception of one flat quarter, for 15 quarters in a row between Q2 2011 and Q4 2014.

Meanwhile, just before that we had the final April manufacturing PMIs in Europe. The final Euro area reading was revised up 0.2pts from the flash estimate to 56.2. While that represents the fourth consecutive monthly decline, the rate of decline in April at just 0.4pts is a lot more moderate than the 1-2pt declines in the first 3 months of this year. The upward revision for April appeared to be due to a combination of a slightly stronger picture in France (+0.4pts to 53.8) and the noncore countries performing marginally better than implied. One exception was Italy which fell 1.6pts and more than expected to 53.5 (vs. 54.5 expected), marking a 15-month low. We should note that the new orders series for the Euro area fell 1pt albeit to a still solid 54.5 – but the lowest since November 2016. Italy’s new order series fell a more significant 3.2pts to 52.2 and is now down 9.1pts from the January high. So the fragility still appears to lie with Italy. European equity markets returned from Monday’s holiday in a positive mood with the Stoxx  600 finishing +0.63% and DAX closing at a fresh three-month high (+1.51%), albeit helped by a weaker Euro.

In other news, as far as the daily Brexit update is concerned, much of the focus was on the headlines from the night prior concerning the ‘rebellion’ being staged by Brexiteers in the cabinet over the customs union. Some reports suggested that Davis and Fox were willing to resign over May’s option preference for the union. Staying with the UK, it’s worth noting that there was rare good news to come from the construction PMI data which rose 5.5pts to 52.5 in April, with a big rise in housing activity the main driver. Sterling pared early gains by the close (-0.28%) as a result of broad Dollar strength however 10y Gilt yields were 5.2bps higher at 1.455%.

In terms of the remaining data, ahead of payrolls on Friday in the US the ADP moderated mom, but was above expectations at 204k (vs. 198k expected) and so remains solid at a three-month annualised rate of 224k. The  Eurozone’s March unemployment rate was steady and in-line at 8.5% while Italy was slightly higher than expected at 11.0% (vs. 10.9% expected).

Looking at the day ahead, the April CPI report and March PPI for the Euro area will be out while the latest European Commission forecast updates will be released. For core CPI, consensus expects a +0.9% yoy print after holding at +1.0% yoy for the last 3 months (headline CPI 1.3% yoy expected). The final April services and composite PMIs in the UK will also be out in the morning. In the US preliminary Q1 nonfarm productivity and unit labour costs data are due, along with the March trade balance print, April ISM non-manufacturing, weekly initial jobless claims, March factory orders and the final March durable and capital goods orders data. Away from the data, the ECB's Villeroy, Praet, Constancio and Coeure are due to speak.

Published:5/3/2018 6:25:15 AM
[Markets] Charles Nenner Warns "The Whole Thing Will Come Tumbling Down"

Via Greg Hunter's USA Watchdog blog,

Renowned geopolitical and financial cycle expert Charles Nenner says, “The mainstream media talking heads are telling you to buy, but never tell you to sell.” Nenner says the time to sell stocks is getting close and explains,

“It’s just a hopeless situation. I feel sorry for people who invest their money. We have had a nice ride, but soon the whole thing will come tumbling down.

They listen to all these things and have no clue on how to invest... I think soon... this will become the longest expansion in financial history...

So, this could be the longest expansion ever, what are you playing with? You are gambling with nonsense. So, it’s over."

Nenner goes on to say, “Then, you have the inflation story. The inflation story is brought about by people who don’t do their historical homework. "

"They remember for the last 30 years, there was always inflation. So, they continue to talk about inflation. I proved that in most of the financial history that deflation is the norm...

They have talked about inflation for two years, and there is still no inflation. . . . Copper is going down. Crude is going down, and we have a deflation problem, not an inflation problem.”

Nenner is predicting interest rates “are going down” and not up in the foreseeable future.

Nenner is also calling for the stock market to go on a “downward slide through the year 2020.” Nenner says, “I can’t explain it, but the cycle topped, and the cycle is down until 2021.”

How bad will it be? Nenner says, “Very bad."

"I called for Dow Jones 5,000, and I still call for Dow Jones 5,000...

It’s going to be a blood bath, but as I said the last time, in the 1990’s when the Dow was 5,000, the world still looked okay.”

Is there a big debt reset coming? Nenner says,

“The last time we were in this situation was when Roosevelt was President. It was very interesting because they paid off only 25% on the dollar because the inflation that came.

Now, the problem is if you don’t have inflation, you still owe the whole amount of money. This is why they urgently need this inflation. So, the value of the money goes down, and you have to pay off less. There is no inflation. So, it is a big problem, but they can keep this going forever. I don’t think it’s a problem because countries can keep printing money as long as they want.”

The other big cycle Nenner has been seeing is the so-called “war cycle.” Nenner says,

“The next four or five years in this war cycle is very dangerous.”

On gold and silver, Nenner is bullish, but “not until after this summer.”

Join Greg Hunter as goes One-on-One with renowned analyst Charles Nenner.

(To Donate to USAWatchdog.com Click Here)

After the Interview: 

Charles Nenner points out if you look back every year that ended in the number 7, it was a market top year. He said, “2017 will follow the same pattern as 2007, 1997, 1987, 1977, 1967, 1957, 1947 and 1937.”  Nenner contends 1927 was supposed to be a market top year, but things got distorted and it was pushed off until 1929.

Nenner predicts the next market crash will not be quite as bad as 1929, but it will be bad.

There is free information and videos on CharlesNenner.com. To sign up for a free trial of Nenner’s detailed analysis, click here.

Published:5/2/2018 4:20:50 PM
[Markets] The 8 'Dogs Of The Dow' Stabilized In April, Here's How To Trade Them Now The Dow Jones Industrial Average ended April at 24,163.08, down 2.2% year-to-date and is down 9.2% since setting its all-time intraday of 26,616.71 on Jan. 26. It’s hard to be bullish when the Dow is nearly in correction territory despite solid earnings from most key components. Chevron (CVX) ended 2017 with a dividend yield of 3.45%, it is now at 3.62%, ranked seventh, down from fourth. Published:5/2/2018 3:51:10 PM
[Markets] Fed Stagflation Signal Sparks Stock Slump, Yield Hump, Dollar Dump'n'Pump

Wait what...

The Fed made its statement and the machines tried to make sense of it...

It took markets about 15 minutes to figure it out....

Stocks seemed to like the message of The Fed to start with, then...

And this happened...

As investors and algos alike realized this...

On the day...Futures show the Mueller subpoena offset AAPL's exuberant impact overnight, then The FOMC hit...

On the day Small Caps clung to gains...

The Dow closed in correction territory at a one-month low close...

 

The Dollar was the only winner post-FOMC...

 

Banks did not like The Fed statement...

 

The Dollar was wild today... Dumping and Pumping after The Fed statement as algos studied the word "symmetrical"...

 

Cryptocurrencies rallied on the day (with Bitcoin Cash jumping on admission to a UK exchange)...

 

Treasuries were mixed today with the long-end higher in yield and short-end lower in yield...

 

Which meant the yield curve steepened modestly...

 

A chaotic day in commodityland with WTI confused by inventory data and PMs confused by FOMC...

 

Gold jumped out of the gate but as the markets realized what The Fed said, things reversed with gold back to unch from FOMC...

 

Published:5/2/2018 3:20:15 PM
[Markets] Dow trades at session low after Fed statement with less than a half-hour left in regular session The Dow Jones Industrial Average on Wednesday was trading near its intraday low with an less than a half-hour left of trading, following an update from the Federal Reserve that signaled that the central bank was taking notice of an uptick in inflation--but suggested that rising prices aren't out of control. The Dow was off about 150 points, or 0.6%, at 23,950, putting the blue-chip average on track to slip for a fourth straight session. The S&P 500 index was down 0.6% at 2,639, while the Nasdaq Composite Index , which had been the outperformer among the main equity benchmarks on the session due to better-than-expected results from Apple Inc. , slipped 0.2% at 7,111. Published:5/2/2018 2:49:59 PM
[Markets] Dow down roughly 150 points in final half-hour of session Dow down roughly 150 points in final half-hour of session Published:5/2/2018 2:49:59 PM
[Markets] Markets Now: Dow Rises, Falls as Market Digests Fed Want to know why the Dow Jones Industrial Average is doing what it's doing? 2:27 p.m. I've been doing this long enough to know that there are always three reactions to a Fed meeting: the initial one, the reversal of the first one, and the right one. The Dow Jones Industrial Average is up 14.68 points, or 0.1%, at 24,113.73, while the S&P 500 is little changed at 2654.58 and the Nasdaq Composite has risen 0.3%, to 7151.95. Published:5/2/2018 1:50:09 PM
[Markets] Markets Now: Dow Drops 50 Points as Fed Clock Keeps Ticking Want to know why the Dow Jones Industrial Average is doing what it's doing? 12:21 p.m. The market really has gone nowhere today, and why should it with the Fed on deck? The Dow Jones Industrial Average is down 51.96 points, or 0.2%, at 24,047.09, while the S&P 500 has declined 0.3% to 2647.62 and the Nasdaq Composite is off 0.1% to 7123.71. Published:5/2/2018 11:48:52 AM
[Markets] Moving Average Bounces Getting Weaker And Weaker: Mish Warns "Major Carnage Coming"

Authored by Mike Shedlock via MishTalk,

Bounces off the 200 Day exponential moving average lines keep getting weaker for all the major indexes.

S&P Daily

Russell 2000 Daily

?

Nasdaq 100 Daily

?

When those moving average bounces fail, and they will, what then?

For the answer, let's look at weekly charts.

Dow Weekly

?

S&P 500 Weekly

?

Russell 2000 Weekly

?

Nasdaq 100 Weekly

?

Those 50-week exponential moving averages will break. When that happens I expect a quick plunge to the 200-week EMA.

Will that be the end? If I am right, that's not even close.

I expect all the gains back to 2007 to be wiped out. To visualize, we need to look at monthly EMAs.

Dow Monthly

?

S&P 500 Monthly

?

Russell 2000 Monthly

?

Nasdaq 100 Monthly

?

With the exception of the Nasdaq 100, a decline to what is now the 200-month EMA would take us to where I believe we are headed.

Superbear?

Does this make me a superbear?

Hardly.

John Hussman, who does excellent technical and fundamental work is far more bearish: "I Expect the S&P 500 to Lose 2/3 of Its Value"said Hussman in January.

My charts suggest about 50% except for the Nasdaq.

Pension Fund Disaster

The sad part of this story is that despite the biggest bull market in history, pension funds are extremely underfunded.

Whether the decline is 33%, 50%, or 66%, pension funds will get crushed.

Heck, given 7% per-year assumptions, even flat returns for seven years will destroy many if not most of them.

For discussion, please see Global Pension Gap Expected to Hit $400 Trillion: US Leads the Way.

By the way, asset bubble bursting episodes are anything but inflationary. If you think massive inflation is right around the bend, please think again: Velocity of Money Picks Up: Inflation Coming? Stagflation? How About Deflation?

Published:5/2/2018 7:48:38 AM
[Markets] McDonald's is the driving force as Dow industrials rise 160 points early Monday McDonald's is the driving force as Dow industrials rise 160 points early Monday Published:4/30/2018 10:56:49 AM
[Markets] Market Snapshot: Dow poised to rise and lock in a monthly gain on Merger Monday U.S. stock futures point to a rise at the open Monday, keeping the Dow Jones Industrial Average on track for an April gain with one session left to the month.
Published:4/30/2018 5:39:08 AM
[Markets] Bill Smead: "Two Things Collided In 1987 And The Market Fell 40% In 78 Days"

Submitted by Finanz und Wirtschaft

Bargain hunters have a hard time in today’s financial markets. That’s especially true in the United States where equity valuations – even after the recent correction – remain at elevated levels and the enormous popularity of stocks like Amazon and Netflix has caused the market to narrow significantly. "Right now, we have the highest concentration of technology in the S&P 500 since the end of 1999", observes Bill Smead. The renowned value investor from Seattle warns that this will end ugly and lead to a 1987 like market crash.

Nonetheless, the founder of Smead Capital Management sees no reason to panic for astute investors. He argues that the American economy is on solid ground and will accelerate in the coming years when the millennials are going to fuel consumption. As a field-tested contrarian, he spots buying opportunities in sectors like old media, retail and biotech.

Q. Mr. Smead, the stock market has lost steam. Four months into 2018, the S&P 500 is basically trading at the same level as at the beginning of the year. How concerning is this slump?

Historically, the S&P 500 spends about 80% of its time doing a pretty good job of representing the overall market. But 20% of its time it represents over popularity of just a few sectors. That’s because investors often act like a herd of sheep which are notorious creatures of habit. They will go to a pasture and it starts out being green pasture. But then they will graze until there is nothing green left and they will start digging in into the roots and stuff until it’s unhealthy.

Q. And what’s the analogy regarding the stock market?

Investors act like sheep by continuing to walk through the same ruts to feed at the same trough. And that’s what happens to the S&P 500. It has no ability to transfer money away because it’s a capitalization weighted index. And right now, it is a glorified growth stock index. In the prior four years until early 2018, around 60% of the gain of the index came from seven of the 500 companies. That is unbelievably narrow. So the old rule is that narrow markets end badly. The crash of 1929 would prove this, as well as 1972 and 1999. So whatever the darling of that narrowness is needs to be avoided.

Q. Then again, so far in this bull market bets on growth stocks like Amazon and Netflix have turned out to be pretty clever investments. Why should that change now?

You should not confuse brains with a bull market, meaning when stocks go way up for an extend time everybody looks like they’ve got a lot of brains. It’s like sitting on a boat and the high tide comes in: your boat is going to float just as high as the other ones. Today, a large segment of the stock market capitalization is tied up in the euphoria surrounding the pioneering efforts of companies like Amazon, Netflix, Tesla, Facebook and Google. Right now, we have the highest concentration in the S&P 500 of technology since the end of 1999. And the market, once a great deal of success happens, wants to extrapolate and attempts to predict the future by what has been going on in the recent past. So I’m reminded of a quote by the American businessman Shelby Cullom Davis. He figured out that "the thing that makes you rich the prior twenty years is usually the thing that makes you poor the following ten."

Q. But isn’t there also lot of potential in new technologies like artificial intelligence and autonomous cars?

That’s what I call a "well known fact". A well-known fact is a body of economic information that is known by pretty much everyone in the marketplace and has been acted upon by pretty much everyone with access to capital. In effect, when the taxi driver is giving you stock tips, whatever his theory is, it’s more than likely a well-known fact. For instance, looking back at the last twelve months, it’s a well-known fact that whatever business Amazon goes into, they are likely to ruin it for the people that are already in it.

Q. But isn’t that the case? Just look at the wave of bankruptcies in the US retail industry.

That’s not my point. For example, at the end of 1999 the well-known fact was that the internet was going to change our lives. And it did but people lost 80 to 90% of their money with dotcom stocks. In 1929, the well-known fact was that radio was going to dominate entertainment for the next fifty years. And it did, but that didn’t stop RCA from going from $500 a share in 1929 to $5 in 1932. At the end of 1972, the well-known fact was that there were fifty growth companies, called the "Nifty Fifty". They seemed to be oblivious to what happens to the economy and all you had to do was to buy these fifty stocks. They even were called «one decision stocks» because all you had to do was buy them. But what happened to you on these stocks, even with the companies which succeeded like Disney, McDonald’s and Coca-Cola, you lost most of your money in the next two years and you really didn’t start getting it back until 1982.

Q. Now what does this all mean for investors in the spring of 2018?

One of the most important factors in the investment markets right now is that the rate of interest that you use to discount future cash flows is extremely low relative to history. So in theory, the net present value of the future income streams of businesses is very high. And since interest rates have been going down since 1981 in the United States people tend to not include something else happening in their mechanism for discounting. In other words: the rate on the ten year treasury is around 3% right now and people kind of worry what would it be like at 3.25 or 3.5%. But they don’t spend a lot of time to try to figure out what it would be like at 4 to 5%.

Q. So what would it be like?

If the US economy improves dramatically in the next twelve months and we move from the 2% level on real GDP growth to, let’s say, 4 or 5% a year over the next two years, interest rates are going to rise a lot higher and they are going to go up fast. That means this will probably result in a bear market. It would be a bear market which has to do with overvaluation, not a bear market which has to do with earnings. And that’s what happened in 1987: The stock market went from 800 to 2700 from 1982 to 1987 and in the spring of 1987 the ten year treasury interest rate went from 7% to 10%. And when those two things collided, the market fell 40% in 78 days.

Q. On October 19, 1987, a day that became known as "Black Monday" the Dow Jones plunged 22.6%, its largest single-day percentage drop. Nevertheless, the economy didn’t fall into a recession. What would happen today after a stock market crash like 1987?

Another argument that’s kind of a well-known fact is that we are late in the economic cycle in the United States. So as mentioned, you can lose a lot of money betting on a well-known fact. But you can make even more money betting that a well-known fact ends up being wrong. For contrarian investors like me nothing is better than that!

Q. Nevertheless, the last recession in the US happened around ten years ago. So we’re already looking back at one of the longest economic expansions since World War II.

But we also had the most anemic economic recovery coming off a deep recession that we just about ever had. Today, the stock market is built around the idea that the economics that exist right now will be the same ten years from now. But in the coming years the millennials are beginning to dominate the economy of the United States. This means that the largest demographic group, which has been late to be impactful on the overall economy with home and auto buying, is just getting started. So how could the United States be late in the economic cycle when its largest adult population group is just getting started?

Q. But aren’t millennials quite different from prior generations when it comes to spending and their lifestyle in general?

What we know is that the number of 35 to 44-year-old Americans will growth as explosively in the next twelve years as it did when the baby boomers turned 35 to 44 years old. And when the number of 35 to 44 year olds is high you have the most people in society making really good money and they have to spend it all to make their life work. So for example, today’s number of homes is way below what is going to be needed to meet the demand of people who have waited into their 30s to have children. Also, the market thinks it knows that when the millennials are 35 to 44 years old that their choices of how they access products and services will be heavily influenced by the convenience of the internet. But no one has proposed what they are going to do with all the time they have because they aren’t doing a lot of the things their parents did.

Q. What are the implications of this demographic shift from an investor’s perspective?

Companies that are threatened by e-commerce are trading very, very cheaply. And that’s where we spot our best opportunities. Because if these companies have any kind of decent economics in the coming years the financial opportunity for investors is dramatically greater than when you invest in the success of companies which you have to pay a very high price to get involved in.

Q. So in which sectors are you putting your money?

For example, in the entertainment world. The market assumes that the distribution methods are going to be more important than the content. So Disney trades at 14 times earnings and Netflix trades right now probably at 250 because the market thinks that the distribution channel is going to be more valuable and that those distribution channels are preeminent to the actual creation of content. That’s why companies like Disney and Discovery Communications are on sale on a relative basis right now. And that creates opportunities. In the case of Discovery, we know that one of their channels called HGTV has the best audience and the best advertising experience for an advertiser with respect to women in the age of 30 to 50. So it really doesn’t make any difference whether you are going to watch HGTV’s shows on Netflix, on replay or live being streamed by Hulu or on cable.

Q. Where else do you see value?

A great question to ask someone who runs a portfolio is how happy they would be owning shares in the next bear market. We went through the worst bear market in 80 years in 2008-2009 and the quality of the companies identified by our eight criteria is one of the things which got us through that torturous decline. Most of these criteria are quite simple like meeting an economic need, high and consistent profitability, long history of a constantly high cash flows, immense balance sheet strength, strong insider ownership, shareholder friendliness and of course: Is the stock a bargain compared to the last five to ten years? Right now, our portfolio trades at 13 times what the companies are expected to make in earnings this year. At the start of 2012, it was trading at 12 times earnings. So basically, our portfolio offers the same kind of value it did six years ago. On the other hand, a growth manager at the start of 2012 properly had a portfolio trading at about 16 or 18 times earnings and that portfolio now trades at 25 times earnings. In other words: the spread between these two investment styles is as high as it ever gets.

Q. So what are other key positions in your portfolio?

Stocks like Lennar, Amgen , Walgreens and Target look really interesting to us. And again: All that interest is very closely tied to the fact that these companies fit our criteria for common stock selection and we know that the general market psychology is extremely negative associated with investing in them.

Published:4/29/2018 9:30:25 PM
[Markets] After the Bell: Dow Slips 11 Point and All the Good News May Already Be In the Market The Dow Jones Industrial Average just can't seem to build on a good thing. After gaining more than 200 points yesterday, the Dow Jones Industrial Average declined 11.15 points to 24,311.19 today to finish the week off 151.75 points, or 0.6%. The Nasdaq Composite dropped 0.4% this week after finishing little changed at 7119.80 today. Published:4/27/2018 7:47:10 PM
[Markets] After the Bell: Dow Dips 11 Points as All the Good News Is Already In the Market The Dow Jones Industrial Average just can't seem to build on a good thing. After gaining more than 200 points yesterday, the Dow Jones Industrial Average declined 11.15 points to 24,311.19 today to finish the week off 151.75 points, or 0.6%. The Nasdaq Composite dropped 0.4% this week after finishing little changed at 7119.80 today. Published:4/27/2018 6:44:15 PM
[Markets] US STOCKS-Wall St flat as earnings offset inflation jitters The S&P 500 and the Nasdaq eked out small gains while the Dow Jones Industrial Average edged into negative territory by the end of the session. All three major U.S. indexes were down for the week at the end of a choppy session, ending two-week winning streaks. Published:4/27/2018 4:14:19 PM
[Markets] The Crash Of 1929: "Can It Happen Again?"

Submitted by GnS Economics

In the 4th of February, we published a blog entry detailing the similarities of the current stock market environment with that before the stock market crash in 1987. On February 5th, the Dow Jones Industrial Average (DJIA) experienced the worst daily point decline of its history. Since then, the stock market has recovered, but are we out of the woods?

At the aforementioned entry, we also warned that the situation in the global economy actually resembles more of the time before the Great Depression than that before of the Black Monday in 1987. Worryingly, the same holds for the US equity markets. In fact, almost all of the developments that led to the Great Crash of 1929 are already visible in the US. We may thus be heading towards the worst asset market crash in 90 years.

Prequisites: The ‘Roaring Twenties’

The 1929 crash marked the end of the ‘Roaring Twenties’. The era got its name from consumer and stock market booms driven by the automobile and building sectors. The gold standard and the neutralization of all gold purchases from abroad by the newly created central bank, Federal Reserve or Fed, controlled the consumer price inflation. Due to low inflation, Fed had only limited incentives to intervene on the speculation by increasing the short-term interest rates. The easy credit era was let to persist fueling the boom in the consumer durables, commercial property market, automobile industry and the stock markets.

The tide switched in January 1928. The Fed decided that the boom had gone far enough and started to raise its discount rate and sell its holdings of government securities in effort to stem the speculation. But, rising money market rates made the brokers’ loans viable options for the bank loans because the former were mostly funded by the large balance sheets of corporations. The call loan rates were also clearly higher than the Fed discount rate, which meant that banks were able to borrow cheaply from the Fed and earn a nice margin on loans to investors. The higher interest rates set by Fed thus increased both the bank and non-bank funds available for stock market speculation. Contrary to the aim of the Fed, the financial conditions eased further and the speculation increased. The twenties kept on roaring.

The Great Crash

In 4 December 1928, President Coolidge had given a reassuring State of the Union speech and 1929 started with positive expectations. The stock market kept rising and the consumer boom continued. It was a common belief that earnings and dividends are growing because of the systematic industrial application of the science together with the development of modern management technologies and business mergers. Still, the first half of 1929 was marked with increasing volatility.

By the summer a dubious mood started to creep. The dividend growth was solid but the economy started to look mature. The first hints about the approaching recession arrived in July 1929 as the index of the industrial production of the Fed diminished. Mixed news and rising interest rates in the US and abroad warned of a looming recession. In September, the stock market started to drift downwards. The fear of a recession started to set in.

On Thursday October 24, after a turbulent week, the prices hovered for all while at the start, but then fell rapidly and the stock ticker started to lag behind. The prices kept falling and the ticker fell further behind. The pace of the sell orders grew at an increasing rate and by eleven o’clock a ferocious selling had gripped the market. A few selected quotations given by the bond ticker showed that the that the current values were far below the now seriously lagging tape. Margin calls started to roll in and many investors were forced to liquidate their stock holdings. The increasing uncertainty made the investors even more scared and by eleven-thirty there was a sheer panic. The frenzy of selling could even be heard outside the New York Stock Exchange, where crowds gathered.

At noon, the reporters learned that several notable bankers had gathered at the office of the J.P. Morgan & Company. At one thirty, the vice-president of the New York Stock Exchange (NYSE), Richard Whitney, appeared on the trading floor and started to make large purchases of variety of stocks (starting from the Steel post). This had a clear message: the bankers had stepped in. The effect was imminent. The fear eased and the stocks rallied.

On Friday, the volume of trading was large, but the prices held up. During the weekend, there was a sense of relief. The disaster had been avoided and the actions of the bankers were celebrated. But then came Monday.

On Monday, October 28, the market opened to uneasy tranquility which was quickly broken. The selling started, then accelerated, and by noon the market was in a full panic mode. The bankers gathered again but the savior was never seen on the floor. Heavy selling continued throughout the day, and the market melted down, with the DJIA closing down by almost 13 percentage points for the day. After the close, there was not a word from the bankers or from anyone else, for that matter. During the night, a panic spread through the nation.

On Tuesday, October 29, the selling orders flooded the NYSE in the open. The prices plunged right from the start, feeding the panic. The sell orders from all over the country overwhelmed the ticker and sometimes even the traders. During the day, massive blocks of stocks were sold indicating that the ”big players” (banks, investment funds etc.) were liquidating. During the worst selling periods, there was a countless number of the selling orders but no buyers. This meant that, at times, the markets were in a complete free fall. There was a brief rally before the end of trading but despite this, the ”Black Tuesday” was one of the most brutal days at the NYSE with the DJIA falling by 11 % with heavy volumes.  Within a week, DJIA had lost 29 % of its value.

The daily closing values of Dow Jones Industrial Average during the year 1929. Source: GnS Economics, MacroTrends

Are we in a time loop?

The crash of 1929 marked the end of a long stock market boom fed by several years of easy credit. Because inflation was low for most of the 1920’s, Fed did not bother to curb the speculation by rising rates and when it did, the rise was too little too late. The signals for an upcoming recession broke the highly over-valued stock market in 1929. Actually, for example the dividends grew even in the last quarter of 1929 but the faith for the future of the market was broken and the investors panicked.

Currently, we are in a situation where, according to several metrics, the stock market is the most over-valued in the history of the NYSE. The central banks, with their orthodox and unorthodox monetary policies, have fed the asset market mania for nine years now but, currently, they are in a tightening cycle. Moreover, the global economy is in a risk of a dramatic slowdown.

This indicates that the main components of the crash of 1929: an over-valued stock market, a central bank tightening cycle (higher interest rates) and a slowing economy are almost all present in the US. We will thus soon know how well the history rhymes.

The historical accounts are based on the “The Great Crash 1929“ by John K. Galbraith, “The stock market boom and crash of 1929 revisited” by Eugene White and on “Lessons from the 1930’s Great Depression” by Nicholas Crafts and Peter Fearon.

Published:4/27/2018 3:43:22 PM
[Markets] Why investors should dread the month of May—especially this year The U.S. stock market is preparing to end a positive—but volatile—month of April, and investors may be hoping that performance in May is even better. According to the Stock Trader’s Almanac, May is typically a mixed month for the major indexes, and the results are particularly bad in midterm years, as is 2018. The Dow Jones Industrial Average (^DJI) is typically flat over the month of May, historically speaking. Published:4/27/2018 3:43:22 PM
[Markets] The Next Crash: Making The Fed An Instrument For Disaster

Submitted by Nomi Prins

Warning: What you are about to read is not about Russia, the 2016 election, or the latest person to depart from the White House in a storm of tweets. It’s the Beltway story hiding in plain sight with trillions of dollars in play and an economy to commandeer.

* * *

While we’ve been bombarded with a litany of scandals from the Oval Office and the Trump family, there’s a crucial institution in Washington that few in the media seem to be paying attention to, even as President Trump quietly makes it his own. More obscure than the chambers of the Supreme Court, it’s a place where he has already made substantial changes. I’m talking about the Federal Reserve. 

As the central bank of the United States, the “Fed” sets the financial tone for the global economy by manipulating interest rate levels. This impacts everyone, yet very few grasp the scope of its influence.

During times of relative economic calm, the Fed is regularly forgotten. But what history shows us is that having leaders who are primed to neglect Wall Street’s misdoings often sets the scene for economic dangers to come. That’s why nominees to the Fed are so crucial.

We have entered a landmark moment: no president since Woodrow Wilson (during whose administration the Federal Reserve was established) will have appointed as many board members to the Fed as Donald Trump. His fingerprints will, in other words, not just be on Supreme Court decisions, but no less significantly Fed policy-making for years to come -- even though, like that court, it occupies a mandated position of political independence.

The president’s latest two nominees to that institution’s Board of Governors exemplify this. He has nominated Richard Clarida, a former Treasury Department official from the days of President George W. Bush who later became a strategic adviser to investment goliath Pimco, to the Fed’s second most important slot, while giving the nod to Michelle Bowman, a Kansas bank commissioner, to represent community banks on that same board.

Like many other entities in Washington, the Fed’s Board of Governors has been operating with less than a full staff. If Clarida is approved, he will join Trump-appointed Fed Chairman Jerome Powell and incoming New York Federal Reserve Bank head John C. Williams -- the New York Fed generally exists in a mind meld with Wall Street -- as part of the most powerful trio at that institution.

Williams served as president of the San Francisco Fed. Under his watch, the third largest U.S. bank, Wells Fargo, created about 3.5 million fake accounts, gave its CEO a whopping raise, and copped to a $1 billion fine for bilking its customers on auto and mortgage insurance contracts.

Not surprisingly, Wall Street has embraced Trump’s new Fed line-up because its members are so favorably disposed to loosening restrictions on financial institutions of every sort.  Initially, the financial markets reflected concern that Chairman Powell might turn out to be a hawk on interest rates, meaning he’d raise them too quickly, but he’s proved to be anything but.

As Trump stacks the deck in his favor, count on an economic impact that will be felt for years to come and could leave the world devastated. But rest assured, if the Fed can help Trump keep the stock market buoyant for a while - or at least the midterm elections - by keeping money cheap for Wall Street speculation and the dollar competitive for a trade war, it will.  

History Warns Us

At a time when inequality, economic hardship, and household and personal debt levels are escalating and wages are not, why should any of this matter to the rest of us? The answer is simple enough: because the Fed sets the level of interest rates and so the cost of money. This, in turn, indirectly impacts the value of the dollar, which means everything you buy.

Since the financial crisis, the Fed has kept the cost of borrowing money for banks at near zero percent interest. That allowed those banks to borrow money to buy their own stock (as did many corporations) to inflate their value but not, of course, the value of their service to Main Street.

When money is cheap because interest rates are low or near zero, the beneficiaries are those with the most direct access to it. That means, of course, that the biggest banks, members of the Fed since its inception, get the largest chunks of fabricated money and pay the least amount of interest for it.

Although during the election campaign of 2016 Trump chastised the Fed for its cheap-money policies, he’s since evidently changed his mind (which is, of course, very Trumpian of him). That’s because he knows that the lower the cost of money is, the easier it is for major companies to borrow it. Easy money means easy speculation for Wall Street and its main corporate clients, which sooner or later will be a threat to the rest of us. 

The era of trade wars, soaring stock markets, and Trump gaffes may feel like it’s gone on forever. Don’t forget, though, that there was a moment not so long ago when the same banking policies still reigning caused turmoil, ripping through the country and devouring the finances of so many. It’s worth recalling for a moment what happened during the Great Meltdown of 2008, when unrestrained mega-banks ravaged the economy before being bailed out. In the midst of the current market ecstasy, it’s an easy past to ignore. That’s why Trump’s takeover of the Fed and its impact on the financial system matters so much.

Let's recall that, on September 15, 2008, Lehman Brothers crashed. That bank, like Goldman Sachs a former employer of mine, had been around for more than 150 years. Its collapse was a key catalyst in a spiral of disaster that nearly decimated the world financial system. It wasn’t the bankruptcy that did it, however, but the massive amount of money the surviving banks had already lent Lehman to buy the toxic assets they created.

Around the same time, Merrill Lynch, a competitor of Lehman's, was sold to Bank of America for $50 billion and American International Group (AIG) received $182 billion in government assistance. JPMorgan Chase had already bought Bear Stearns, which had crashed six months earlier, utilizing a $29 billion government and Federal Reserve security blanket in the process.

In the wake of Lehman’s bankruptcy, $16 trillion in bailouts and other subsidies from the Federal Reserve and Congress were offered mostly to Wall Street’s biggest banks. That flow of money allowed them to return from the edge of financial disaster. At the same time, it fueled the stock and bond markets, as untethered from economic realities as the hot air balloon in The Wizard of Oz.

After nearly tripling since the post-financial crisis spring of 2009, last year the Dow Jones Industrial Average rose magically again by nearly 24%. Why? Because despite all of his swamp-draining campaign talk, Trump embraced the exact same bank-coddling behavior as President Obama. He advocated the Fed’s cheap-money policy and hired Steve Mnuchin, an ex-Goldman Sachs partner and Wall Street’s special friend, as his Treasury secretary. He doubled down on rewarding ongoing malfeasance and fraud by promoting the deregulation of the banks, as if Wall Street’s greed and high appetite for risk had vanished. 

Impending Signs of Crisis

A quarter of the way into 2018, shadows of 2008 are already emerging. Only two months ago, the Dow logged its worst single-day point decline in history before bouncing back with vigor. In the meantime, the country whose banks caused the last crisis faces record consumer and corporate debt levels and a vulnerable geopolitical global landscape.

True, the unemployment rate is significantly lower than it was at the height of the financial crisis, but for Main Street, growth hasn’t been quite so apparent. About one in five U.S. jobs still pays a median income below the federal poverty line. Median household income is only up 5.3% since 2008 and remains well below where it was in 1998, if you adjust for inflation. Workforce participation remains nearly as low as it's ever been. Meanwhile, the top 1% of American earners saw their incomes go up by leaps and bounds since the Fed started manufacturing money -- to more than 40 times that of the bottom 90%.

Just as before the 2007-2008 financial crisis, there’s a scary level of confidence among politicians and regulators that neither the economy nor the banking sector could possibly go bust. Even the new Federal Reserve chair views the possible need for bailouts as a relic of a bygone time. As he said at his confirmation hearing, “Generally speaking I think the financial system is quite strong.” When asked if there are any U.S. banks that are still too big to fail, he responded, “I would say no to that.”  

That’s a pretty decisive statement, and not strikingly different from one outgoing Fed Chair Janet Yellen made last year. By extension, it means that Trump’s new chairman supports laxer structures for the big banks and more cheap money, if needed, to help them. So watch out. 

When a crisis hits, liquidity dies, and banks close their doors to the public. Ultimately, the same formula for crisis will surely send Wall Street executives crawling back to the government for aid and then Donald Trump will find out what financial negligence truly is.

A Time of Crisis and Financial Collusion

As signs of crisis emerge, few in Washington have delved into how we can ensure that a systemic crash does not happen again. That’s why I’ll never forget the strange message I got one day. It was in the middle of May 2015, about a year after my book, All the Presidents' Bankers, had been published, when I received an email from the Federal Reserve. Every year, the Fed, the International Monetary Fund, and the World Bank hold an annual conference where the most elite central bankers from around the globe assemble. To my shock, since I hadn't exactly written in a kindly fashion about the Fed, I was being invited to speak at the opening session about why Wall Street wasn’t helping Main Street.

Two months later, I found myself sitting in front of a room filled with central bankers from around the world, listening to Fed Chair Janet Yellen proclaim that the worst of the crisis and its causes were behind us. In response, the first thing I asked that distinguished crowd was this: “Do you want to know why big Wall Street banks aren’t helping Main Street as much as they could?” The room was silent. I paused before answering, “Because you never required them to.” 

I added, “The biggest six U.S. banks have been rewarded with an endless supply of cheap money in bailouts and loans for their dangerous behavior. They have been given open access to these funds with no major consequences, and no rules on how they should utilize the Fed’s largess to them to help the real economy. Why should you expect their benevolence?”

After I returned home, I became obsessed with uncovering just how the bailouts and loans of that moment were only the tip of an iceberg, the sort of berg that had once taken down the Titanic -- how that cheap money fabricated for Wall Street had been no isolated American incident.

What my research for my new book, Collusion: How Central Bankers Rigged the World, revealed was how central bankers and massive financial institutions have worked together to manipulate global markets for the past decade. Major central banks gave themselves a blank check with which to resurrect problematic banks; purchase government, mortgage, and corporate bonds; and in some cases -- as in Japan and Switzerland -- stocks, too. They have not had to explain to the public where those funds were going or why. Instead, their policies have inflated asset bubbles, while coddling private banks and corporations under the guise of helping the real economy. 

The zero-interest-rate and bond-buying central bank policies prevailing in the U.S., Europe, and Japan have been part of a coordinated effort that has plastered over potential financial instability in the largest countries and in private banks. It has, in turn, created asset bubbles that could explode into an even greater crisis the next time around.

So, today, we stand near -- how near we don’t yet know -- the edge of a dangerous financial precipice. The risks posed by the largest of the private banks still exist, only now they’re even bigger than they were in 2007-2008 and operating in an arena of even more debt. In Donald Trump’s America, what this means is that the same dangerous policies are still being promoted today. The difference now is that the president is appointing members to the Fed who will only increase the danger of those risks for years to come.

A crash could prove to be President Trump’s worst legacy. Not only is he -- and the Fed he’s helping to create -- not paying attention to the alarm bells (ignored by the last iteration of the Fed as well), but he’s ensured that none of his appointees will either. After campaigning hard against the ills of global finance in the 2016 election campaign and promising a modern era Glass-Steagall Act to separate bank deposits from the more speculative activities on Wall Street, Trump's policy reversals and appointees leave our economy more exposed than ever. 

When politicians and regulators are asleep at the wheel, it’s the rest of us who will suffer sooner or later. Because of the collusion that’s gone on and continues to go on among the world’s main central banks, that problem is now an international one.

Published:4/27/2018 10:12:00 AM
[Markets] US STOCKS-Amazon, Microsoft boost Nasdaq; Exxon drags on S&P Amazon and Microsoft pushed the Nasdaq higher on Friday, but weak reports from Exxon and other energy companies capped gains on the S&P 500 and the Dow Jones Industrial index. Amazon.com Inc surged 7.9 ... Published:4/27/2018 9:42:31 AM
[Markets] "We Are Stunned" Gartman Rages After Getting Stopped Out Of Nasdaq Short

Yesterday morning, we delivered a present to tech longs when we reported that after one week sabbatical since his latest disastrous reco (to short WTI just hours before it exploded higher), Dennis Gartman told his few clients he had just gone short the Nasdaq.

NEW RECOMMENDATION: We’ve been abundantly bearish of equities for the past several weeks, but we’ve failed to put that bearishness to test “officially” in a recommendation and so we shall do so this morning, wading in to sell the NASDAQ futures anywhere above $6560 as it trades $6564 as we write and finish TGL. We’ll risk 1.5% on the trade and we look for $6000 to be taken out to the downside sooner  rather than later. Indeed, should 6400 be taken out today we’ll add to the position immediately

Unfortunately, the trade did not work out quite as intended, and just an hour later, the Nasdaq soared tripping Gartman's +1.50% stop loss limit.

This morning there is the always amusing post-mortem from the "world-renowned commodity guru."

We were bearish of shares coming into yesterday, before the ECB’s non-decision decision and before we listened to Dr. Draghi’s postmeeting press conference, but as we listened to Draghi’s comments it became painfully clear to us that we were wrong in suggesting…and then officially recommending…a net short position in equities. If the   monetary authorities are not going to err contractionarily and are, instead, going to continue their experiment with QE we shall have to adapt. We have no choice.

Hence, we were wrong in being short into yesterday’s market and fortunately we had a stop that cost us 1 ½%. We shall call that fortunate; it felt like it could not have been a worse idea, but indeed by the close it proved it could have been a great deal worse.

The "explanation":

Turning to the “action” in the last few minutes of futures trading in the NASDAQ yesterday, we are still stunned by the 100 “Big Figure” rush to the upside that took place even as the S&P, Dow and Russel futures were quietly selling off. We must believe that someone one in a position of authority “knew” about Amazon’s “blow-out” earnings report which was made officially public only moments after 4:00 p.m. There really cannot be any other explanation! [sic]

And the formal closing:

Why the NASDAQ 100 shot up 100 handles in the last five minutes of trade is open to debate… and we wrote about that above… but it did and fortunately we were stopped out a full 1% below the closing level. We are growing weary of this sort of thing, but at least we kept this to a 1 ½% loss on a single unit. At least that! ‘Tis small solace, however.

So what now? Well, it appears that the "guru" is long once again:

As for our retirement account, we made no changes and remain long of cotton, long of gold, long of the shares of a business development company and long of the shares of a primarily Australian and New Zealand short term government bond fund traded on the NYSE. We also held our short derivatives position but will be cutting that back rather materially today and will be looking about for things to buy that make “the things that if dropped on your foot shall hurt.” Trains; steel; shipping; farm equipment… things such as that; things that can be counted; things that pay dividends; things with real earnings; that sort and those sorts of things.

Published:4/27/2018 7:12:07 AM
[Markets] Nasdaq Surges Alongside The Dollar; 10Y Yield Slides Ahead Of GDP

In the aftermath of blockbuster earnings from Amazon, which is set to open at an all time high as it breathes down Apple's neck for the title of first $1 trillion market cap company, and Intel, it is hardly a surprise that Nasdaq futures are pointing sharply higher (especially with Gartman shorting the Nasdaq yesterday).

What is more surprising is the broader weakness elsewhere, with Dow futures down 90 points and even the S&P in the red, as Asian shares rose and European equities were little changed. Traders are cautious ahead of today's Q1 GDP print, which is expected to slide from 2.9% to 2.0%, especially in the aftermath of the terrible UK GDP print earlier, which sent cable, gilt yields and May rate hike odds tumbling.

Major European stock gauges were mixed, with the Stoxx 600 index little changed, and heading for its longest streak of consecutive weekly gains since October 2017. Amundi, Europe’s biggest asset manager, climbed after reporting record 1Q inflows, while Electrolux slumped after raising its projection for raw material costs in 2018. German and British benchmarks outperforming as the pound and euro fell after the U.K.’s worst growth figures since 2012, while data out of France and Spain also disappointed.  Meanwhile, investors continued to pull money out of European equity funds in the week through Wednesday, according to a BofAML, citing EPFR Global data

Asia equity markets traded mostly higher as the region got an uplift from the momentum in US where all majors extended on gains amid tech outperformance after strong Facebook results, which was later followed after-market by Amazon, Intel, Microsoft and Western Digital which all beat on earnings forecasts. As such, ASX 200 (+0.2%) and Nikkei 225 (+0.5%) traded positive although gains were relatively mild as participants also digested a flurry of data releases and earnings, while KOSPI (+0.6%) benefited from a warming of ties amid the historic inter-Korean summit. Elsewhere, Shanghai Comp. (-0.7%) and Hang Seng (+0.2%) were mixed with underperformance in the mainland following a neutral position by the PBoC in today’s open market operations, while data also showed a slowdown in the pace of Chinese Industrial Profit growth.

The most notable move overnight was, again, the dollar, as there seems to be no stopping the greenback even as Treasuries edge higher a second day, with the yield sliding below 2.97% and ever further from the 3.00% level which was crossed for the first time since 2014 just two days ago.

Meanwhile, the ominous, pre-recessionary flattening has resumed, and the 2s10s is back under 50bps this morning.

The Bloomberg Dollar Spot Index advances for the eighth day in nine amid an accelerating short squeeze, which we warned about a week ago...

... hitting a fresh three-month high as investors scale back expectations that central banks other than the Fed are confident in tightening. In fact, the dollar is headed for its best week since December 2016.


Elsewhere in FX, as noted above, U.K. GDP data misses estimates, slashing the odds of a BOE hike next month, making the pound the worst G-10 performer.  The euro slid amid disappointing data out of France, while the won climbed with Korean leaders’ summit in focus; The yen was near the bottom of a five-week spiral on concerns its yield differentials against the dollar would widen further after the Bank of Japan signaled it’s in no hurry to exit.

Overnight the BoJ concluded its latest policy meeting and kept monetary policy unchanged as expected with NIRP held at -0.10% and the 10yr JGB yield target at around 0%. The decision was made by 8-1 vote with Kataoka the dissenter again, but the biggest surprise was that the central bank removed its reference to achieving 2% CPI target around FY19. Furthermore, BoJ stated that risks to economy were balanced for FY2018 but are skewed to downside for FY2019.  BoJ Governor Kuroda said it is appropriate to continue powerful monetary easing, and said that the timeframe for a price target was a limit implying immediate policy change, adds was just a forecast, not a limit and inflation momentum to continue faster to the 2% target.

Meanwhile, the ECB’s Survey of Professional Forecasters maintains 2018 inflation at 1.5%, cuts 2019 inflation to 1.6% to 1.7%. ECB's Mersch said the path of normalization remains conditional on outlook for price stability, adds underlying strength of Euro area economy continues to support their confidence that inflation will converge to their aim.

SNB’s Jordan says there has been a reduction in significant overvaluation of CHF however the currency remains overvalued; he adds negative interest rates and market intervention remain essential as situation is still fragile.

Data include annualized GDP and U. of Michigan Consumer Sentiment Index. Charter Communications, Chevron, Colgate-Palmolive, and TransCanada are among companies reporting earnings

Overnight bulletin summary

  • Soft UK growth data leads to a weaker GBP and lifts FTSE
  • BoJ keeps monetary policy unchanged Kuroda reiterates it is appropriate to continue powerful monetary easing
  • Looking ahead, highlights include, US GDP, ECB’s Lautenschlaeger and BoE’s Carney

Market Snapshot

  • S&P 500 futures down 0.3% to 2,667.75
  • STOXX Europe 600 up 0.05% to 383.95
  • MXAP up 0.6% to 172.86
  • MXAPJ up 0.8% to 561.89
  • Nikkei up 0.7% to 22,467.87
  • Topix up 0.3% to 1,777.23
  • Hang Seng Index up 0.9% to 30,280.67
  • Shanghai Composite up 0.2% to 3,082.23
  • Sensex up 1% to 35,055.38
  • Australia S&P/ASX 200 up 0.7% to 5,953.65
  • Kospi up 0.7% to 2,492.40
  • German 10Y yield fell 2.4 bps to 0.569%
  • Euro down 0.3% to $1.2070
  • Italian 10Y yield fell 3.0 bps to 1.493%
  • Spanish 10Y yield fell 2.5 bps to 1.245%
  • Brent futures down 0.4% to $74.45/bbl
  • Gold spot up 0.1% to $1,317.85
  • U.S. Dollar Index up 0.4% to 91.88

Top Overnight News

  • North Korean leader Kim Jong Un and South Korean President Moon Jae-in agreed Friday to finally end a seven-decade war this year, and pursue the “complete denuclearization” of the Korean Peninsula
  • Economic growth in France, the euro-area’s second largest economy, cooled sharply in the first quarter, and while weather was a factor, the slowdown may heighten concerns about the broader outlook for the euro area. Data weighed on the euro, which fell for the third day reaching its lowest since mid- January vs the dollar
  • The Bank of Japan left its stimulus program unchanged on Friday, while removing language from its statement declaring that it would reach 2 percent inflation around fiscal 2019. The decision to maintain the yield-curve control program and asset purchases was forecast by all analysts surveyed by Bloomberg
  • Whipped by a global stock selloff and climbing bond yields, Norway’s $1 trillion wealth fund reported its first loss in two years in the first quarter. The sovereign wealth fund lost 171 billion kroner ($21 billion), or 1.5 percent, the investor said on Friday
  • Profit growth at Chinese industrial firms posted a sharp deceleration in March, as factory inflation moderated. Industrial profits rose 3.1 percent last month from a year earlier, the slowest gain since 2016

    Asia equity markets traded mostly higher as the region got an uplift from the momentum in US where all majors extended on gains amid tech outperformance after strong Facebook results, which was later followed after-market by Amazon, Intel, Microsoft and Western Digital which all beat on earnings forecasts. As such, ASX 200 (+0.2%) and Nikkei 225 (+0.5%) traded positive although gains were relatively mild as participants also digested a flurry of data releases and earnings, while KOSPI (+0.6%) benefited from a warming of ties amid the historic inter-Korean summit. Elsewhere, Shanghai Comp. (-0.7%) and Hang Seng (+0.2%) were mixed with underperformance in the mainland following a neutral position by the PBoC in today’s open market operations, while data also showed a slowdown in the pace of Chinese Industrial Profit growth. Finally, 10yr JGBs were marginally higher with prices underpinned at the open to track the upside in USTs and with gains then held throughout the session including after an uneventful BoJ announcement in which it kept policy unchanged but removed the wording on reaching inflation goal around FY19.

    Top Asian News

    • BOJ Maintains Stimulus While Removing Language on Timing of 2%
    • Sony’s New CEO Sets Conservative Targets as He Seeks Revival
    • Malaysia’s Prime Minister Says Markets to Decide on Currency
    • Tencent-Backed Little Red Book Is Said to Seek $200 Million
    • Hedge Fund Judah Value Jumped 46% This Year on Agritrade

    European stocks also pushed higher (Stoxx 600 +0.1%) post Thursday earnings as tech outperformance buoyed general sentiment, alongside an easing of geopolitical tensions following constructive dialog between Korea’s leaders. FTSE saw significant strengthening following uninspiring GDP data, that weakened the GBP and further reduced the possibility of tighter monetary policy. While expectations were focused on bad weather having a significant adverse impact, this was quoted to have had only a “limited effect” which pushed expectations of a rate hike in May to sub 25% from 50-50 prior.

    Top European News

    • Draghi’s ‘Moderation’ Rears Its Head in French Slowdown; Betting on Lower Euro-Area Rates Seen as the Way to Go for Now
    • Norway’s $1 Trillion Wealth Fund Posts First Loss in Two Years
    • Romanian President Calls for Premier’s Resignation
    • German Unemployment Falls as Companies Overcome Soft Patch

    In currencies, the DXY index is gathering momentum, largely at the expense of the Greenback’s currency counterparts in the basket (and beyond), and has now cleared a few more chart resistance levels, around 91.526 and from 90.702-751, with the latter entering a multi-month channel that targets 91.996 ahead of 92.000 for more obvious psychological rather than technical reasons. DXY high so far is around 91.825, and another supportive factor comes from month-end rebalancing models signalling net Dollar demand. Sterling’s dramatic turnaround from flavour of the month to one of the market’s worst enemies continues after the UK economy came to a virtual standstill in Q1 and not all because of the Beast from East, according to the ONS. BoE tightening expectations have been knocked back accordingly, with a May hike now down to circa 20% from evens pre-data and almost baked in at one stage (before misses on the labour, CPI and retail sales fronts last week). Cable is now threatening to lose the 1.3800 handle vs just over 1.4000 at the start of April/Q2 and the 1.4375 post-Brexit vote peak set only recently (on April 17). EUR/JPY/CHF: All reeling and feeling the weight of dovish/downbeat Central Bank policy pronouncements after the ECB acknowledged a slowdown in growth, the BoJ removed its timetable for inflation reaching target and the SNB maintained that the Franc is still highly valued, albeit not has strong as it has been. Eur/Usd has tumbled further from brief post-meeting peaks around 1.2210 to a low of circa 1.2065 and eyeing a 1.2050 Fib for potential support, while Usd/Jpy is consolidating gains above 109.00, but remains capped just ahead of 109.50 and the 109.65 Fib. Usd/Chf has breached 0.9900, but Eur/Chf is sub-1.2000 on the aforementioned single currency weakness.

    In commodities, As we approach week end some profit taking noted in the crude complex, that has been further compounded by FX effects, with not much specific news aside from a fire in a Wisconsin oil refinery that had little effect on the fossil fuel. In the metals scope reports were seen from the EU that conditions being set by the US to extend tariff deadlines were unacceptable, with a slight rise in aluminium seen. Gold currently at almost 5 week lows, with the yellow metal heading for its biggest weekly fall in a month.

    US Event Calendar

    • 8:30am: U.S. Employment Cost Index, 1Q, est. 0.7%, prior 0.6%
    • 8:30am: U.S. GDP Annualized QoQ, 1Q A, est. 2%, prior 2.9%; Personal Consumption, 1Q A, est. 1.1%, prior 4%
      • U.S. GDP Price Index, 1Q A, est. 2.2%, prior 2.3%
      • U.S. Core PCE QoQ, 1Q A, est. 2.5%, prior 1.9%
    • 10am: U.S. U. of Mich. Sentiment, April F, est. 98, prior 97.8;
      • Current Conditions, April F, est. 106.2, prior 115
      • Expectations, April F, no est., prior 86.8
      • 1 Yr Inflation, April F, no est., prior 2.7%
      • 5-10 Yr Inflation, April F, no est., prior 2.4%

    DB's Jim Reid concludes the overnight wrap

    What’s the best cure for a mini bond market tantrum? Perhaps to arrange a Mr Draghi press conference. It has certainly been the case in recent months that his pressers have generally been interpreted as dovish and yesterday the bond rally mostly came towards the end of his Q&A. Overall 10y Bunds closed down -4.0bps yesterday and Treasuries (-4.5bps) fell for the first time in eight days. At one stage yesterday the 10yr Bund/Treasury spread returned to 29 year wides of 239.6bp (see graph in the pdf). As recently as late 2012 this ratio was almost zero and last traded flat in February 2012. So quite a divergence in recent years.

    As DB’s Mark Wall discussed, there was a contrast between a virtually unchanged prepared press statement in which the Governing Council kept its faith in growth and inflation and the Draghi Q&A where there was a clearer sense of caution. The most important point Mark and his team took from the press conference was the fact that the Governing Council had not discussed monetary policy. Instead the Council focused on the “very important” current data. The underlying air of caution coupled with the absence of any preparation for an imminent and important policy decision means the probability of the QE announcement coming in June has declined. DB now see July as the most likely timing of the announcement that net asset purchases will cease. The forecast for the sequencing and timing of monetary withdrawal remain the same with QE ending in December 2018 after a taper in Q4 and the first 20bp deposit rate hike in June 2019.

    For credit investors, Mr Draghi played down concerns about a CSPP taper, saying that there is no specific strategy behind the slowdown while also partly blaming it on seasonality. A reminder that Michal in my team wrote a note on this sharp slowdown earlier this week suggesting there was enough evidence that buying was slowing. We’ll perhaps be able to tell more on Monday when the latest numbers are released.

    Post the ECB, the Euro finished -0.48% lower versus the Greenback with that move aiding European equity markets with the Stoxx 600 closing +0.94%. US equity markets also bounced back strongly following solid corporate results from the tech sector, with Facebook and AMD up 9.1% and 13.7% respectively. The Nasdaq (+1.64%) rose for the first time in six days while the S&P (+1.04%) and Dow (+0.99%) also advanced. After the bell, the strength in tech seems to be continuing with Amazon up c7% while Baidu and Intel are both up c6% following their quarterly results.

    This morning in Asia, markets are trading modestly higher with the Nikkei (+0.42%), Kospi (+0.64%) and Hang Seng (+0.10%) all up, while the Shanghai Comp. is down -0.74%. Datawise, Japan’s April core Tokyo CPI was below  market at 0.6% yoy (vs. 0.8% expected). March IP was above expectations at 2.2% yoy (vs. 2%), the jobless rate was in line at 2.5% while retail trade was below market (1% yoy vs. 1.5% expected). Elsewhere, China's March industrial profits grew 3.1% yoy (vs. 10.8% previous).

    With the ECB out of the way, this morning we had the BoJ meeting where members voted 8-1 to keep rates unchanged while Mr Kataoka continued to cast a dissent vote. Notably, the BOJ has removed previous wording on reaching its 2% inflation target around fiscal 2019, while it kept its 2019 & 2020 inflation forecasts of 1.8% unchanged. We shall hopefully get more info on this at Governor Kuroda's press conference just after we go to print this morning at 7:30am London time.

    Over in Asia this morning, Kim Jong Un became the first North Korean Leader to set foot in South Korea since the 1950’s Korean war as he met with South Korea’s President Moon Jae-in for meetings. Kim said he “felt a flood of  emotion” and called for “a new history of peace and prosperity” while indicating to Moon “let’s meet often”. Looking ahead, Kim is expected to meet with President Trump sometime in May or June for talks.

    Looking ahead to today, the big focus for the market this afternoon is likely to be a first look at Q1 GDP in the US. The consensus is for a +2.0% annualized qoq reading while our US economists expect +2.2%. Our colleagues have  previously noted that their index of key economic indicators continues to point to 3% plus growth so even if today’s Q1 disappoints they doubt that policymakers will rethink the near term trajectory for interest rates. They also highlight that the initial Q1 GDP print has missed the median consensus expectation in each of the last eight years—partly due to well-known issues with residual seasonality. On average, forecasters have overestimated Q1 growth by 46 basis points (bps). This has been even more acute over the last five years as the median forecast has missed by 64 bps.  This release has also been prone to substantial revision. Real GDP growth has been revised up in four of the last five years and in five of the last eight years.

    The average upward revision has been 88 bps while the average of the three downward revisions over this period (2010, 2011 and 2014) was 193 bps. So as DB’s Brett Ryan suggested, policymakers and market participants are likely to substantially discount the advance GDP figures in the first quarter, at least until the BEA issues its benchmark revision in July.

    Also out today will be the Q1 employment cost index which our US economists forecast to come in at +0.8% (consensus at +0.7%). An upside surprise to our economists forecast would boost the year over year growth rate of the ECI above its Q4 2017 post recession high of 2.7% and could cause the market to price a greater probability of an additional fourth rate hike this year (which is our house forecast). According to Bloomberg the odds of this is at 41%, but notably up from the lows of 18% earlier this month.

    Moving onto trade, ahead of the next week’s visit to China to discuss trade relations, President Trump’s economic adviser Mr Kudlow told CNBC that “it’s going to cover a broad area. All of the disputes will be discussed”. He added that “I’ve high hopes for this (trip)”, although also noted that “I’m always the optimist about this”. On the other side, Bloomberg has cited unnamed sources which suggest China’s State Council is considering plans to cut the import duty on passenger cars by half, from 25% currently to 10% or 15%. The potential cut is consistent with  President Xi’s comments in the Boao forum where he indicated a commitment to cut import tariffs on cars.

    Over in Italy, the Five Star Party Leader Luigi Di Maio said “we’re available to sit at the table to negotiate a contract” to form the next government, potentially with the Democratic Party, but “if we don’t succeed, we go back and vote” in a new election.

    Moving along, yesterday’s data in the US was a bit of a mixed bag. The April Kansas City Fed manufacturing index was above market at 26 (vs. 17 expected). In the details, the new orders index jumped to a 15-year high of +37 while the production index rose 13pts to a 7-year high of +33. The weekly initial jobless claims fell to a 49 year low (209k vs. 230k expected) while continuing claims was also lower than expectations (1,837k vs. 1,850k expected), although this was partly due to post Easter data distortions. Elsewhere, the March advance goods trade deficit narrowed to a six month low of -$68bln (vs. -$75bln), as exports of goods rose 2.5% mom while imports fell 2.1% mom. Finally, the March core durable goods orders (0% mom vs. 0.5% expected), core capital goods orders (-0.1% mom vs. 0.5% expected) and wholesale inventories (0.5% mom vs. 0.7% expected) were all weaker than expected.

    In Europe, Germany’s May GfK consumer confidence index was in line at 10.8, with households less optimistic about the economic outlook but still positive about their willingness to spend. In the UK, the April CBI retailing reported  sales index improved 6pts mom to -2 (vs. -3 expected), while the Distributive trade survey showed a net 25% of retailers were optimistic of annual sales growth in May.

    Looking at the day ahead, in Europe we'll get flash April CPI reports in France and Spain along with the advance Q1 GDP reading in the former. Germany's unemployment rate for April is also out along with the advance Q1 GDP report for the UK and April confidence indicators for the Euro area. In the US, we’ll see the first release of Q1 GDP along with the Q1 employment cost index and final April University of Michigan consumer sentiment report. Elsewhere, BOE’s Carney and Haldane will speak while Exxon Mobil and Chevron are due to report earnings.

    Published:4/27/2018 6:42:25 AM
    Top Searches:
    books
    -1'
    FBI
    obama
    obamacare
    NASA
    dow
    Casey
    dow1111111111111' UNION SELECT CHAR(45,120,49,45,81,45),CHAR(45,120,50,45,81,45),CHAR(45,120,51,45,81,45),CHAR(45,120,52,45,81,45),CHAR(45,120,53,45,81,45),CHAR(45,120,54,45,81,45),CHAR(45,120,55,45,8
    dow jones

    Jobs from Indeed

    comments powered by Disqus