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[Markets] Stocks open higher on mix of trade hopes, solid data and company earnings U.S. stocks opened slightly higher on Thursday after Chinese officials said they hoped the U.S. would reach a compromise on the two sides' longstanding trade conflict. The S&P 500 was up 0.3% to around 2,849. The Dow Jones Industrial Average advanced 105 points, or 0.4%, to 25,588. The Nasdaq Composite rose 0.4% to 2,803. The day before, the blue-chip Dow saw its biggest single-day percentage decline since Dec. 4. Hua Chunying, a spokesperson at China's Ministry of Foreign Affairs, said China "hopes the U.S. will meet China halfway and implement the consensus reached by the two leaders during their meeting in Osaka." On the economic front, retail sales and productivity growth came in stronger than expected, underlining the U.S.'s solid growth foundation. In company news, Walmart Inc. helped to buoy investor sentiment after the Dow component reported better-than-expected, second-quarter earnings and same-store sales growth. Published:8/15/2019 8:46:59 AM
[Markets] Schiff: The World Will Drown In An Ocean Of Inflation; Gold Is Going Ballistic


The gold market took a one-two punch on Tuesday as Trump made some concessions in the trade war and inflation numbers came in a bit higher than expected. Peter Schiff talked about it in his latest podcast, saying gold traders still don’t understand the gold rally.

Stock markets surged as gold and silver dropped after US trade representatives said they would delay some of the additional tariffs recently announced by President Trump. The Dow closed 372 points higher (before collapsing back 800 points lower yesterday). Meanwhile, the price of gold dropped below $1,500 briefly before rallying back above that key number.

Gold actually began selling off before the trade war news when the Consumer Price Index number came in hotter than expected. Peter said he knew that would happen.

That is the way the lemmings trade, because according to the conventional wisdom, if inflation is higher, then the Fed will be less likely to cut rates. After all, they’re cutting rates because inflation is too low and if inflation comes in hotter, well, then there’s less of a reason for the Fed to cut rates. So paradoxically, higher inflation is seen as being bad for gold. And the reason I’m saying paradoxically is because gold is an inflation hedge. Normally, the more inflation the more you want to buy gold.”

Peter said investors are banking on the Fed fighting inflation, but they’re wrong.

There is no way the Fed is going to fight inflation. I don’t care how high it is … One of these days the traders have to realize that these numbers don’t matter. I mean, maybe they matter to the public who has to live with a rising cost of living. But they don’t matter to the Fed. The Fed is going to take rates back to zero no matter what these numbers are, because the economy is going into recession even as inflation rises.

Peter said eventually traders will figure it out and start buying gold when they see inflation rising and the Fed sitting on the sidelines.

As far as the trade war announcement goes, Peter said it just shows that Trump was bluffing when he announced more tariffs. He said he thinks it makes the president look very weak.

This trade war is lost. The only question is when do we surrender and how do we admit defeat. Again, I don’t think we’re going to get any kind of deal.”

Meanwhile, the mainstream is starting to talk about a looming recession. They are also calling for the Fed to cut rates and go back to QE. Peter said they still don’t get it. They don’t understand that this time around is not going to be like QE1, QE2, and QE3 where everybody made money.

I understood from the beginning that the Fed’s plan could not succeed, that they could never normalize rates, that they would have to go back to zero, that they could never shrink their balance sheet, that they would have to call it off and do more QE, because I understood the problem back then, and I still understand the problem now, and I understand the consequences.”

Peter noted that New Zealand’s central bank recently cut its interest rate by 50 basis points, basically in an effort to preemptively keep inflation from dropping below its target level. He pointed out that nobody wants a strong currency.

Everybody is weakening their currency to create more inflation. Well, what’s going to happen? The world is going to drown in an ocean of inflation and gold is going ballistic.”

Peter said the fact that gold sold off on trade war news indicates traders don’t really get it.

The people who are selling gold don’t get it. Gold is not going up because of the tariffs. Gold is going up because of what the reserve bank in New Zealand did and because that’s what all the central banks are doing …

Every central bank has bought into this nonsense that we must have inflation and that interest rates need to be negative. Inflation needs to be high enough to have real negative rates all over the globe. That’s where we are heading. So, if that is the case, people have no place to hide except gold and that is why they’re buying.

Peter said ultimately we are going to have a global currency crisis – a US dollar crisis – because it is at the epicenter of the global fiat monetary system.

Published:8/15/2019 8:23:48 AM
[Markets] The Dow Is Up Because Investors Are Moving on From a Very Bad Day for Stocks Stocks are rebounding on Thursday, with Dow Jones Industrial Average, S&P 500, and Nasdaq Composite futures all rising. Published:8/15/2019 8:23:46 AM
[Markets] China says it hopes can reach a solution with U.S. on trade Stock-index futures appeared to get a lift Thursday after a spokesperson for China's foreign ministry said Beijing still hoped it could work out a solution to the trade conflict with the U.S. Referring to the meeting between President Donald Trump and Chinese leader Xi Jinping in June, the spokesperson said: "We hope the U.S. can work in concert with China to implement the two presidents' consensus that was reached in Osaka, and to work out a mutually acceptable solution through equal-footed dialogue and consultation with mutual respect." The spokesperson said Xi and Trump have remained in contact via meetings, phone calls and letters. The remarks came after China earlier said it was prepared to take unspecified steps to retaliate for planned tariffs on Chinese goods scheduled to take effect on Sept. 1. Stock-index futures erased earlier weakness to turn higher following the latest remarks, with Dow futures also buoyed by upbeat results from Walmart Inc. S&P 500 futures were 0.6% higher at 2,857.50, while Dow futures advanced 134 points, or 0.6%, to 25,589. Published:8/15/2019 7:48:05 AM
[Markets] Walmart results push Dow futures back into positive territory Walmart results push Dow futures back into positive territory Published:8/15/2019 7:16:51 AM
[Markets] US Futures Slide, Yields Plunge After China Spurn Trump, Vows Retaliation

For the 4th day in a row the pattern of a stronger risk open following by a sharp drift lower in both asset prices and yields has re-emerged, much to the frustration of BTFDers.

Global stocks opened for trading on the right foot, with US equity futures initially rising despite 30Y yields falling to all time lows below 2.00% late on Thursday, after several late evening tweets by Trump seemed to indicate further conciliation between the US and China in the ongoing trade war while the PBOC finally fixed the yuan slightly stronger at  7.0268, vs 7.0312 one day before, if slightly weaker than expected 7.0236. However, it all ended with a bang, with S&P futures falling hard, and signaling another weak open for U.S. stocks, which fell 3% on Wednesday on rising recession fears ...

... and European stocks slumping after China stepped up its trade-war rhetoric, vowing imminent retaliation against the US, and roiling markets that had been starting to calm. The result: US traders walking in to another sea of red.

Treasuries and European bonds rallied, with the 10Y yield sliding further, and dropping as low as 1.51% while the 30Y dropped deeper into record territory, sliding as low as 1.95%, a new all time low.

"The only game in town is the central banks, hence the bond markets are rallying,” said Peter Schaffrik, global macro strategist at RBC Capital Markets. "We have regional bonfires in Hong Kong, Argentina, Japan against South Korea, and none of these are going away easily; each and every one is not necessarily strong enough to cause trouble."

As widely discussed on Wednesday, recession fears grew on Wednesday after the 2s10s TSY spread inverted for the first time in 12 years, when the same yield curve inversion presaged the 2008 recession, and pretty much every other recession in the past 50 years.

“We have seen stocks trading very poorly as a result of the yield curve inversion, so that will be flashing some additional warning lights for the Fed that they have to do more,” said Andrea Iannelli, investment director at Fidelity International. “The only question is, can the Fed out-dove the market? At the very least they will have to match market expectations in the short term.”

So far the Fed is failing to out-dove the market, and the MSCI Asia Pacific Index declined, led by energy and health-care firms, after an inverted Treasury yield curve spurred worries over a possible recession. Country benchmarks were mixed, with Australia falling and Hong Kong advancing, while trading volume jumped across the region. Japan’s Topix retreated 1% to a seven-month low, as electronic firms and retail giants weighed on the gauge. The Shanghai Composite Index reversed earlier losses to close 0.3% higher, with Ping An Insurance and Foxconn Industrial Internet among the biggest boosts. China’s central bank added liquidity to the financial system amid prolonged trade tensions with the U.S.

After initially trading higher, Europe's Stoxx 600 slumped as much as 0.5%, erasing earlier gains, after China's surprise warning it would have to take countermeasures after the latest trade war salvo. The Chinese comments sent London and Frankfurt lost over 1%.

Meanwhile, in rates German 30-year yields dipped below minus 0.2% for the first time. Ten-year yields touched a record low of minus 0.67% with Sept. bund futures rising +25 ticks to 178.56; France 10y -1bp to -0.38%; Italy 10y +1bps to 1.51% Also notable: Europe's 50Y swap rate turned negative for the first time ever.

Meanwhile, across the Atlantic, and as noted above, Treasuries outperformed bunds, while core bonds lead gains over semi-core peers and curves flatten. Italian bonds are steady with futures volumes running at less than half the 10-day average. Gilts rose amid haven buying even as U.K. retail sales for July beat the median estimate.

What sent the U.S. curve over the brink into inversion was German data on Wednesday that showed the economy had contracted in the quarter to June. That came on the heels of dire Chinese data for July. The British yield curve also inverted. The German curve is at its flattest since 2008.

The growth panic comes amid economic stress in Argentina and some other emerging markets, fears of Chinese military intervention in Hong Kong and trade tensions that show no sign of abating.

“Hoping for the best on the policy front but positioning for the worst on the economic backdrop seems to be the flavor of the day,” said Stephen Innes, a managing partner at Valour Markets. “The Fed, now out of necessity alone, will need to adjust policy much more profoundly than they expected.”

In FX, the dollar index .DXY was down at 97.862, with the euro - which has now emerged a carry funding and safe haven currency just like the yen - up at $1.1155; and speaking of the yen, it was flat at 105.8 to the dollar having earlier traded at 106.74. The currency has gained against the dollar for eight of the past 10 sessions. Excluding a mini-crash episode in January, it recently hit 17-month highs. The pound traded near the day’s high as U.K. retail sales data for July unexpectedly rose; Australia’s dollar bounced back from Wednesday’s sell-off after employment beat forecasts and damped bets on a central bank rate cut next month

In commodities, oil prices plunged with Brent crude LCOc1 losing another 2% to $58.4 a barrel, after shedding 3% overnight. Safe-haven gold was up 0.3% at $1,520 per ounce XAU=, just off recent six-year highs.

Market Snapshot

  • S&P 500 futures up 0.8% to 2,863.25
  • STOXX Europe 600 up 0.07% to 366.41
  • MXAP down 0.9% to 149.84
  • MXAPJ down 0.5% to 483.27
  • Nikkei down 1.2% to 20,405.65
  • Topix down 1% to 1,483.85
  • Hang Seng Index up 0.8% to 25,495.46
  • Shanghai Composite up 0.3% to 2,815.80
  • Sensex up 1% to 37,311.53
  • Australia S&P/ASX 200 down 2.9% to 6,408.09
  • Kospi up 0.7% to 1,938.37
  • German 10Y yield fell 0.5 bps to -0.655%
  • Euro up 0.06% to $1.1146
  • Italian 10Y yield fell 10.9 bps to 1.156%
  • Spanish 10Y yield rose 0.4 bps to 0.147%
  • Brent futures down 1.5% to $58.60/bbl
  • Gold spot up 0.2% to $1,519.56
  • U.S. Dollar Index little changed at 97.94

Top Overnight News from Bloomberg

  • China called planned U.S. tariffs on an additional $300 billion in Chinese goods a violation of accords reached by Presidents Donald Trump and Xi Jinping, signaling its intention to impose retaliatory measures
  • The recession alarm bell ringing in U.S. government bond markets sent investors rushing once more to haven assets, pushing the world’s stockpile of negative-yielding bonds to another record
  • The inverted yield curve looks set to be a global phenomenon, with major Asian debt markets primed to mirror the moves in Treasuries as fears grow that the world economy is teetering on the brink of a recession
  • Germany Inc.’s outlook for the rest of the year is filled with gloom, suggesting a recession could be in the cards. Companies from Europe’s largest economy lead the list of profit warnings issued in the region during the latest earnings season

Asian equity markets conformed to the rout seen on Wall St. where all major indices fell around 3% and the DJIA slumped 800 points in its worst performance YTD after recent weak data from China and Germany, with recession fears also stoked after the US 2s/10s curve inverted for the first time since 2007. ASX 200 (-2.9%) and Nikkei 225 (-1.2%) were lower in which the energy sector led the declines in both indices after similar underperformance stateside following a near-5% drop in crude prices and with Australia mulling over a slew of earnings releases, although gold stocks have bucked the trend as the stock sell-off spurred safe-haven appeal. Hang Seng (+0.7%) and Shanghai Comp. (+0.3%) were heavily pressured at the open but with downside later stemmed after continued PBoC liquidity efforts in which it injected CNY 30bln through reverse repos and CNY 400bln through 1yr MLF, while reports that Hong Kong Airport resumed normal operations and with strength in China Unicom post-earnings helped soften the blow for Hong Kong which briefly turned positive. However, the recovery in the Hang Seng was short-lived due to the broad risk averse tone and with losses in index heavyweight Tencent following mixed earnings and a cautious outlook. Finally, 10yr JGBs printed fresh highs as the global recession fears spurred a safe-haven bid, which saw the 10yr, 20yr and 30yr JGB yields at their lowest in more than 3 years. This coincided with the US 2s/10s yields winding in and out of inversion and the US 30yr yield dropping below 2% for the first time on record, while mild support was also seen following stronger results at the 5yr JGB auction.

Top Asian News

  • Hong Kong and China Stocks Rise in Shadow of Global Growth Fears
  • China Border Agents Probe Hong Kong Travelers’ Personal Devices
  • Chinese Champion Huawei Under Fire for Calling Taiwan a Country

Major European indices were initially firmer at the open but following negative updates on the US-China trade front, a further bout of risk off swept through markets [Euro Stoxx 50 -1.5%], on reports that China’s Finance Ministry say China will have to take countermeasures on US moves and their actions violate the consensus achieved at the Osaka G20 meeting. No notable over/under performers amongst indices which are all firmly in negative territory following the aforementioned US-China update, but as a reminder Italy’s equity markets are closed due to Assumption Day. Sectors are posting a slightly mixed performance but have also dropped firmly into negative territory, Energy names are lagging as oil prices remain under pressure with the added factor of Iran’s Grace 1 tanker reportedly to be released today; though the US Department of Justice are trying to seize the tanker. Also factoring on the complex is underperformance from Vestas Wind Systems (-3.5%), who represent 3.5% of the Stoxx 600 Oil & Gas index, after missing on Q2 metrics and narrowing revenue guidance. Elsewhere, RBS (-10.0%) are at the bottom of the Stoxx 600 weighed on by a downgrade at HSBC; note, the Co. are trading ex-dividend today. Returning to earnings, and at the other end of the Stoxx spectrum, are both GVC (+2.3%) and Carlsberg (+3.5%) after stating that FY outlook is ahead of expectations and confirming FY guidance with organic beer volume higher by 1.4% YY respectively.

Top European News

  • Vestas Profit Misses Forecasts as Wind Turbine Revenue Falls
  • German Profit Warnings Signal Trade Woes May Trigger Recession
  • U.K. Retail Sales Unexpectedly Rise Amid Online Promotions

In FX, the upbeat jobs data has helped the Aussie withstand another bout of risk aversion prompted by an official blast from China on the trade front and reiteration that Beijing will retaliate with countermeasures against the additional Usd300 bn tariffs that contravene the G20 truce agreement. Aud/Usd is holding firmly above 0.6750, albeit off 0.6790 overnight highs spurred by a significant beat in the payroll count vs expectations, and mainly due to full time workers. Similarly, Sterling got an unexpected lift from UK retail sales data confounding consensus for some payback after previous excesses, but Cable continues to meet resistance around 1.2100.

  • JPY - The Yen is back to roughly flat vs the Dollar and most other currency counterparts after a sudden slide in early EU trade that is still baffling market participants and pundits given no clear catalyst for the move. For the record, factors ranging from in incorrect order to official intervention have been touted, and clearly the speed of the sell-off did trigger stops and chart-based transactions, while a more macro or fundamental motive could have been a back-up in US Treasury yields and curve dis-inversion. However, risk aversion has resurfaced amidst the latest Chinese sabre-rattling and Usd/Jpy is back below 106.00 from circa 106.80 at one stage.
  • NOK - The Norwegian Crown has also been volatile within 10.0470-9.9720 parameters against the Euro, as the Norges Bank removed specific reference to next month when maintaining guidance for further policy normalisation this year due to heightened external risks and uncertainty. Nevertheless, it remains on track for more divergence in terms of benchmark rates compared to G10 and many if not all other global Central Bank peers, bar the Riksbank.
  • EUR/CAD/CHF/NZD - All relatively rangebound vs the Greenback even though overall sentiment has taken another turn for the worse after tentative signs of stability. The single currency is stuck between 1.1155-35, the Loonie is pivoting 1.3300, while the Franc has tracked its safe-haven Yen peer to a degree from around 0.9755 to 0.9725, and the Kiwi is straddling 0.6450, albeit largely on the downside towards 0.6425.
  • EM - Amidst widespread deviation for global/general and more specific or unique reasons, perhaps the rebound in Usd/Cnh from circa 7.0305 lows to 7.0630 is telling/ominous after 7.0268 Usd/Cny fix. Note also, Hong Kong has slashed its 2019 GDP projection to exacerbate global growth concerns, though the Government has injected Hkd 19.1bn via economic measures to try and ward off recession.

In commodities, Brent and WTI prices are firmly in negative territory, post the US-China updates, and have dipped below the USD 59.00/bbl and USD 55.00/bbl levels respectively which had been somewhat of a base for the benchmarks overnight after yesterdays significant downside for the complex, which saw Brent settle lower by around 3% on the day. On the supply/geopolitical front reports indicate that it is likely Iranian tanker Grace 1 will be permitted to leave Gibraltar as Chief Minister Picardo will not renew the vessels detention order which expires on Saturday; after which a court is to decide on the next steps. However, reports indicate that the US Department of Justice has applied to seize the tanker, which casts some doubt over the likelihood of the vessels near-term release. As a reminder prior to the vessel’s seizure reports indicated that it had loaded a 2mln/bbl cargo in Iranian waters around mid-April. Elsewhere, tomorrow sees the delayed release of OPEC’s monthly oil market report, focus will be on whether it takes a similar stance to the IEA and EIA reports in cutting 2019 world oil demand growth forecast. Turning to metals, where spot gold (+0.4%) remains above the USD 1500/oz mark as the market has settled somewhat from yesterday’s significant risk-off moves, but didn’t benefit much from the aforementioned trade headlines; the data slate ahead includes a number of notable US data points, which may spark further bouts of global growth worry if the prints are weak. Separately, copper prices are similarly little changed in-line with the largely tentative market sentiment thus far.

US event calendar

  • 8:30am: U.S. Initial Jobless Claims, Aug. 10, est. 212k, prior 209k
  • 8:30am: U.S. Retail Sales Advance MoM, July, est. 0.3%, prior 0.4%
  • 8:30am: U.S. Empire Manufacturing, Aug., est. 2.0, prior 4.3
  • 8:30am: U.S. Philadelphia Fed Business Outl, Aug., est. 9.5, prior 21.8
  • 9:15am: U.S. Industrial Production MoM, July, est. 0.1%, prior 0.0%
  • 4pm: U.S. Net Foreign Security Purchases, June, no est., prior $3.5b

DB's Craig Nicol concludes the overnight wrap

A mere 4,453 days had passed since the last time the US 2s10s curve was negative. That was until yesterday morning when the curve struck a low of -1.9bps. It ebbed and flowed around 0 for most of the day after that before closing the US session at +0.1bps. Still, the symbolic nature of the curve inverting is not to be underestimated. In fairness all of the other frequent measures of the yield curve have already inverted, namely the 3m10s (-37.8bps), 3s5s (-2.8bps), 2s5s (-8.0bps), and 18m3m-3m (-58.0bps). However, as we’ve discussed on many occasions, the 2s10s curve has the greatest power as a recession indicator in our view.

In fact, Jim must have had a dull day on holiday as he kept on emailing us about the 2s10s inversion. In the end he asked us to put this para in this morning to reflect his view. “Although other measures of the US yield curve have progressively inverted over the last few quarters, for me yesterday’s 2s10s inversion is the one that worries me most. In my opinion, it has the best track record for predicting an upcoming recession over more cycles than any of the others. Indeed, every inversion since 1956 has seen a recession follow. Although the median length of time to a recession is 17 months, credit spreads have pretty much exclusively widened from the point of inversion onwards (see p7 of Yield Curve 101 here ). Of those 2 of the 9 recessions since the 1950s took more than 2 years to materialise after the first inversion though. The first in the mid-1960s (took nearly 4 years) was due to a Fed policy error where the Fed didn’t raise rates as expected (they actually cut) with inflation rising. The curve re-steepened and only inverted again as the Fed reversed course and hiked a few quarters later. The recession soon followed the subsequent inversion. The second, following the May 1998 inversion, took 34 months until a recession arose but the inversion was relatively brief and occurred just prior to the Russian/LTCM crisis where the Fed rapidly cut 75bps thus re-steepening the curve. The Fed then raised rates again from 1999 and the curve re-inverted in early 2000, around a year before the actual recession. So, the conclusion is that the Fed has successfully acted before to delay the inversion turning into a recession but only on 2/9 occasions. Given that the market already prices in 65bps of cuts before year end it feels like they might need to out-pace that to make it 3 out of 10 where they’ve delayed the recession. I should say that our analysis uses closing prices, and we actually closed at 0.1bps last night so I have to be a bit careful here. But having spent most of my career suggesting that this was the most reliable indicator that the US cycle is entering its last act, I have to become far more negative now it looks likely to be triggered, especially given the history of credit spreads immediately after. As an aside, I don’t think this time is different because of term premium being much lower and global QE etc. as we think the causality is through animal spirits. In an inverted yield curve environment, this gets increasingly drained and thus impacts financial and economic activity. So I really don’t care why the curve inverts, just that it does. Anyway, see our “Yield Curve 101” link above for more and I’ll go back to steeper and steeper mountains in the Alps (no flat bits here) and hand you back to Craig and Quinn.”

That move for the curve included a 12.5bps rally for 10y Treasuries which saw them break below 1.60% to close at 1.580%, although this morning they’ve pushed on further to 1.549%. That puts them just 18.9bps above the 2016 lows now. In addition to that, the 10y real yield turned negative yesterday for the first time since October 2016. As for 30y yields, they have dipped below 2% for the first time ever overnight, currently trading at 1.966%, while 2y yields are trading at 1.557% which compares to a closing level on Tuesday of 1.669%. It’s quite amazing to think that 30y yields are also now below the effective Fed Funds rate. It was a similar story in Europe too yesterday, where 10y Bunds dropped -4.1bps and to a new low of -0.654%. Spain and Portugal are now within 14bps and 16bps of being negative at the 10y, while that Austrian 100y bond is now trading at a cash price of over 200. That corresponds to a yield of 0.689%. Not to be outdone also, the 2s10s Gilt curve also briefly turned negative yesterday.

While the 2s10s curve turning negative no doubt compounded the risk-off yesterday, the reality is that sentiment was already hit hard by that weak China data and then later by confirmation that Germany’s economy contracted in Q2 (more on that below). The trade rhetoric didn’t help at the margin too with commerce secretary Wilbur Ross telling CNBC that there is no date set for US-China trade talks while later on White House trade advisor Peter Navarro said in an interview with Fox that the US “can’t meet China halfway” and that “seven structural issues” still remain. Interestingly one of those was a reference to “hacking,” which hasn’t been a clear part of the trade talks so far and is likely to present an additional hurdle to a deal. Nevertheless, President Trump later tweeted overnight that “Good things were stated on the call with China the other day.” He also said that the tariff postponement to December “actually helps China more than us, but will be reciprocated.

Unsurprisingly, equity markets had a day to forget. The S&P 500, DOW and NASDAQ tumbled -2.93%, -3.05% and -3.02%, respectively, with the move for the S&P 500 the second worst since December. Sector wise, energy and financials fell the most with the S&P 500 banks index actually tumbling -4.29% for the biggest daily loss since 4 December. That index has now fallen on 8 of the last 11 days and is back to trading at the lowest since March. The moves were incredibly broad-based, with 99.4% of S&P 500 companies trading lower, which was the worst ratio since February 2018. Other risk assets also struggled mightily yesterday too. In Europe the STOXX 600 closed down -1.68%. EM equities shed -2.88% and currencies retreated, highlighted by the South African rand (-1.83%), the Brazilian real (-2.10%), and the Argentine peso (-7.36%). In commodities oil fell -3.27%, while gold gained +0.99% to reach $1,516, its highest level since 2013. Meanwhile HY credit spreads in the US and Europe were +24bps and +3bps wider, respectively. On that, yesterday we published a short note which makes six observations about recent price action in the US IG and HY credit market. See the link here for the full report.

Overnight, markets are mostly trading lower in Asia too, however the good news at least is that most bourses have pared back heavier declines at the open. As we go to print the Nikkei (-1.29%), Shanghai Comp (-0.62%) and Hang Seng (-0.17%) are all in the red along with the ASX (-2.61%) following the latest employment data in Australia. Meanwhile, S&P 500 futures are up +0.19% as we type. In rates, with the US 2s10s curve hovering near where it closed last night, bond markets have rallied through much of Asia too with 10y JGBs in particular now down to -0.247% and approaching the 2016 low of -0.295%.

Meanwhile, and in some non-curve related news, with 11 weeks to go until the UK’s scheduled departure from the EU on October 31st, Labour leader Jeremy Corbyn has written to other MPs who oppose a no-deal Brexit, calling on them to support a “strictly time-limited temporary government” led by Corbyn as Prime Minister, with the purpose of getting an Article 50 extension and calling a general election. However, with a number of MPs in other parties, including the anti-Brexit Liberal Democrats, opposing Corbyn as PM, this may prove a difficult vision to actually realise. Corbyn’s letter also said that he would call a no-confidence vote “at the earliest opportunity when we can be confident of success.” The House of Commons won’t be sitting again until September 3rd though, so there’ll be at least a couple of weeks before any moves like this could take place.

In other news, the data highlight was the negative GDP print in Germany, which showed the economy contracted -0.1% qoq as expected, which certainly did not help sentiment. Our economists have lowered their full-year 2019 German growth forecasts to 0.3% from 0.7%, see their full note here . Elsewhere, French CPI was confirmed at 1.3% yoy and -0.2% mom, though UK CPI came in higher than expected at 2.1% yoy versus expected 1.9%. The UK’s core CPI metric printed at 1.9%, 0.1pp stronger than expected.

On the Fedspeak front, the only notable comments from St. Louis President Bullard, who said that “macroeconomic outcomes are quite good for the US.” He talked about the ongoing Fed policy review, saying that the key question is how to avoid getting “stuck at an inflation rate that’s lower than your inflation target.” He included negative interest rates as a potential tool, which may have contributed to the marked selloff in bank stocks, though other Fed officials have downplayed the likelihood of that tool. Next week is the Fed’s annual Jackson Hole conference, where it is possible that Powell and other senior officials could speak. We are likely to get the schedule of speeches this evening.

Looking at the day ahead, this morning the only data out in Europe is the July retail sales report in the UK. However it’s busy for data in the US this afternoon. We’ll get August manufacturing surveys from the NY and Philly Fed, while preliminary Q2 nonfarm productivity and unit labour costs data is due. Perhaps the most significant will be the July retail sales report however where the core and control groups readings are expected to show +0.4% mom and +0.5% mom, respectively. We’ll also get the latest jobless claims reading, July industrial and manufacturing production, August NAHB housing market index print and June business inventories. Central bank policy meetings are also due in Norway and Mexico, and in the evening, likely around 7:30pm, we should get the programme for the Fed’s Jackson Hole conference next week, which could see Powell speak.

Published:8/15/2019 6:47:47 AM
[Markets] Stock futures erase gains after China vows retaliation for U.S. tariffs Stock-index futures point to further losses for Wall Street on Thursday after China said it would take unspecified steps in retaliation for U.S. tariffs. Equities tumbled a day earlier, with the Dow posting its worst session of the year, after the Treasury yield curve sent a recession warning signal. Published:8/15/2019 6:17:13 AM
[Markets] Global Stocks Break Key Technical Level as S&P 500 Holds On (Bloomberg) -- Stocks around the world are falling through technical support levels closely watched by investors.The MSCI All-Country World Index closed below its 200-day moving average on Wednesday for the first time since early June. It was joined by the Dow Jones Industrial Average. A break below the support level is seen by some traders as a bearish signal for stocks.“For the Dow itself, this violation of its 200-day average comes barely a month after it was trading at a new high,” said Sundial Capital Research Inc. founder Jason Goepfert in a note. “That’s a quick turnaround for the venerable index, and of course raises the prospects that the latest push to its highs was a false breakout, with the 200-day violation indicating likely weakness ahead.”The Dow’s drop means that two of the so-called Big Four U.S. benchmarks are now below their key averages, with the Russell 2000 Index of small stocks having done so earlier this month. While the S&P 500 Index is about 6% off its record high from July, it remains above its 200-day support around the 2,796 level.“The S&P is not broken, but clearly it’s not ‘strong’ either having swung more than 1% intraday in each of the past 8 sessions,” Evercore ISI technical analyst Rich Ross wrote Wednesday. “I thought this period of outsized volatility would resolve itself higher, but my confidence in that view has waned as we test support at 2,850.”Still, Fundstrat Global Advisors LLC Director of Technical Strategy Robert Sluymer said that given the breadth of the weakness Wednesday, it wouldn’t be surprising to see a bounce back on Thursday. He’s closely watching levels including around 2,943, this week’s high, to confirm a low is completing.(Adds commentary from Fundstrat and Piper Jaffray.)To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.netTo contact the editors responsible for this story: Christopher Anstey at, Andreea Papuc, Cormac MullenFor more articles like this, please visit us at©2019 Bloomberg L.P. Published:8/15/2019 3:22:41 AM
[Markets] U.S. stock futures point to rebound for battered equities U.S. stock futures pushed higher early Thursday, a day after the Dow Jones Industrial Average posted its worst one-day point loss of the year on growing fears of a global economic slowdown. Dow futures rose 166 points, or 0.7%, to 25,622, while S&P 500 futures gained 21.05 points, or 0.7%, to 2,861.50. Nasdaq-100 futures gained 53.50 points, or 0.7%, to 7,541.75. All three major indexes shed around 3% each on Wednesday. The 30-year bond yield (TICKER:BX:TMUBMUSD30Y) dropped under the 2% level for the first time early Thursday. Published:8/15/2019 2:15:28 AM
[Markets] "Pesticide Cheerleader": EPA Rebukes California With Ban On Warning Labels For Bayer's Roundup

Authored by Andrea Germanos via,

President Donald Trump's Environmental Protection Agency was accused of being a pesticide "cheerleader" last week after the agency said it would not approval labels that say that glyphosate — the active ingredient in Roundup and other weedkillers — is known to cause cancer.

In a statement released Thursday announcing the move, the EPA dug in on its assertion that glyphosate does not cause cancer, though critics have said that is "an industry-friendly conclusion that's simply not based on the best available science."

The new guidance takes aim at California's 2017 move, in adherence with its Proposition 65, to add glyphosate to its list of chemicals known to cause cancer and require warning labels. The state cited the World Health Organization's International Agency for Research on Cancer 2015 assessment that glyphosate is "probably carcinogenic to humans."

Image source: AFP/Getty

The EPA, however, said those labels provided consumers with false information.

"We will not allow California's flawed program to dictate federal policy," said EPA Administrator Andrew Wheeler in the statement.

The EPA also sent a letter to manufactures on Aug. 7 saying that "pesticide products bearing the Proposition 65 warning statement due to the presence of glyphosate are misbranded" under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).

The letter, signed by Michael Goodis, head of EPA's registration division in its Office of Pesticide Programs, said EPA would not approve labeling with that warning, and that "EPA requests the submission of draft amended labeling that removes such language within ninety days of the date of this letter."

Brett Hartl, government affairs director for the Center for Biological Diversity, suggested the EPA wasn't living up to its own name.

"It's a little bit sad the EPA is the biggest cheerleader and defender of glyphosate," Hartl told The Associated Press.

"It's the Environmental Protection Agency, not the pesticide protection agency."

California and the IARC weren't alone in seeing a link between glyphosate and cancer.

Three U.S. juries have found Roundup responsible for plaintiffs' cancers, orderingMonsanto, which was acquired by the German pharmaceutical giant Bayer last year, to pay out tens of millions of dollars to victims

Legal battles continue for the company. It's appealing the verdicts, but thousands of other people are suing the company for similar damages.

Published:8/14/2019 9:49:01 PM
[Markets] Countdown to Catastrophe? What the Yield Curve Means for Stock Bull Markets (Bloomberg) -- A key portion of the U.S. Treasury yield curve has inverted, an ominous sign for the economy and the stock market. But what investors should do about it now is a complicated question.Looking at history, after the spread between two- and 10-year Treasury yields first turned negative 10 times going back to 1956, the S&P 500 topped out anywhere from two months to two years later, according to data compiled by Bank of America strategists. Often, bailing immediately after the signal flashed meant missing out on double-digit gains.“It’s a great recession indicator. It just happens to work with a lag,” Tony Dwyer, Canaccord Genuity’s chief market strategist, said by phone. “Acting on it now is inappropriate.”For the first time since 2007, the rate on 10-year Treasury notes dipped below those of 2-year notes Wednesday, sounding alarms across global financial markets. The signal from the bond market has preceded each of the last seven recessions.Six of the last 10 times the yield curve inverted, the S&P 500 rolled over within three months. In the other four, the gauge didn’t top out until at least 11 months passed, data compiled by Bank of America show. The wide range of possibilities muddies the waters for stock investors that consider the yield curve when allocating portfolios.The S&P 500 “can take time to peak after a yield curve inversion,” strategists at the bank, including Stephen Suttmeier, wrote in a note to clients this week. But ultimately, “the equity market is on borrowed time after the yield curve inverts.”If you took the yield curve’s first inversion prior to the 2008 financial crisis as a signal to sell, you were probably glad. Yes, you missed a nearly 25% advance between Christmas 2005 and the top of the bull market 22 months later. But just five months after that, your gain had shrunk to 4%. Holding on through the whole bear market left you gutted -- down 46%.Then again, five years later you were back to even. Ten years later you were sitting with a 64% gain. It’s a different story for the initial inversion that came before the dot-com bubble burst. The spread turned negative briefly in May 1998, and the S&P 500 went on to rally almost 40% through the bull market peak. While that gain would’ve turned to a loss of 30% just 2 1/2 years later at the market bottom, you still would’ve seen double-digit negative returns five years after the first signal.Still, timing the market isn’t easy and it can be tempting to hold on, especially since the S&P 500 usually enjoys a last gasp rally after the initial yield curve inversion. Sure, the S&P 500 has fallen an average of roughly 5% in the immediate aftermath of an inverted yield curve, but the comeback has been stronger, rallying almost 17% on average in the 7 months after the initial negative reaction, according to Bank of America. In Asia, stocks were sold off on two of the last three inversions. Major equity benchmarks plunged Wednesday after key parts of both the U.S. and U.K. yield curves inverted, stoking further concerns over weak global growth. The S&P 500 fell 2.9% while the Dow Jones Industrial Average lost 800 points. U.S. 30-year Treasury yields also fell to record lows. Stocks in Japan were down by almost 2% at 10 a.m. in Tokyo on Thursday.At Crossmark Global Investments in Houston, which manages $5 billion, the team is keeping an eye on the curve, but not yet taking the signal too seriously. Victoria Fernandez, the firm’s chief market strategist, notes that the consumer is still strong, and until retail sales data or other indicators start to deteriorate, she’s not worried a recession is imminent.Still, rates on longer-dated bonds falling to record lows is concerning, and the stickiness of the latest yield curve inversion is well worth paying attention to, she said. “If we had a true inversion of the yield curve that stuck for a while -- if we saw an inversion go for a quarter and those consumer numbers start to come down as well, we see that GDP start to contract, if we see that, then maybe we add a little bit of cash.”(Updates with Asian market performance in 11th paragraph)To contact the reporters on this story: Sarah Ponczek in New York at;Lu Wang in New York at lwang8@bloomberg.netTo contact the editors responsible for this story: Jeremy Herron at, Chris NagiFor more articles like this, please visit us at©2019 Bloomberg L.P. Published:8/14/2019 8:16:57 PM
[TC] Another day, another reversal in stock fortunes as recession fears grow U.S. stock markets plummeted today as recession fears continue to grow. Yesterday’s good news about a reprieve on tariffs for U.S. consumer imports was undone by increasing concerns over economic indicators pointing to a potential global recession coming within the next year. Phones, laptops and game consoles get tariff reprieve until December The Dow Jones […] Published:8/14/2019 4:14:06 PM
[Markets] Dow closes down 800 points in worst day of the year Dow closes down 800 points in worst day of the year Published:8/14/2019 3:13:01 PM
[Markets] Markets In Turmoil: "Clubbed Like A Baby Seal!"

Since Powell cut rates, Bonds and Bullion are up 6%, Stocks are down 6%, and the dollar is unchanged...



Chinese stocks played catch-up with US stocks yesterday after the hope-filled tariff-delay comments...

Source: Bloomberg

European stocks were dumped today...

Source: Bloomberg

Meanwhile, elsewhere in Europe, that insane 2117 maturity Austrian bond reached $200 (after being issued at $99.502 in 2017), up 72% YTD

Source: Bloomberg

The duration of the bond is set to be around 44 years, making it the bond with the highest duration in the euro zone government debt market.

And as yields collapsed, European banks broke key support...

Source: Bloomberg


US and China stocks are exactly matched YTD (up around 14%) while Europe lags...

Source: Bloomberg

Ugly day for US stocks (down broadly 3%) as stops were run yesterday and dismal data from China and Germany sparked a big de-risking...

And on the week...


Weakest close on The Dow since June 4th and a huge drop - down 801 points - the biggest since Oct 31st.. (on 8/5 The Dow dropped 767 points, 12/04 -799pts, 10/31 -832).

Today's dump occurred after a 3rd failed test of the Fib 61.8% retrace of the July tumble...


The Dow closed below its 200DMA


Party like its 1998...

Source: Bloomberg


Bank stocks were battered, once again catching down (relative to the broad market) to the collapsing yield curve (how many more false starts in financials will traders willing bid for)

Source: Bloomberg


Treasury yields collapsed today, led by the long-end (30Y -13bps, 2Y -8bps)...

Source: Bloomberg

2s30s has crashed further into the red for the year...

Source: Bloomberg

The 30Y Treasury yield tumbled to an all-time record low today, trading as low as 2.01%...

Source: Bloomberg

And the 10Y term premium tumbled to a record low...

Source: Bloomberg

The yield curve completed its inversions today with 2s10s finally crossing the zero line...

Source: Bloomberg

For the first time since 2007...

Source: Bloomberg

Don't worry about recession though because former Fed Chair Yellen said the yield curve may be less of a reliable signal at the moment. Thanks Janet!

Germany, Canada, and UK also inverted.

And the 2s10s swap curve is its most inverted ever...

Source: Bloomberg

And don't forget, a flattening 2s10s curve has historically led to a secular rise in volatility...

Source: Bloomberg


Having trodden water for 2 weeks since the spike and dump on Powell and Tariffs, the dollar broke back higher today...

Source: Bloomberg

Offshore Yuan slipped back below the fix...

Source: Bloomberg

And options traders are betting that the HKD breaks the peg...

Source: Bloomberg

As Bloomberg's Gregor Stuart Hunter notes, the Hong Kong dollar’s peg to its U.S. counterpart -- unbroken since the 1980s -- is drawing some skepticism as anti-government protests swell. Options traders are paying the most since 2016 for bets that the currency tests or breaches its 7.85 per dollar limit, relative to a contrary wager that the currency strengthens. “Folks are looking at the Hong Kong protests and don’t see any off-ramp, just escalation, and pushing up the risk premium,” said Cliff Tan, head of global markets research for East Asia at MUFG Bank.


Emerging Market currencies have re-collapsed to recent cycle lows...

Source: Bloomberg


Cryptos were clubbed like baby seal...

Source: Bloomberg

As Bitcoin bounced off $10,000...

Source: Bloomberg


Gold gained on the day despite dollar strength but oil was pounded...

Source: Bloomberg


Gold prices retraced yesterday's lows as safe-haven bids hit...


Negative-yielding debt continues to soar...

Source: Bloomberg

BofAML's Commodity Strategist Michael Widmer argues that successive rounds of monetary easing have had a series of side effects, including higher gold prices. Widmer notes that successive rounds of easing have delivered less bang for the buck and markets are much less enthusiastic about further stimulus. Quantitative failure, under which markets refocus on elevated debt levels or the lack of global growth would likely lead to a material increase in volatility. At the same time, and perhaps perversely, such a sell-off may prompt central banks to ease more aggressively, making gold an even more attractive asset to hold. Although his 2Q20 forecast is $1,500/oz, (where Gold trades today), in this sell-off scenario, he sees the potential for gold to rise towards $2,000/oz.

Oil prices cratered today, erasing all of yesterday's gains.


Finally, as Albert Edwards warns:

"The answer seems pretty obvious to me. The bond markets are telling us that the cycle is ending with the central banks having failed to drive core CPI inflation higher.

So Japanese-style outright deflation lies ahead at a time when western economies have piled debt sky high."

Who could have seen that coming?

Gold tops stocks YTD and bonds are about to overtake the S&P too...

Source: Bloomberg

The dollar shortage continues...

Source: Bloomberg


Published:8/14/2019 3:13:01 PM
[Markets] Trump Bashes "Clueless" Jay Powell And "CRAZY" Inverted Yield Curve

As the 2s10s curve inversion continues to rattle investor confidence, President Trump has chimed in with roughly a half hour left in the trading day to try and revive the market's optimism during what's looking to be the worst session for stocks this year...

...While also seizing on yet another opportunity to blame the Fed for the latest inversion in the curve (and let's not forget about 30-year yield hitting all-time low).

It's hardly a coincidence that Trump - who is hell bent on blaming Powell for the coming crash - is now slamming the Fed Chairman with a fresh harshly worded tweet every time the Dow slides 200 points lower.





Published:8/14/2019 2:42:28 PM
[Markets] Dow Inc., Walgreens Boots share losses contribute to Dow's 730-point drop DOW UPDATE Shares of Dow Inc. and Walgreens Boots are seeing declines Wednesday afternoon, leading the Dow Jones Industrial Average slump. The Dow (DJIA) was most recently trading 730 points, or 2.8%, lower, as shares of Dow Inc. Published:8/14/2019 2:12:34 PM
[Markets] Dow Inc., Walgreens Boots share losses lead Dow's nearly 650-point fall DOW UPDATE The Dow Jones Industrial Average is slumping Wednesday afternoon with shares of Dow Inc. and Walgreens Boots delivering the stiffest headwinds for the blue-chip average. The Dow (DJIA) was most recently trading 646 points lower (-2. Published:8/14/2019 1:12:36 PM
[Markets] Dow industrials now down 700 points — and Nasdaq's decline is even more severe Dow industrials now down 700 points — and Nasdaq's decline is even more severe Published:8/14/2019 12:14:16 PM
[Markets] Dow down nearly 750 points on losses in shares of Dow Inc., Walgreens Boots DOW UPDATE Shares of Dow Inc. and Walgreens Boots are posting losses Wednesday afternoon, leading the Dow Jones Industrial Average slump. The Dow (DJIA) was most recently trading 746 points (2.8%) lower, as shares of Dow Inc. Published:8/14/2019 12:14:16 PM
[Markets] Dow's 636-point fall led by losses in shares of Dow Inc., Walgreens Boots DOW UPDATE Shares of Dow Inc. and Walgreens Boots are trading lower Wednesday afternoon, propelling the Dow Jones Industrial Average into a slump. Shares of Dow Inc. (DOW) and Walgreens Boots (WBA) are contributing to the blue-chip gauge's intraday decline, as the Dow (DJIA) was most recently trading 636 points (2. Published:8/14/2019 11:14:19 AM
[Markets] Dow Futures Dump 700 Points To Critical Support, Yuan Slide Is Accelerating

Dow futures are extending overnight losses, now down 700 points as the cash Dow nears its 200DMA and yuan tumbles...

Yesterday's buying-panic gains are a distant memory...

Dow cash is falling very close to its 200DMA once again... will it hold this time.

And Yuan is starting to catch down to stocks...

Source: Bloomberg

And we know who to blame (according to President Trump)

Published:8/14/2019 11:14:19 AM
[Markets] Just two components now in positive territory as Dow decline exceeds 600 points Just two components now in positive territory as Dow decline exceeds 600 points Published:8/14/2019 10:46:12 AM
[Markets] Dow falls more than 500 points late-morning Wednesday as flashing recession signal rattles stock market The Dow Jones Industrial Average as trading at session lows on Wednesday morning as investors anxieties about a recession in the U.S. and elsewhere hurt buying appetite. The Dow was off 540 points, or 2.1%, at 25,736, the S&P 500 index was down 2.1% at 2,864, while the Nasdaq Composite Index was down 2.4% at 7,828. Part of the driver for stocks heading sharply lower as an inversion of the 2-year Treasury and the 10-year Treasury notes took place at about 6 a.m. Eastern Time. The spread between the 2-year note and the 10-year note temporarily fell to a negative 1 basis point. An inversion of this measure has often preceded an economic downturn. Investors say its powers as a recession indicator comes from its ability to reflect when tight monetary policy is capping growth and inflationary pressures Published:8/14/2019 10:11:25 AM
[Markets] Twenty-nine of 30 components in the red as Dow skids 400 points at opening bell Twenty-nine of 30 components in the red as Dow skids 400 points at opening bell Published:8/14/2019 9:10:50 AM
[Markets] Dow's 467-point fall led by losses for Exxon Mobil, JPMorgan Chase shares DOW UPDATE The Dow Jones Industrial Average is in selloff mode Wednesday morning with shares of Exxon Mobil and JPMorgan Chase delivering the stiffest headwinds for the blue-chip average. The Dow (DJIA) was most recently trading 467 points lower (-1. Published:8/14/2019 9:10:50 AM
[Markets] Dow futures down nearly 400 points Dow futures down nearly 400 points Published:8/14/2019 8:12:25 AM
[Markets] Dow futures down over 300 points on global growth concerns, yield-curve inversion Stock-index futures pointed to a lower start for Wall Street Wednesday, following a series of worrying data on global growth and after the yield on the 10-year U.S. Treasury note fell below that of the 2-year note, marking an inversion of the main measure of the yield curve and flashing a recession warning signal. Futures for the Dow Jones Industrial Average (YMU19) fell 313 points, or 1.2%, to 26,001, while those for the S&P 500  (ESU19) shed 32.25 points, or 1.1%, to 2,899.75. Nasdaq-100 futures (NQU19) meanwhile, lost 97.75 points, or 1.3%, to 7,650.25. Published:8/14/2019 7:12:34 AM
[Markets] Bad Trades Briefly Drove Apple, Google to Stale Closing Levels (Bloomberg) -- Apple Inc., Alphabet Inc. and other major stocks had a bizarre last few minutes of trading Tuesday, as data glitches hampered U.S. markets for a second day.The drama came at the close, following a day in which Apple had calmly traded above $208 for hours, poised for a more than 4% gain. When 4 p.m. arrived, the shares sank in an instant to $200.48, exactly where it had finished the day Monday. Minutes later the closing price was corrected to $208.97.Alphabet, PayPal Holdings Inc., Comcast Corp. and others followed a similar script.“A bunch of stocks looked to close at yesterday’s close,” said Mohit Bajaj, director of ETFs at WallachBeth Capital, pointing to Apple as one example.Nasdaq Inc., the exchange that lists some -- if not all -- of the affected companies, blamed a series of bad trades, which Nasdaq disseminated on a data feed it owns called the trade reporting facility, or TRF.“It was an erroneous trade on the TRF,” Nasdaq spokesman Joe Christinat said in a statement. “If a firm prints something onto the TRF after the close, then it becomes the closing price.” Those erroneous transactions were canceled and closing prices were corrected, he added.The issue occurred a day after errors in a feed run by the New York Stock Exchange delayed the calculation of closing levels for the S&P 500 and Dow Jones Industrial Average. It was also just a few hours after a separate problem at S&P Dow Jones Indices prevented the S&P 500 and Dow from updating for roughly 15 minutes earlier in the day. “Our index management team has already resolved the issue and is currently assessing any necessary remediation to avoid further interruptions,” said April Kabahar, head of communications at the index compiler.Though rare, problems with price feeds have occasionally dogged U.S. equity infrastructure in its electronic age. In August 2013, a computer error froze thousands of securities listed on the Nasdaq Stock Market for three hours in an interruption later attributed to a malfunctioning price feeds. The New York Stock Exchange halted trading for 3 1/2 hours because of a computer malfunction in July 2015.“I don’t think it’s unprecedented,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said of Tuesday’s problem. “Once they corrected it, all these irregularities went away.”To contact the reporters on this story: Nick Baker in Chicago at;Elena Popina in New York at;Rachel Evans in New York at revans43@bloomberg.netTo contact the editors responsible for this story: Jeremy Herron at, Chris NagiFor more articles like this, please visit us at©2019 Bloomberg L.P. Published:8/13/2019 5:10:20 PM
[Markets] Dow ends up over 370 points after U.S. delays some China tariffs Dow ends up over 370 points after U.S. delays some China tariffs Published:8/13/2019 3:38:06 PM
[Markets] Dow's 383-point rally led by gains for shares of Apple Inc., Intel DOW UPDATE Behind strong returns for shares of Apple Inc. and Intel, the Dow Jones Industrial Average is rallying Tuesday afternoon. The Dow (DJIA) was most recently trading 383 points, or 1.5%, higher, as shares of Apple Inc. Published:8/13/2019 3:08:11 PM
[Markets] Trump Trade Blink Sparks Stock, Yuan Spike But Treasury Curve Collapses To 12-Year Lows

Today's insanity was brought to you by the words "delay" and "protests" and by the number "0" as Trump blinked and 'delayed' some China tariffs, Hong Kong 'protests' in the airport escalated, and all eyes were on the UST curve's 2s10s spread rapidly plunging toward '0'...


Chinese stocks leaked lower on the day but held gains on the week...

Source: Bloomberg

European stocks surged on the trade headlines but Spain remains red on the week...

Source: Bloomberg


A big day for US equities thanks to trade headlines rescuing another ugly overnight session...


However, The Dow, Small Caps, and Trannies were unable to erase yesterday's losses (weak close)...


But we note that, stocks were unable to break key resistance levels (Dow futs stalled at the Fib 61.8% retracement level of the July/Aug plunge)



And all the majors stalled at or below key technical levels...


AAPL was a big driver of markets today, but look where it stalled...

Cyclicals outperformed, as you'd expect, today; but since Friday, Defensives are leading...

Source: Bloomberg


Stocks, as always, more excited than bonds about everything...

Source: Bloomberg

As StanChart's Steve Englander noted: "The key characteristic of recent episodes of risk-off and risk-rebound is that the equity-market consequences are largely reversed, while the downward moves in fixed income have largely stayed in place."

Treasury yields were all notably higher on the day, spiking after the trade headlines (but the long-end dramatically outperformed the short-end) - also note that all yields slipped lower in the last hour (only 2Y is higher in yield on the week)...

Source: Bloomberg

But the yield curve refused to stop flattening, with 2s10s falling below 1bps for the first time since May 2007...

Source: Bloomberg

And 2s30s crashed to its lowest levels of 2019...

Source: Bloomberg


The Dollar managed gains on the day but remains within a very narrow range since The Fed cut rates...

Source: Bloomberg


The Yuan exploded higher on the trade headlines, surging below 7.0/USD before fading back to the CNY Fix...

Source: Bloomberg


The Hong Kong Dollar was relatively volatile intraday but remains a few pips away from the 7.85 weak-end of the USD peg band...

Source: Bloomberg

The Argentine Peso did not stop its freefall...

Source: Bloomberg


In cryptos, Bitcoin tumbled on the day as Bitcoin Cash soared...

Source: Bloomberg

Bitcoin fell back below $11,000...

Source: Bloomberg


Oil spiked on the trade headlines (as did copper) and PMs (safe havens) tumbled...

Source: Bloomberg

Gold futures tumbled buyt bounced off $1500...


WTI Crude ramped up to $57 handle ahead of tonight's API inventory data...


Finally, some context for the headlines today, the market-implied odds of a trade deal initially spiked but faded back as the day wore on...

And Bloomberg's Tom Orlik explains why: Tariffs are not the only, or perhaps even the main drag from the U.S.-China trade war. That prize goes to head-spinning policy uncertainty.

A gauge of trade policy uncertainty in the U.S. is at levels not seen since Nafta ratification in the 1990s. China and Europe face a similar problem.

Published:8/13/2019 3:08:11 PM
[Markets] Argentina’s Massive Sell-Off Had a 0.006% Chance of Happening (Bloomberg) -- There was a 99.994% probability that an event like Monday’s sell-off in Argentina wouldn’t happen.But it did. And it served to underscore the need for investors to protect against extreme events that look very unlikely but can have outsize impact if they do occur.The flip side of this logic is that when things look decidedly bad, betting on average outcomes and mediocre returns could be futile. Some traders prefer what they call the barbell strategy -- simultaneously allocating funds for the two extreme and opposite possibilities: a deeper slump and a sharp rebound.That means the bravest investors looking at the meltdown in Argentina won’t take the middle road. Rather, they will reshuffle their portfolios to outperform both in a slump and a rebound.Here’s where extreme buying opportunities lie:Outlier EventThe rout in Argentina’s dollar bond due January 2028, which drove up the yield by 525 basis points, was a 4-sigma event, according to Bollinger Bands. That means the move was four standard deviations away from its 20-day moving average, an event that’s expected to happen only once in several decades.In practice, however, these events could be more common than what statistical models like the normal or laplace distributions suggest.While recent events disproportionately affect traders’ sentiment, some investors look beyond the extreme move and bet on a quick return to more normal levels. The Black Monday rout in Dow Jones Industrial Average on Oct. 19, 1987, was followed by gains of 11% in three months, 15% in six months and 23% in a year.So, some bold investors may wager the same will happen with Argentine bonds.Carry traders will be looking for some sign of stability in the peso after the currency’s 15% slide on Monday. If or when calm returns, the arbitrage potential may prove irresistible. The sell-off made the currency so cheap that its implied carry relative to the dollar has surged to the highest level since Argentina moved to a free-floating currency regime in December 2015.Argentina has become the cheapest emerging market after Monday’s rout.At the same time, analysts’ 12-month estimates for profit at companies in the S&P Merval Index rose to an 11-month high, in peso terms. But the tumbling currency meant dollar-based forecasts plummeted the most in a year. That’s a barrier for global investors for now, but a so-called dead-cat bounce in the peso may revive the dollar-earnings figures, making stocks look even cheaper.(Updates percent figure in the first paragraph with the third decimal)To contact the reporter on this story: Srinivasan Sivabalan in London at ssivabalan@bloomberg.netTo contact the editors responsible for this story: Dana El Baltaji at, Justin CarriganFor more articles like this, please visit us at©2019 Bloomberg L.P. Published:8/13/2019 12:07:22 PM
[Markets] The Dow Eased Off Its Highs After Riot Police Clash With Hong Kong Protesters The Dow Jones Industrial Average pulled back from its highs after reports that riot police had entered Hong Kong’s airport. Published:8/13/2019 11:07:44 AM
[Markets] Dow jumps more than 500 points on reports of progress on China-U.S. trade talks U.S. stocks on Tuesday pivoted decidedly higher from an early slide out of the gate after the USTR said an increase in tariffs on some goods from China would be delayed. The U.S. Trade Representative said it would delay imposing 10% tariffs on certain Chinese products until Dec. 15, the USTR office said Tuesday. The USTR said the delay will apply to products including cell phones, laptop computers and video games. President Donald Trump has announced 10% tariffs on $300 billion in Chinese goods beginning Sept. 1, and the delay comes as officials from both sides spoke by phone. A USTR spokesman said U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin held discussions and officials would speak again within two weeks. The Dow Jones Industrial Average traded 503 points, or 2%, higher at 26,393, after tumbling more than 390 points on Monday. The S&P 500 index rose 2% to 2,940, while the Nasdaq Composite Index surged 2.5% to 8,056. Published:8/13/2019 9:37:11 AM
[Markets] Dow Jones Futures: Roku Soars During Correction, But These 5 Stocks Follow Market Rule Dow Jones futures: Roku is thriving in the stock market correction, but it's an exception. AMD, Twitter, MercadoLibre, Pinterest and Trade Desk followed the rule Monday. Published:8/12/2019 7:32:33 PM
[Markets] Dow Jones Futures: Beware The Correction Exception; These 5 Stocks Follow The Rule Dow Jones futures: Roku is thriving in the stock market correction, but it's an exception. AMD, Twitter, MercadoLibre, Pinterest and Trade Desk followed the rule Monday. Published:8/12/2019 6:02:24 PM
[Markets] Dow Jones Futures: Roku Is Stock Market Correction Exception; AMD, Twitter Follow The Rule Dow Jones futures: Roku is thriving in the stock market correction, but it's an exception. AMD, Twitter, MercadoLibre, Pinterest and Trade Desk followed the rule Monday. Published:8/12/2019 5:33:09 PM
[Markets] Dow ends down 390 points, falling below 26,000 as bond yields slide Dow ends down 390 points, falling below 26,000 as bond yields slide Published:8/12/2019 3:33:20 PM
[Markets] Dow ends nearly 400 points lower as falling Treasury yields underline economic jitters Stocks fell sharply Monday, appearing to take a cue from a slump in Treasury yields that reflected mounting worries about the economic outlook and geopolitical concerns. The Dow Jones Industrial Average ended around 391 points lower, down 1.5%, near 25,896, according to preliminary figures while the S&P 500 slumped around 36 points, or 1.2%, to close around 2,882. The Nasdaq Composite dropped around 96 points to end near 7,863, a loss of 1.2%. The yield on the 10-year Treasury slumped around 9 basis points to 1.644%, its lowest since October 2016. The slump in yields, which can cut into lending margins, sent financial stocks skidding, with Bank of America Corp. down 2.5% and Dow component Goldman Sachs Group Inc. falling 2.7%. All 11 S&P 500 sectors ended lower, with financials leading the way, down 1.9%. Published:8/12/2019 3:33:20 PM
[Markets] Dow Jones Tumbles 400 Points, But These 3 Blue Chip Stocks Are Holding Up Key market indexes gapped down at the open and headed lower Monday, as the Dow Jones today led the sell-off with a 400 point drop. Published:8/12/2019 3:33:20 PM
[Markets] The Dow Is Dropping Because Bonds Yields Are Sliding and Don’t Want to Stop The Dow has dropped 403.29 points, or 1.5%, to 25,884.15 as the 10-year yield has dropped 0.096 percentage point to 1.64% and the 30-year yield is near an all-time low. Published:8/12/2019 3:01:09 PM
[Markets] Dow down 450 points as Monday stock declines steepen; 10-year yield hits 1.63% Dow down 450 points as Monday stock declines steepen; 10-year yield hits 1.63% Published:8/12/2019 2:01:30 PM
[Markets] Dow Jones Sinks 1,400 Points From July 16 Peak, Argentine Stocks Plunge; 4 Market Leaders Hold Firm The Dow Jones Industrial Average at one point fell more than 1% following shock election results in Argentina and a Goldman Sachs cut in U.S. GDP estimates. Published:8/12/2019 11:33:16 AM
[Markets] Dow industrials down 200 points after Monday’s opening bell Dow industrials down 200 points after Monday’s opening bell Published:8/12/2019 9:02:24 AM
[Markets] Banks Lead S&P 500, Dow Jones Today Lower On Hong Kong Unrest, Argentina Vote Goldman Sachs and JPMorgan paced Monday's early slide on the Dow Jones today, as events in Hong Kong and Argentina rattled global trade. Published:8/12/2019 7:29:46 AM
[Markets] US Futures, European Stocks Tumble As Hong Kong Protests Boil Over

The new week in global stock markets started off well enough, largely thanks to China whose central bank weakened the yuan’s daily fixing for an eighth day, down to 7.0211, however once again stronger than the 20-trader Bloomberg consensus estimate of 7.029%, which in turn sent the USDCNH sliding from 7.108 to below 7.09, and helped prop up Chinese stocks which closed up 1.45%.

However, any vestige of optimism quickly fizzled around 4am EDT when the news hit that all flights out of Hong Kong were cancelled on Monday in an unprecedented disruption after thousands of anti-government protesters occupied the airport terminal building. The Airport Authority blamed the cancellations from 4pm local time on the protests which had “seriously disrupted” operations, with masses of demonstrators preventing passengers from checking in or clearing airport security.

And what really spooked traders was a video clip from China's nationalist, and state-owned tabloid Global Times, showing Chinese People's Liberation Army forces building up just across the border with HK, in Senzhen, ahead of what appears to be a "apparent large-scale exercise," according to the Global Times.

"Numerous" armored personnel carriers, trucks and other vehicles of the paramilitary police were seen heading towards Shenzhen over the weekend. That means the long-awaited military intervention from the mainland could be just around the corner - something that the Hong Kong people have condemned. At the same time, a Chinese official said the city was at a “critical juncture” and that there were signs of “terrorism.”

The result was a quick, and painful reversal in sentiment , which sent US equity futures below 2900 and global stocks sliding.

The change in mood wiped out the Stoxx Europe 600 Index’s jump of as much as 1%. Stocks had earlier increased in Shanghai and edged higher in South Korea and Sydney, though Hong Kong shares dropped and many other markets across Asia were shut for a holiday. Overall, Asian stocks fluctuated in thin trading, with markets in at least six countries shut. Declines in material producers countered a health care rally. Equity markets in Japan, Singapore, India, Thailand, Malaysia and Philippines were closed for holidays. The Shanghai Composite Index climbed 1.5% for its biggest advance in six weeks, supported by Kweichow Moutai and large financial firms; Bloomberg reported that Chinese policy makers are holding back from rolling out the big guns of monetary stimulus, keeping options in reserve. Hong Kong’s Hang Seng Index dropped 0.4%, as authorities canceled Monday’s remaining flights amid a mass protest at the city’s airport. Cathay Pacific Airways sank 4.9% to a 10-year low.

Safety remained the name of the game. The FX safe haven, the Japanese yen, hit its highest in nearly a year and a half at 105.32 yen against the dollar as it strengthened versus all its major peers as investors sought the safety of havens; Scandinavian currencies fell by the most versus the dollar in a broad risk-off move. The pound got a boost from the latest reports on U.K. lawmakers’ plans to prevent a no-deal Brexit, with MPs said to be drawing up plans to force the Prime Minister to request a last minute Brexit extension. The Swiss franc gained versus the euro even as SNB sight deposits jumped the most in more than two years last week, suggesting intervention. The South Korean won extended declines as data signaled exports are set to drop as the impact of the U.S.-China trade spat spreads. Argentina’s euro-denominated bonds slid after President Mauricio Macri’s poor showing in primary elections on Sunday. The Mexican peso slumped.

“Risk indicators and global markets have become more shaky and the yen is reflecting those concerns, and safe-haven shelters like the yen and the Swiss franc should continue to benefit,” said Commerzbank currency strategist Esther Reichelt.

The story was the same in bond markets, where the demand for safety was unrelenting, and sent the 10Y US Treasury yield sliding to 1.68%, approaching the lowest levels of the year. A rally in Italy’s debt gave it an extra boost after Fitch kept country’s rating steady despite the prospect of snap elections in the euro zone’s third biggest economy now looming. There were signs that League leader Matteo Salvini’s call for those snap elections was facing mounting resistance from other parties whose support will be needed for the plan to succeed.

“Fitch kept Italy’s rating unchanged and some market participants may be betting that a snap election could be delayed,” said DZ Bank rates strategist Sebastian Fellechner, referring to the fall in yields.

Economists are also watching for a batch of global data this week. Goldman Sachs became the latest to cut its U.S. growth forecast at the weekend, warning that a U.S. China trade deal now looked unlikely before the 2020 U.S. presidential election.

As a result of the ongoing uncertainty, traders have increased bets for central bank easing in recent weeks as the U.S. with markets now expecting 4 rate cuts by December 2020, although as Andrew Sheets, chief cross asset strategist at Morgan Stanley, said over the weekend, “we remain cautious, as we believe that a number of challenges remain... among them, the risk that high policy expectations make disappointment more likely, and that even if those aggressive expectations are met, easing isn’t expected to improve growth or inflation materially.”

In commodities, oil prices dipped on growth and trade worries, having risen sharply on Friday on a drop in European inventories and production cuts by the Organization of the Petroleum Exporting Countries. Brent crude futures were at $58.16 a barrel by 0829 GMT, down 37 cents from their previous settlement. WTI futures were at $53.89 per barrel, down 61 cents from their last close. Both benchmarks fell last week, with Brent losing more than 5% and WTI falling about 2%.

“The market is facing a buyers’ strike,” said Michael Tran, commodity strategist at RBC Capital Markets, noting the low level of investors’ long positions betting on higher prices. “Despite the laundry list of disruptions and additional barrels at risk, investor length is currently near a multi-year low.”

Finally, with risk solidly off, gold surged, rising solidly above $1500, and dragging silver, if not bitcoin, along for the ride.


Market Snapshot

  • S&P 500 futures down 0.5% to 2,905.75
  • STOXX Europe 600 up 0.2% to 372.32
  • MXAP down 0.08% to 152.14
  • MXAPJ down 0.3% to 488.80
  • Nikkei up 0.4% to 20,684.82
  • Topix up 0.4% to 1,503.84
  • Hang Seng Index down 0.4% to 25,824.72
  • Shanghai Composite up 1.5% to 2,814.99
  • Sensex up 0.7% to 37,581.91
  • Australia S&P/ASX 200 up 0.09% to 6,590.27
  • Kospi up 0.2% to 1,942.29
  • German 10Y yield fell 1.1 bps to -0.587%
  • Euro down 0.3% to $1.1169
  • Brent Futures down 0.7% to $58.14/bbl
  • Italian 10Y yield rose 26.7 bps to 1.449%
  • Spanish 10Y yield fell 2.9 bps to 0.232%
  • Brent Futures down 1% to $57.92/bbl
  • Gold spot up 0.4% to $1,503.00
  • U.S. Dollar Index up 0.2% to 97.70

Top Overnight News from Bloomberg

  • Parliament leaders in Italy will meet on Monday to decide when Prime Minister Giuseppe Conte will have to face a no-confidence vote as the anti-establishment Five Star Movement and the center-left Democratic Party consider an alliance
  • Chinese policy makers are holding back from rolling out the big guns of monetary stimulus, keeping options in reserve as the trade standoff with the U.S. risks morphing into a global currency war
  • New Zealand’s Treasury Department has identified a lower bound for the official cash rate as it studies the monetary policies that could be used to combat an economic downturn.
  • Argentina’s President Mauricio Macri unexpectedly lost a primary vote by a landslide, foreshadowing a defeat in October’s presidential election and a possible return to the policies of his predecessor, Cristina Kirchner
  • Since becoming U.K. prime minister less than three weeks ago, Boris Johnson has announced spending pledges at a rate of about 2b pounds ($2.4b) per week, fueling speculation he’s planning for an early election
  • The Times reports some U.K. lawmakers are drawing up plans to compel PM Johnson to request a last-minute Brexit extension from the European Union
  • Sharp and Foxconn Industrial Internet are increasing production in Vietnam before U.S.’s plan to impose duties on all remaining imports from China from September, according to Taipei-based Economic Daily News
  • White House trade adviser Peter Navarro tells CNBC he doesn’t want China to devalue their currency “but they’re going to and we’re going to take strong action against them”
  • Bullish bets on gold have hit a three-year high amid concerns of a currency war, and Goldman and Citi see prices climbing further
  • The anti-establishment Five Star Movement and the center- left Democratic Party are ready to consider an alliance aimed at postponing early elections, according to several Italian media outlets
  • Ratings: Italy affirmed at BBB by Fitch, outlook maintained at negative; Portugal affirmed at Baa3 by Moody’s, outlook upgraded to positive from stable

Asian equity markets began the week with a cautious tone amid several market closures and after last Friday’s losses on Wall St. due to ongoing trade uncertainty. ASX 200 (+0.1%) was lower with the index weighed by weakness in commodity names including profit taking in gold miners and as iron ore prices resumed an aggressive pullback from last month’s record levels, although the losses in the index were stemmed due to resilience in the top weighted financials and as JB Hi-Fi led the outperformance in the Consumer Discretionary sector post-earnings. Elsewhere, Hang Seng (-0.4%) kept afloat and Shanghai Comp. (+1.5%) was underpinned after the PBoC set a firmer than expected reference rate and injected liquidity through reverse repos for the 1st time in 2 weeks. In addition, strength was seen in brokerages after China instructed a revision to margin financing and margin trading regulations, although trade concerns lingered following President Trump’s recent suggestion that talks with China may be cancelled. As a reminder, Japan, Singapore and India were among the numerous holiday closures across the region and Middle East.

Top Asian News

  • Cathay Pacific Shares Tumble to a 10-Year Low
  • China Says H.K. at ‘Critical Juncture’, Has Signs of ‘Terrorism’
  • China Says Its Own Cryptocurrency Is ’Close’ to Release

European equities have given up the gain seen at the open and now trade mixed [Eurostoxx 50 +0.1% vs. +0.9% at the open], which follows a cautious handover from the Asia-Pac session whilst Japanese markets were closed on holiday.  The bout of risk-aversion coincided with reports of escalating violence in Hong Kong, with its airport cancelling all flights as protestors stage a sit-in, whilst separate reports noted that People's Armed Police are reportedly gathering and heading towards Shenzhen (a city bordering Hong Kong) in advance of apparent large scale exercises. Back to Europe, bourses are mixed with some mild underperformance in the FTSE 100 as a firmer Sterling weighs on exporters. Sectors are mixed with no clear outperformer/laggard. In terms of individual movers: Osram Licht (+9.9%) shares spiked to the top of the pan-European index after AMS (-9.5%) offered EUR 4.1bln to acquire the Co. The bid is 10% higher than that of the Bain & Carlyle consortium; Osram have said they will review the offer. On the flip side, Anglo American (-1.4%) and ThyssenKrupp (-2.8%) rest near the foot of the Stoxx 600 amid the respective declines in copper and iron ore prices. Finally, luxury good makers also bear the brunt of the US/China trade spat, LVMH (-2.6%), Kering (-1.4%); with the Global Times editor noting, over the weekend, that as long as the US forces a deal on China with maximum pressure, then “there will never be a deal”.

Top European News

  • Thomas Cook Drops as Emergency Bailout Will Exceed $1 Billion
  • Italy’s Parliament Leaders to Meet as Sworn Enemies Eye Tie-Up
  • Italian Bonds Rally After Fitch Keeps Credit Rating on Hold
  • Burford Says Evidence Points to Market Manipulation of Shares

In FX, the Euro was not the worst G10 performer, but one of the major movers amidst all round selling that appeared to start vs Sterling as Eur/Gbp recoiled from circa 0.9325 towards 0.9250. A corporate order has been touted, but Eur/Jpy also crossed 118.00 and seemed to trip stops and technical levels on its way down to almost 117.50. Meanwhile, the single currency succumbed to accelerated declines through 1.1200 vs the Dollar and alongside ongoing Italian political jitters chart points may also have exacerbated the fall as the 21 DMA at 1.1176 gave way and the headline pair has struggled to sustain rebounds beyond Fib resistance at 1.1220 in recent sessions. However, the 10 DMA at 1.1161 is holding in for now at least.

  • AUD/NZD/NOK/SEK - A broad deterioration or erosion of risk sentiment against the backdrop of heightened unrest in Hong Kong and the ongoing Yuan depreciation (Usd/Cnh now probing 7.1100) has hit the Aussie and Kiwi especially hard, with Aud/Usd down to around 0.6750 and Nzd/Usd under 0.6450. Note also, dovish Central Bank vibes continue to undermine the Antipodean currencies with research from the NZ Treasury overnight raising eyebrows given -0.35% tagged for the OCR in a crisis situation. Elsewhere, the Scandi Crowns are not deriving any indirect support from the aforementioned Euro weakness or relatively hawkish monetary policy stances ahead of Thursday’s Norges Bank meeting, as Eur/Nok and Eur/Sek rebound to just over 9.9900 and 10.7300 respectively, with the former also propelled by another downturn in oil prices.
  • JPY/GBP - The Yen is strong across the board and back in demand as a safe-haven, with Usd/Jpy down to 105.15 and eyeing 105.00 ahead of flash crash lows beneath the big figure, but perhaps wary of decent option expiry interest at the round number (1.6 bn) that could provide support. Meanwhile, the Pound is also bid on the cross flow noted above, and with Cable holding firm between 1.2015-75 parameters after reports that a group of UK MPs are trying to ensure another Brextension rather than risk PM Johnson leading the country out of the EU on October 31 with no deal.
  • EM - Widespread losses vs a mostly buoyant Buck as the DXY continues to pivot 97.500, but some protection for the Rouble from risk aversion and soft Brent via Fitch upgrading Russia to BBB last Friday. However, Usd/Rub is still firmer within a 65.2535-5700 range.

In commodities, WTI and Brent futures have succumbed to the firmer Dollar and the risk averse tone around the market thus far. The former breached 54/bbl to the downside whilst the latter hovers around the 58/bbl handle. Newsflow has been relatively light for the complex, although the Kuwaiti oil minister stated that the country is committed to fully implement OPEC’s output pacts and noted that fears concerning a global slowdown are “exaggerated”. Analysts at ING see stronger non-OPEC supply growth in 2020 which will subsequently lead to OEPC taking further action or face the risk of further declines in prices. Elsewhere, Gold prices are choppy and ultimately unchanged on the day as the yellow metal balances a cautious risk tone against a firmer Buck. Spot Gold now hovers around the 1500/oz level (having hit a current intraday low of 1487.50/oz).  Meanwhile, copper prices fell back below the 2.60/lb level as a firmer Greenback and fragile risk tone weighed on the red metal. Finally, Dalian iron ore futures fell to a two-month low, notching its 8th straight session of losses amid the ongoing supply worries and a bleak demand outlook as China’s top steel-producing province looks to tighten emission requirements.

US Event Calendar

  • 2pm: Monthly Budget Statement, est. $120.0b deficit, prior $76.9b deficit

DB's Craig Nicol concludes the overnight wrap

It may have been a fairly predictable start to the Premier League season over the weekend - other than Arsenal’s clean sheet - however markets are proving to be anything but predictable in August so far. Risk assets have spent most of it flip-flopping around trade headlines while bond yields have continued a surreal race to the bottom and with the peak summer holiday weeks upon us and liquidity therefore becoming an even bigger issue in theory, the risk is that volatility is here to stay for a while yet.

By the way if you were on holiday last week and wanted a snapshot of the updated crazy world of European bond yields then a few of the highlights last week include long-term mortgage rates in Denmark trading at zero, Austria’s 100y bond trading at a high in points terms of 192 versus 117 at the start of the year, the entire Dutch yield curve trading negative and 10y Spanish and Portuguese bonds trade to within 20bps of 0% at one stage.

Quite incredible. In terms of what to look forward to this week there’s a couple of potentially interesting data releases with the first of those on Tuesday when we get the July CPI release in the US. The consensus expects a +0.2% mom reading for the core however our US economists expect a softer +0.13% mom reading mainly reflecting some unwind of the drivers that drove the strong reading in June. It’s worth noting that markets are still pricing in 63bps of cuts by the Fed this year so it’ll be interesting to see if this data makes much of a dent in that.

We won’t have to wait long for the next interesting data release with a first look at Q2 GDP due in Germany on Wednesday. The consensus is for Germany’s economy to have contracted by -0.1% qoq which would mean it would join Sweden and now the UK - following Friday’s data - with negative Q2 GDP prints and therefore one more consecutive negative quarter away from a technical recession. While we’re on Europe, Italy is creeping back onto everyone’s screens as expectations build of a snap election after the League’s Salvini effectively called time on the fractious coalition government. It’s worth noting that the binding constraint on parliament approving Italy’s budget is December 31st so a government needs to be in place by year-end. The big potential vol risk is that we get an election in mid-October as the Brexit process approaches the end game. So it’s worth keeping an eye on the various rhetoric this week.

Some of the newsflow in the Italian press over the weekend suggests that Five-Star and the Democratic Party are considering what would be an unexpected and somewhat unlikely tie-up in a bid to delay Salvini’s plan to take full control (per Bloomberg). In the meantime, it’s worth noting that parliamentary leaders are due to meet today to set a timetable for the vote of no confidence against PM Conte called by Salvini, however it’s expected that this vote won’t take place until later this month.

There has been little reaction in the euro (+0.07%) to that news, while sentiment more broadly in markets in Asia is a bit mixed with the Shanghai Comp (+0.70%) and Kospi (+0.42%) up, but the Hang Seng (+0.01%) flat and ASX (-0.20%) lagging behind. It’s worth noting that volumes are low however with a number of Asian markets closed for a holiday today including Japan, Singapore, India, Malaysia, Philippines and Thailand. As for FX, the Japanese yen is trading up +0.23% and starting to test the 2018 lows of 104.74 while the Chinese onshore yuan is trading flattish at 7.0622. Elsewhere, futures on the S&P 500 are up +0.18%.

As for the rest of the week ahead we’ve also got US retail sales while the manufacturing and consumer sentiment surveys - including from the NY Fed and Philly Fed - will be worth keeping an eye on as they will be the first of the data releases to incorporate the recent announcement of 10% tariffs on the remainder of imported goods from China. In Europe we’ll also get Germany’s ZEW survey on Tuesday and various data out of the UK over the course of the week including on the labour market, retail sales and inflation. In China we’re also expecting the July activity indicators on Wednesday and credit data at some stage.

Turning to recap last week, there were no shortage of macro stories to drive markets. As discussed above, the surprise move by Italy Deputy PM Salvini to move toward new elections drove a sharp selloff in BTPs, with 10-year yields ending the week +26.4bps higher (+27.2bps Friday), and that despite rallying -16.5bps earlier in the week before the announcement. Italian stocks dropped -3.43% (-2.48% Friday), and Italian bank shares retreated -5.60% (-4.49% Friday).

Away from Italy, core government bond markets rallied sharply, as the US-China trade war escalated and economic data was broadly weaker than expected. Ten-year yields in the US and Germany fell -10.1bps and -8.1bps (+2.7bps and -1.6bps Friday) respectively. Duration opened the week well bid, sparked by the move in the Chinese yuan beyond 7.0 per dollar, in an apparent escalation of the trade war. The US subsequently responded by designating China as a currency manipulator, which could open the door to higher tariffs in future. On the data front, the US non-manufacturing PMI was weak at 53.7 versus expectations for 55.5, while industrial production in Germany (-1.5% mom versus expected -0.5%) and France (-2.3% mom versus -1.2% expected) were both soft. In the UK, the first print for second quarter GDP growth showed a -0.2% qoq contraction compared to consensus forecasts for a flat reading.

Along with the rally in treasuries and bunds, these trends combined to push measures of the US yield curve flatter, with the 2y10y down -3.7bps (flat on Friday) to 9.4bps, its flattest level since June 2007. The 3m10y flattened -2.8bps (+5.1bps Friday) and the Fed’s 18 month forward spread fell -3.2bps (+5.1bps Friday). Brent crude prices fell on concerns over global growth, ending -5.43% lower, though it rebounded on Friday (+2.00%) on reports that Saudi Arabia may cut production.

The S&P 500 retreated -0.46% (-0.66% Friday), though that still represented a strong rebound from the -3.75% trough reached on Monday. Other global equities retreated similarly, with the NASDAQ and DOW down -0.56% and -0.75% (-0.34% and -1.00% Friday) respectively. In Europe, the STOXX 600 fell -1.74% (-0.84% Friday), while indexes in Asia underperformed. The Shanghai Composite was down -3.25% (-0.71% Friday) and the Hang Seng declined -3.64% (-0.69% Friday). Other risk assets were also pressured, with cash HY spreads +28.0bps and +10.4bps wider in the US and Europe (-3.0bps and +2.6bps Friday). EM currencies underperformed, with the South African rand weakening -3.06% (-1.39% Friday) amid continued reports of a potential IMF program. Conversely, safe havens rallied, with the yen +0.85% stronger (+0.36% Friday) and gold touching new six-year highs and ending +3.89% higher (-0.27% Friday).

Published:8/12/2019 6:59:14 AM
[Markets] To Avoid A Collapse Means Restoring Glass-Steagall (Without The Green New Deal)

Authored by Matthew Ehret via The Strategic Culture Foundation,

With the recent discussion of the collapse of the western system of banking (and neo-liberal ‘post-truth’ values more generally) a serious overview of the post-WWII stripping down of nation states is in order. Over the past couple of weeks, various figures like France’s Finance Minister Bruno Le Maire and American Senator Elizabeth Warren have called for a re-organization of the banking system with Le Maire saying on July 13 that the Bretton Woods “has reached its limits”, and Warren stating on July 22 that “the country’s economic foundation is fragile. A single shock could bring it all down.” It is no secret that the western nations sit atop the largest financial bubble in human history with global derivatives estimated at $550 trillion to $1.2 quadrillion.

As refreshing as it is to hear such candid admissions of the system’s failure from high level political figures, when asked what they wish will replace this bankrupt order, neither Le Maire nor Warren have any desire to work with the Russia-China Belt and Road alliance and are unfortunately on record supporting policies cooked up by the very same oligarchs they appear to despise in the form of the Green New Deal. In spite of what many of its progressive proponents would wish, such a global green reform would not only impose Malthusian depopulation upon nation states globally were it accepted, but would establish a the supranational authority of a technocratic managerial elite as enforcers of a “de-carbonization agenda”.

Due to the rampant lack of comprehension of how this crisis was created such that such idiotic proposals as “green new deals” are now seriously being suggested as remedies to our current ills, a bit of history is in order.

Some necessary background

“The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”

– Franklin Delano Roosevelt, first Inaugural Address 1933

Knowing that the “money changers” had only been able to create the great bubbles of the 1920s via their access to the deposits of the commercial banks, Franklin Roosevelt made the core of his battle against the abuses of Wall Street centre around a 1933 legislation entitled “Glass-Steagall”, named after the two federally elected officials who led the reform with FDR. This was a bill which forced the absolute separation of productive from speculative banking, guaranteeing via the Federal Deposit Insurance Corporation (FDIC) only those commercial banking assets associated with the productive economy, but forcing any speculative losses arising from investment banking to be suffered by the gambler. The striking success of this law inspired other countries around the world to establish similar bank separation. Alongside principles of capital budgeting, public credit, parity pricing and a commitment to scientific and technological development, a dynamic had been created that would express the greatest hope for the world, and the greatest fear for the financial empire occupying the City of London and Wall Street.

The death of John F. Kennedy ushered in a new age of pessimism and cultural irrationalism from which our society has never recovered. The destruction of a long term vision as exemplified by the space program, the St. Lawrence Seaway and the New Deal projects had resulted in a tendency within the population to increasingly look upon present pleasures as the only reality, and future goods as the mystical expression of the sum of present pleasures. In this new philosophical setting, so alien in previous epochs, money was permitted to act as a power unto itself for short term gains instead of serving the investments into the real productive wealth of society. With this new paradigm shift into the “now”, a new economic model was adopted to replace the industrial economic model which had proven itself in the years preceding and following World War II.

The name for this system was “post-industrial monetarism”. This would be a system ushered in by Richard Nixon’s announcement of the destruction of the fixed-exchange rate Bretton Woods system and its replacement by the “floating rate” system of post 1971 fame. During that same fateful year of 1971, another ominous event took place: the formation of the Rothschild Inter-Alpha Group of banks under the umbrella of the Royal Bank of Scotland, which today controls upwards of 70% of the global financial system. The stated intention of this Group would be found in the 1983 speech by Lord Jacob Rothschild: “two broad types of giant institutions, the worldwide financial service company and the international commercial bank with a global trading competence, may converge to form the ultimate, all-powerful, many-headed financial conglomerate.”

This policy demanded the destruction of the sovereign nation-state system and the imposition of a new feudal structure of world governance through the age-old scheme of controlling the money system on the one side, and playing on the vices of credulous fools who, by allowing their nations to be ruled by the belief that hedonistic market forces govern the world, would seal their own children’s doom.

All the while, geopolitical structures foreign to the United States constitutional traditions were imposed by nests of Oxford-trained Rhodes Scholars and Fabians who converted America into a global “dumb giant” enforcing a neo colonial program under a “Anglo-US Special Relationship”. The Dulles brothers, McGeorge Bundy, Kissinger, and Bush all represent names that advanced this British directed plan throughout the 20th century.

The Big Bang

The great “liberalization” of world commerce began with a series of waves through the 1970s, and moved into high gear with the interest rate hikes of Federal Reserve Chairman Paul Volcker in 1980-82, the effects of which both annihilated much of the small and medium sized entrepreneurs, opened the speculative gates into the “Savings and Loan” debacle and also helped cartelize mineral, food, and financial institutions into ever greater behemoths. Volcker himself described this process as the “controlled disintegration of the US economy” upon becoming Fed Chairman in 1978. The raising of interest rates to 20-21% not only shut down the life blood of much of the US economic base, but also threw the third world into greater debt slavery, as nations now had to pay usurious interest on US loans.

In 1986, the City of London announced the beginning of a new era of economic irrationalism with Margaret Thatcher’s “Big Bang” deregulation. This wave of liberalization took the world by storm as it swept aside the separation of commercial, deposit and investment banking which had been the post-world war cornerstone in ensuring that the will of private finance would never again hold more sway than the power of sovereign nation-states.

After decades of chipping away at the structure of regulation that FDR’s bold intervention into history had built, the “Big Bang” set a precedent for similar financial de-regulation into the “Universal Banking” model in other parts of the western world.

The Derivative Time Bomb is Set

In September 1987, the 20 year foray into speculation resulted in a 23% collapse of the Dow Jones on October 19, 1987. Within hours of this crash, international emergency meetings had been convened with former JP Morgan tool Alan Greenspan introducing a “solution” which would have the future echoes of hyperinflation and fascism written all over it.

“Creative financial instruments” was the Orwellian name given to the new financial asset popularized by Greenspan, but otherwise known as “derivatives”. New supercomputing technologies were increasingly used in this new venture, not as the support for higher nation building practices, and space exploration programs as their NASA origins intended, but would rather become perverted to accommodate the creation of new complex formulas which could associate values to price differentials on securities and insured debts that could then be “hedged” on those very spot and futures markets made possible via the destruction of the Bretton Woods system in 1971. So while an exponentially self-generating monster was created that could end nowhere but in a meltdown, “market confidence” rallied back in force with the new flux of easy money. The physical potential to sustain human life continued to plummet.

NAFTA, the Euro and the End of History

It is no coincidence that within this period, another deadly treaty was passed called the North American Free Trade Agreement (NAFTA). With this Agreement made law, protective programs that had kept North American factories in the U.S and Canada were struck down, allowing for the export of the lifeblood of highly skilled industrial workforce to Mexico where skills were low, technologies lower, and salaries lower still. With a stripping of its productive assets, North America became increasingly reliant on exporting cheap resources and services for its means of existence. Again, the physically productive powers of society would collapse, yet monetary profits in the ephemeral “now” would skyrocket. This was replicated in Europe with the creation of the Maastricht Treaty in 1992 establishing the Euro by 1994 while the “liberalization” process of Perestroika replicated this agenda in the former Soviet Union. While some personalities gave this agenda the name “End of History” and others “the New World Order”, the effect was the same.

Universal Banking, NAFTA, Euro integration and the creation of the derivative economy in a space of just several years would induce a cartelization of finance through newly legalized mergers and acquisitions at a rate never before seen. The multitude of financial institutions that had existed in the early 1980s were absorbed into each other at great speed through the 1990s in true “survival of the fittest” fashion. No matter what level of regulation were attempted under this new structure, the degree of conflict of interest, and private political power was uncontrollable, as evidenced in the United States, by the shutdown of any attempt by Securities and Exchange Commission head Brooksley Born to fight the derivative cancer at its early stages.

By 1999 a politically castrated Bill Clinton found himself signing into law a treaty authored by then Treasury Secretary Larry Summers known as the Gramm-Leach-Bliley Act, which would be the final nail in the coffin for the Glass-Steagall separation of commercial and investment banking in the United States. The new age of unregulated trading and creation of over-the-counter derivatives caused these strange financial instruments to grow from $60 trillion in 2000 to $600 trillion by 2008.

The 2000-2008 Frenzy

With Glass-Steagall now removed, legitimate capital such as pension funds could be used to start a hedge to end all hedges. Billions were now poured into mortgage-backed securities (MBS), a market which had been artificially plunged to record-breaking interest rate lows of 1-2% for over a year by the US Federal Reserve making borrowing easy, and the returns on the investments into the MBSs obscene. The obscenity swelled as the values of the houses skyrocketed far beyond the real values to the tune of one hundred thousand dollar homes selling for 5-6 times that price within the span of several years. As long as no one assumed this growth was ab-normal, and the unpayable nature of the capital underlying the leveraged assets locked up in the now infamous “sub-primes” and other illegitimate debt obligations was ignored, then profits were supposed to just continue infinitely. Anyone who questioned this logic was considered a heretic by the latter-day priesthood.

The stunning “success” of securitizing housing debts immediately induced a wave of sovereign wealth funds to come into prominence applying the same model that had been used in the case of mortgage-backed securities (MBS) and collateralized debt obligations (CDO) to the debts of entire nations. The securitizing of bundled packages of sovereign debts that could then be infinitely leveraged on the de-regulated world markets would no longer be considered an act of national treason, but the key to easy money.


This is the system which died in 2008. Contrary to popular belief, nothing was actually resolved. For all the talk of an “FDR revival” under Obama, speculation wasn’t actually regulated under the Dodd-Frank Act or the Volker Rule of 2010. No productive credit was created to grow the real economy under a national mission as was the case in 1933-1938. Banks were not broken up while derivatives GREW by 40% with the new bubble concentrated in the corporate/household debt sector now collapsing. During this time, nation states continued to be stripped, as austerity was rammed down the throats of nations.

It should be no surprise that in the midst of this despair, a creative alliance was consolidated in defense of the interests of sovereign nation states and humanity at large led by the leadership of Russia and China.

This leadership took the form of the China-led Belt and Road Initiative which has grown to embrace over 130 countries today and looking more and more like an Asian-led version of the New Deal of the 1930s. Indeed, China’s capacity to unleash long term credit for thousands of international long term infrastructure projects was made possible by the fact that it was the only country on the globe which had not given up the principles of bank separation which were destroyed in every other nation. Very few western figures stood up to this self-induced destruction over the decades, but one notable exception here worth mentioning is the figure of the late American economist Lyndon LaRouche (1922-2019) who not only resisted this process for over four decades, but fought alongside the Schiller Institute to promote New Silk Road as early as 1996.

With the 2016 Brexit and election of President Trump, a new wave of nationalist spirit has become a fire which the technocrats have lost their capacity to snuff out. Increasingly, the idea that nation states have a power over the private banking system has become revived and discussion for reforming the now dead Trans-Atlantic system is increasingly shaped not by the calls for a “New World Order” as Sir Kissinger would have liked, but rather for a New Silk Road and a true New Deal. The Eurasian nations are already firmly committed to this new system, and if the west is to qualify morally to take part in this new epoch, then the first step will be a return to a Glass-Steagall.

Published:8/10/2019 2:24:14 AM
[World] Mark Hulbert: As stock markets skidded early this month, company insiders boosted their buying The share of firms for which net insider buying from officers and directors is positive climbed as the Dow industrials skidded more than 1,000 points.
Published:8/9/2019 7:51:54 AM
[Markets] As stock markets skidded early this month, company insiders boosted their buying The share of firms for which net insider buying from officers and directors is positive climbed as the Dow industrials skidded more than 1,000 points. Published:8/9/2019 4:44:20 AM
[Markets] Dow Jones Futures: Micron, AMD, Apple, China's Yuan Fall On Huawei Report; Uber, Trade Desk Are Earnings Movers Dow Jones futures, China's yuan, Micron, AMD and Apple fell as the U.S. reportedly delays licenses for supplying Huawei. Uber, Trade Desk sank on earnings. Published:8/8/2019 5:40:58 PM
[Markets] Stocks, Bonds, & Gold Gain As Easing Hopes Hide Global Risks

Another buyback-sponsored surge in stocks met with gains in bonds and bullion...

Once again all eyes were on the yuan fix overnight which was set weaker than 7/USD for the first time since 2008, but was slightly stronger than expected (and thus interpreted as China seeking stability)...

Source: Bloomberg

Chinese stocks managed modest gains only again after the fix (and better than expected trade data), but remain well in the red for the week...

Source: Bloomberg

European markets surged intraday with France's CAC40 back into the green for the week...

Source: Bloomberg

Swissy was safe-haven bid against the Euro as Italian politics reared its ugly head again...

Source: Bloomberg

US Equity markets were ramped back to unchanged on the week...

Small Caps and Nasdaq outperformed on the day...

Dow futures have retraced Fib 61.8% of the post-Powell plunge...


3rd day of a huge short squeeze...

Source: Bloomberg


Kraft Heinz crashed to record lows...

Source: Bloomberg


BYND was battered back below its Secondary offering price


VIX dropped back to a 16 handle today..


Stocks and bond yields dramatically decoupled this afternoon...

Source: Bloomberg

Treasury yields surged early on but between the Italian political news and better-than-expected tail in the 30Y auction, yield tumbled back lower in the afternoon... and are still dramatically lower on the week...

Source: Bloomberg

2Y underperformed, flattening the curve modestly (and a new cycle low in 2s10s)...

Source: Bloomberg

It was another large range day for bonds though (11bps in 30Y after the longest-duration auction ever)...

Source: Bloomberg

Mirroring yesterday's yield plunge and surge...

Source: Bloomberg

The Dollar Index ended the day lower, but remained in the narrow range of the week...

Source: Bloomberg

Cryptos were lower on the day with Bitcoin still the week's biggest gainer...

Source: Bloomberg

Another failed attempt at $12k overnight...

Source: Bloomberg

WTI bounced back today on the heels of more chatter from Saudi on stem price drops (and hope of another trade truce with China)...

Source: Bloomberg

Oil prices surged over 3% today, extending yesterday's Saudi bounce gains...



Iron Ore prices continue to plummet...

Source: Bloomberg

Gold managed gains as it surged back higher on the auction/Italian headlines...


And finally, with today's re-plunge in TSY yields (and the likely shift in Bund yields due to Italy crisis), negative-yielding debt debacles are leading gold higher...

Source: Bloomberg

And as a quick reminder, Gold remains the biggest winner since The FOMC meeting and stocks worst...

So on the week: Stocks are unchanged, TSY yields are down 14bps, Gold is up 3%, and the dollar is fractionally lower. One of these things is not like the other!!

Published:8/8/2019 3:10:38 PM
[Markets] It's Not The Yuan Stability, It's A "Dramatic" Surge In Buybacks

Dow futures are up over 1250 points from the opening plunge lows on Monday as a sudden risk-unaware buyer has jumped in (during US cash market open hours) to buy the f**king dip. The consensus narrative is that China has stabilized its yuan (based on the fact that it hasn't drastically shifted the fix lower - which it has), but there is another far more important driver of this rebound.

We know the PPT is in chaos currently as they seek new leadership but what we hear from Goldman Sachs is that, perhaps someone whispered in various CEOs ears as Bloomberg reports that Corporate America bought back shares at a furious pace as the S&P 500 plunged 3%.

“On Monday when the market dropped, the Goldman Sachs buyback desk saw executions increase dramatically,” David Kostin, the firm’s chief U.S. equity strategist, said on Bloomberg TV with Alix Steel and David Westin.

“Companies are sensitive to the level of stock prices.”

A similar surge in buybacks during May’s rout helped establish a market bottom.

Source: Bloomberg

This makes some sense as the following chart shows, whether due to earnings blackouts or anxiety, buybacks as a percentage of firm EBIT (i.e. affordability of share repurchases) slid recently, providing plenty of ammo for the average share-price-judged CEO to jump in with both hands and feet...

Which is what it appears Tim Cook did...

As Bloomberg's Benjamin Dow details, it's becoming clearer that The Fed's wealth-creation channel is now via the corporate boardroom. The answer to the Question of the Day is one of simple, Fed-based arithmetic that has buybacks as the linchpin -- easing will spur borrowing to buy back enough to make 3,200 a swift reality.

Whether Fed easing will reverse the slowdown in an economy held hostage by a trade war is irrelevant. Cheaper corporate borrowing is the end result, and the entire market knows to which ends that cash will go, as laid out by colleagues Liz McCormick and Ben Holland.

Most economists, blinded by faith in financial markets as the most efficient allocators of resources, have missed the whole problem, according to Lazonick.

“They just say, ‘Oh, the investment ends up somewhere,’ ” he says.

“That’s an argument with no evidence.” Lazonick says the label favored by corporate bosses to describe their buybacks—­“capital return program”—is misleading. “Capital is something that gets invested,” he says. “It’s not capital. It’s just money.”

It's too enticing of an option for the boards of SPX Index member companies to pass up in the late cycle U.S. economy. Spending to invest in expansion or retooling business lines in this era of lackluster earnings growth won't cut it.

It's far more lucrative to just take part in the Pavlovian experiment now playing out in markets -- the White House rings the trade-war bell, the salivating Fed presses the button, and the buyback morsel is delivered to equity investors on the S&P 500's path to new highs (repeat as necessary.)

He is spot on but missing one key aspect - Buybacks ignite the momentum, Gamma extends it.

Bonds ain't buying it completely...

Source: Bloomberg

The willingness to buy the dip contrasts with hedge funds, who according to Morgan Stanley have cut their equity exposure to the lowest level since 2016. Will it be different this time? (well for one, as a share of gross domestic product, corporate debt has climbed to a record.)

Published:8/8/2019 12:42:39 PM
[Markets] 27 of 30 components in the black as Dow runs intraday gain to 250 points 27 of 30 components in the black as Dow runs intraday gain to 250 points Published:8/8/2019 11:09:22 AM
[Markets] The Five Letter Word Behind Yesterday's Dramatic Market Surge

First thing on Monday, before the market cracked with equities puking and the Dow tumbling almost 1000 points before closing down 767, its biggest drop of 2019, we warned that a selling avalanche was imminent for one reason: "extreme negative gamma" positioning among traders, which explained in simple English meant that too many traders were positioned on the same side of the trade, and were forced to liquidate long positions as the market slumped, accelerating the drop to the downside.

So looking at yesterday's miraculous rebound in the markets, which saw the Dow soar almost 600 points higher from its sharply lower open in an almost straight line, can one argue that the same catalyst that slammed the market lower was also responsible for the surge higher.

Why yes, one can.

According to the latest note from Nomura's quant guru, Charlie McElligott, whose "Greek" observations correctly predicted the Monday flush as CTAs took out key thresholds to the downside and were forced into a mechanistic selling deluge, yesterday’s overshoot “stop-in” across US Rates/USTs was not just about the usual narratives (“CB policy error,” “currency wars / race to the bottom,” a “trade war spurring a recession” scare and/or 4 overnight “surprise” rate cuts—add the Philippines to the “new cuts” list today) although these certainly did not help, "it was also another reminder of the power that options market “Gamma” hold over the underlying assets, in standard “tail wags the dog” fashion…where this same “Short Gamma” dynamic is having very significant impacts across ALL macro cross-asset right now and exacerbating the violence of moves."

Ah yes, gamma - the most powerful force in the market, that moves prices violently in either direction when nothing else makes sense.

In Wednesday's case, the endless amount of upside buying in US Rates- & UST- options as “end-of-cycle” hedges over the past year had "simply gotten Dealer vol desks (and a number of systematic Rate Vol selling strategies in earlier versions of the 2019 “Bond / Rates Rally”) short a lot of Gamma via this incessant Receiving “force-in” (with Convexity hedgers also part of the feedback loop as they mechanically “have to” chase new multi-year levels)…and all into an environment ripe with almost endless macro catalysts for a “right tail” move in Rates (most notably the CB “dovish pivot” due to the global growth slowdown / disinflation / trade war escalation) which has added a mechanical “pile-on” to the vapor moves."

Furthermore, as we noted previously, when drawing a comparison between this August trade MTD and December ’18, the Nomura strategist reminds us that we are also dealing with significant market illiquidity (August VIX seasonality is “a thing” for a reason)...

... tight $USD funding (draining of Reserves + UST / Bill supply = EFF > IOER dynamic since March..

... widening FRAOIS with 3m back at levels last seen in….Dec ’18) and Dealer VaR-constraints (many at-or-nearing at risk limits and thus little tolerance for pain either with their own hedging needs or ability to further facilitate client flows)


Which bring us to "BOOM" (McElligott's words, not ours), "that’s how you get this incredible mix of  “stop-in” panic / capitulation / grabby price-action seen yesterday morning, again piling-onto the endless stream of catalysts (Trade War, global data slowdown, dovish CB pivots, Brexit, Hormuz, Hong Kong etc) for the insane fixed-income rally (i.e. 5d cumulative move in Dec ED$ was the largest since Sep ’11; block ED$ upside buyers playing for 50bps cuts ahead of Sep mtg; the renewed & substantial interest in long-dated ED$ Par Calls, playing for NEGATIVE US interest rates btwn Sep ‘20 / Jun ’21; or even just the violent acceleration of curve bull-flattening, with 3m10y at lows since ‘07).

But wait, there's more - as McElligott adds, the game is potentially near-term inflecting in Rates as

  1. yesterday’s weak UST 10Y auction (indigestion after recent price-action: who is the incremental buyer “up here”?),
  2. bouncing Equities (via systematic fund covering of recently laid-out shorts &  gradual monetization of downside hedges in stocks from discretionary),
  3. Chinese efforts to stabilize the Yuan all helped to turn the tide off of the extremes and
  4. Fed dove Evans reiterating the “mid-cycle adjustment” theme previously-iterated by Powell and Bullard—have all helped drive a meaningful reversal in the Rates trade off of yesterday’s peak

Fast forward to the close of trading on Wednesday when the Nomura quant notes that widespread observance of the technical Hammer "reversal signals" across the US Rates market; Fast forward to today when Treasuries remain well off the highs, with the ED$ strip weakening -5 to -6.5 ticks across the board— "and all ahead of today’s largest Duration Treasury auction on record, which COULD further bleed prices in Rates/USTs."

So what happens next?

There are two answers. If only listens to Nomura's Japanese quant team, led by Masanari Takada, what comes next is nothing short of a Lehman-like shock crash, as we detailed on Tuesday.  As we discussed in the prior article, Takada reads the current trend in sentiment as suggestive of both deterioration in supply-demand for equities and a sharp downward break in fundamentals, but above all, "the pattern in US stock market sentiment has come to even more closely resemble the picture of sentiment on the eve of the 2008 Lehman Brothers collapse that marked the onset of the global financial crisis."

At the same time, for Nomura's US-based quant team, that of - well - Charlie McElligott, the next catalyst is more technical, and as he states this morning, "from here for the direction of global risk assets will be the resolution of the “stand-off” I reference yesterday in the Equities volatility complex, with a seemingly “binary” outcome being signaled by VIX / VVIX."

Meanwhile, the challenge facing Dealers is to place & hedge the massive “50 Cent” VIX OTM upside Calls trading over the past ~2m, is keeping the vol complex “wound tight,” with some vol desks short convexity/gamma and keeping SPX downside skew so acute per the Nomura quant (still extreme despite the bounce off the lows with 1m at 92nd %ile since 1996, as both the put-wing / “crash” being so “bid” and almost zero demand for upside):

Implied distribution of S&P 500Index options show the shift toward downside/"crash outcomes and away from upside:

So for the TL/DR crowd what does all of this mean. Well, one of two things: we either resume crashing, or we surge (obviously), to wit from McElligott:

My belief that much of the “downside flow risks” remain “in-play” (1. CTA model remains +63% Long in SPX, but with deleveraging levels not far below market and absolutely within reach per this realized vol environment 2. Our analysis continues to indicate “extreme short” $Gamma position for Dealers at 8th %ile for SPX / SPY since 2013, so any triggering of systematic downside deleveraging flows (say from a rogue “Trade War” tweet) could then be exacerbated by this Dealer desk hedging)…

But I also believe that the longer the trade situation goes “quiet” (and by the looks, both China and US are trying to again assuage markets at this current juncture ahead of Sep scheduled mtg), you are likely to see increased likelihood of a slow-bleed in Vols, as “longs” will  look to monetize the recent moves—which then could ease the dealer “negative convexity / short gamma” pain which at this moment is keeping S&P downside / VIX upside “sticky” and ultimately reverse—and helping spring-board stocks higher thereafter

In summary, unlike Nomura's Japanese quant, McElligott is far more optimistic, and his take is that "absent fresh shocks in the next two weeks ahead of expiration (with downside tails still looking like potential for an SPX 2750 –type move), there is real potential to see US Rates/USTs fade from the overshoot extremes made yday, while Equities then too continuing to stabilize—which in-turn likely drives further upside in Stocks, via the “virtuous” second-order benefits of volatility re-pricing gradually lower, as downside hedges turn worthless and “crash” gets sold."

Published:8/8/2019 10:10:20 AM
[Markets] Dow Jones Futures: China Yuan Rate Fixing, Trade Deal Buoy Stock Market Rally Attempt Dow Jones futures: China's yuan rate was fixed weaker, but stronger than expected. China trade data eased growth fears. A stock market rally bid continues., but don't get too excited. Published:8/8/2019 7:09:58 AM
[Markets] U.S. Stock Futures Climb After Yuan Fix Stronger Than Expected (Bloomberg) -- U.S. stock index futures rose for a third day after China’s central bank set its daily fixing stronger than expected, tempering concerns that the nations’ trade war will worsen.S&P 500 Index futures contracts expiring in September gained 0.5% at 2:17 p.m. in Tokyo, rebounding from an earlier 0.4% loss, after the People’s Bank of China set its daily reference rate at 7.0039 per dollar. Analysts and traders had projected a rate of 7.0156, according to the average of 21 forecasts compiled by Bloomberg in a survey. Futures on the Nasdaq 100 and Dow Jones Industrial Average rebounded as much as 0.7% and 0.5%, respectively.“If the Chinese government intervenes less and lets the currency find its own level, it’s actually better from a reputational point of view,” Nader Naeimi, AMP Capital’s head of dynamic markets in Sydney, said on Bloomberg Television.The bounce in Asia came after U.S. equities and benchmark Treasury yields mounted an impressive comeback late Wednesday, reversing sharp drops as investors turned more positive on the outlook for global growth amid central-bank moves to ease monetary policy. The S&P 500 Index eked out a modest gain after tumbling as much as 2%, while yields on 10-year Treasuries edged higher after an earlier plunge.To contact the reporter on this story: Jackie Edwards in Sydney at jedwards160@bloomberg.netTo contact the editors responsible for this story: Lianting Tu at, Naoto Hosoda, Kurt SchusslerFor more articles like this, please visit us at©2019 Bloomberg L.P. Published:8/8/2019 12:37:19 AM
[Markets] Dow Jones Futures: China's Yuan Rate Fixed Weaker Than 7 As Stock Market Rally Continues Dow Jones futures: China's yuan rate was set weaker than 7 for the first time since 2008. A stock market rally continues, but don't get too excited. Roku, Lyft, Carvana moved on earnings. Published:8/7/2019 9:11:17 PM
[Markets] Tesla Mulling Raising Prices (Again) In China Amid Yuan Weakening

Never a company to miss an opportunity to raise prices, Tesla is again considering raising prices in China from September as a result of "Yuan-related uncertainty," according to Reuters. The company's plan has not been made public yet and no specific details on the price change have been revealed.

Tesla imports all of the cars that it sells in China, but is currently in the process of building a factory in Shanghai that aims to help the company minimize the impact of the ongoing trade war and associated tariffs.

If Tesla moves forward with their price hike, it would be the first case of a planned price adjustment by an importer since China's decisive (in)action on the Yuan earlier this week. It also paints a picture of the growing pressure that importers could be facing. 

Tesla hopes to finish initial construction of its factory in Shanghai this summer and aims to begin production of the Model 3 toward the end of the year. We reported back in March that the constant price changes by Tesla in China had spurred protests against the company.

China threw a wrench in the gears of not only its ongoing trade war with the U.S., but also worldwide currency and equity markets on Monday, when it allowed the Yuan to weaken past the seven-per-dollar mark for the first time in a decade. The ensuing U.S. equity market session saw the Dow Jones Industrial Average drop more than 750 points. 

As a result, the United States labeled China as a currency manipulator, which further escalated tensions between the two countries. China pushed back on the label, claiming that it doesn’t use its currency to cope with trade frictions.

Published:8/7/2019 8:38:30 PM
[Markets] Dow Jones Futures: Stock Market Rally Needs This; Roku, Lyft, Carvana Are Big Earnings Movers Dow Jones futures: A stock market rally attempt continued, but don't get too excited yet. Roku, Lyft, Uber, Carvana moved on earnings. Watch China's yuan movements overnight. Published:8/7/2019 5:35:29 PM
[Markets] Gold & Silver Soar As "Minsky Moment" Fears Spark Market Turmoil

A manic day in stocks and bonds today with an early collapse panic-bid back to unchanged as precious metals soar and commodities crash.

The extreme vol prompted a warning from Guy Haselmann, chief executive officer of FETI Group LLC and Scotiabank’s former head of capital market strategy, who said global markets are moving closer to a Minsky moment, or a sudden collapse of asset prices. FETI is a Summit, New Jersey-based company that works with portfolio managers.

“An extended period of low volatility like we have seen in recent years significantly increases leverage and risk-seeking behavior,” he said in an interview.

“When volatility turns like it has, people often need to sell assets to meet margin calls. That’s what makes this so combustible”

"Just one more waffer-thin quantitative easing...?" What could go wrong?

A weaker than expected (though fractionally stronger than 7) Fix by the PBOC unleashed hell globally once again overnight...

But, thanks to rate-cuts from New Zealand, Thailand, and India combined with Chicago Fed President Evans comments suggesting more easing and QE4EVA prompted some PPT-sponsored panic-bids in US equities.

" could take the view that the risks now have gone up, and as we think we’re going to get closer to the zero lower bound with higher probability, that would also call for more accommodation."

Nevertheless, investor sentiment has collapsed from euphoric greed just a month ago to "extreme fear" ...


In the US, markets were mixed with Nasdaq best as desperate panic bids appeared to lift stocks back to unch (and to top the farce off a super-spike at the close)...


Dow futures ramped 600 points off the overnight lows back into the green and tagged 26k before limping back lower...


VIX was smashed back to a 19 handle...


China stocks drifted lower overnight, closing at the lows...


European stocks (German IP collapse) ended higher as the US open sparked buying off the lows...


Stocks and bonds decoupled overnight, with stocks tumbling back to bonds reality, but then the US cash open sparked stock-buying, bond-selling all day...


Treasury yields tumbled again overnight but ramped back higher after Europe closed...ending the day practically unchanged


30Y Yield plunged to near record lows...


And before we leave bond-land - We bet you wish you bought more Austrian Century Bonds...


The Dollar roundtripped like everything else to end unch...


Cryptos were mixed to flat today...


As Bitcoin once again tested $12k and rejected it...



PMs dramatically outperformed every other asset class today..


Gold surged to new six-year highs...


Silver soared above $17...

Silver dramatically outperforming gold on the day...


Oil prices collapsed, as a double-whammy of global demand concerns and a surprise crude build sent WTI prices back to a $51 handle...BUT then late in the day, a Saudi headline promising to do whatever it takes to halt oil price drop sparked a surge back above $52...


Finally, with $15 trillion (and rising tonight) in negative-vielding debt, bullion and bitcoin appear the preferred safe haven against policy-maker panic...

Still, global bonds and stocks remain massively decoupled...

So can you guess who will be right in the end?

Published:8/7/2019 3:04:34 PM
[Markets] The Dow Would Be Up Wednesday If It Weren’t for Disney Stock At 3 p.m. the Dow would have been up if not for Disney. The benchmark nearly climbed out of its 590 point hole. Published:8/7/2019 2:35:14 PM
[Markets] The Dow Has Nearly Erased All Its Losses. Here’s Why. The Nasdaq Index is back in the green after earlier steep declines. The Dow is down 0.3% and the S&P is down 0.2%. Several reasons were offered by market participants to explain the rebound, including a weak Treasury auction. Published:8/7/2019 1:33:39 PM
[Markets] GLOBAL MARKETS-Rush into U.S. bonds sinks global stock markets; gold touches 6-year high Investors rushed into the safety of U.S. government bonds on Wednesday, smothering a broad stocks rally as fears of a global recession grew. Yields on the benchmark 10-year Treasury note fell to their lowest levels since October, 2016, and gold soared to a six-year high, while riskier assets like stocks and oil prices dived. On Wall Street, the Dow Jones Industrial Average opened more than 500 points lower, helping erase gains in European shares, before paring some losses. Published:8/7/2019 11:32:46 AM
[Markets] Disney and J.P. Morgan Chase are the Dow's biggest Wednesday losers Disney and J.P. Morgan Chase are the Dow's biggest Wednesday losers Published:8/7/2019 10:09:56 AM
[Markets] RPT-GLOBAL MARKETS-Rush into US bonds sinks global stock markets; gold touches 6-year high A rush into the safety of U.S. government bonds smothered a broad rally in global stocks Wednesday as spiraling fears of a global economic recession gripped markets. Yields on the benchmark 10-year Treasury fell to their lowest levels since October, 2016, and gold soared to a six-year high, while riskier assets like stocks and oil prices nosedived. On Wall Street, the Dow Jones Industrial Average opened more than 500 points lower, helping erase earlier gains in European shares. Published:8/7/2019 10:09:55 AM
[Markets] Dow struggles to stay above 200-day moving average Dow struggles to stay above 200-day moving average Published:8/7/2019 9:32:18 AM
[Markets] Dow industrials give up more than 300 points at opening bell Dow industrials give up more than 300 points at opening bell Published:8/7/2019 9:02:45 AM
[Markets] The Dow Is Dropping Because Tumbling Treasury Yields Might Be Sending a Warning The Dow Jones Industrial Average looks set for a lower open as U.S. Treasury yields slipped below 1.7% Wednesday morning. Published:8/7/2019 8:02:20 AM
[Markets] Disney's stock the biggest drag on the Dow, would shave more than 40 points off the Dow's price Shares of Walt Disney Co. sank 4.5% in premarket trading Wednesday, after the media and entertainment giant reported disappointing fiscal third-quarter results, to act as the biggest drag on the Dow Jones Industrial Average futures prices ahead of the open. Disney's stock price decline would shave about 43 points off the Dow's price, while Dow futures were down 138 points, with 26 of the Dow's 30 components trading lower premarket. Among other the other biggest decliners, shares of Travelers Companies Inc. lost 2.2%, United Technologies Corp. dropped 1.8% and J.P. Morgan Chase & Co. shed 1.8%. Published:8/7/2019 7:32:15 AM
[Markets] 3 Central Bank Shocks Unleash Overnight Yield Crash, With Yuan On Verge Of Collapse

There is just one way to describe the plunge in bond yields overnight and the events behind it: the global race to the currency bottom is rapidly accelerating in its final lap with a global deflationary Ice Age (take a bow Albert Edwards) waiting on the other side.

The main event, of course, was the latest yuan fixing with the PBOC showing a clear sense of humor when it set the currency at 6.9996, laughably not to be confused with 7.0000 (for at least another 24 hours that is), but just a fraction of a percent away from the critical threshold, and weaker than the 6.9977 expected. The result was a resumption in the offshore yuan selloff, a hit to US equity futures and a drop in Treasury yields. Of course, once the PBOC does finally fix the yuan on the wrong side of 7, all bets are off and watch as the CNH crashes... as far as 7.70 according to SocGen, especially once Trump hikes tariffs to 25%.

But there was much more in today's iteration of the global race to the currency bottom, when first New Zealand, then India and finally Thailand shocked investors by being far more dovish than analysts expected. Indeed, the three Asian central banks delivered surprise interest-rate decisions on Wednesday as central bankers not only took aggressive action to counter a worsening global economy, but are now frontrunning each other - and the Fed - in doing so.

As noted last night, New Zealand’s central bank on Wednesday stunned investors by dropping its benchmark rate by 50 basis points, double the expected reduction and sending the kiwi tumbling. Thailand also surprised all but two in a survey of economists, cutting by 25 basis points. Finally, India’s central bank lowered its rate by an unconventional 35 basis points.

The response in the kiwi said it all, while the Australian dollar plunged to a ten year low in sympathy and on expectations that the OZ central bank would be next.

Some more details: the Reserve Bank of India lowered its benchmark rate by an unconventional 35 basis points to 5.4%, its fourth cut this year. New Zealand reduced its rate by 50 basis points to 1%; economists had forecast a 25 basis-point reduction. The Bank of Thailand’s rate cut was the first in more than four years. And it's not over: the Philippines is set to decide monetary policy Thursday, with 24 of 26 economists predicting a 25-point cut. Bangko Sentral ng Pilipinas Governor Benjamin Diokno this week said there’s space for 50 basis points of easing before year’s end. The question is when will Australia join the party and cut to zero or below.

Traders and economists were shocked by the dovish three-peat:

  • On New Zealand: "This was not what the market was expecting at all, it’s a shock to many. Considering the data isn’t terrible for New Zealand at all, this is an example of a central bank that’s looking beyond current data and trying to get ahead of the global slowdown." - Kyle Rodda, analyst at IG Markets in Melbourne.
  • On Thailand: "With the U.S.-China trade war spilling into currencies, more Bank of Thailand rate cuts may be forthcoming, especially as Bloomberg Economics expects the People’s Bank of China to cut rates later this year" - Tamara Mast Henderson, Bloomberg Asean economist
  • On India: "The dovish tone in its policy statement signals further easingmight be in the pipeline to get the economy back on its feet" - Abhishek Gupta, Bloomberg India economist

A big picture recap from Chang Wei Liang, macro strategist of DBS, said it all: "Demand is easing globally, and inflation pressures look set to remain highly restrained. The dovish bias could remain somewhat entrenched, until there are signs of green shoots in Europe/China, and some meaningful reduction in trade anxiety."

Still, the dovish moves by three Asian central banks showed that policy makers still have some power to surprise, and underscore the global shift toward easier policy even after the Federal Reserve‘s unexpectedly hawkish stance last week. Disappointing data may push the European Central Bank to turn toward easier monetary policies when it meets next month.

In short, a race to the bottom, and the US is badly lagging so expect either more rate cuts, more QE or direct currency intervention as Trump gets impatient with the ongoing dollar strength.

The central bank action, coupled with the ongoing currency war, roiled currencies and pushed bond yields to fresh record lows. The New Zealand dollar dropped more than 1% against the U.S. currency and the Thai baht slid 0.2%. But nowhere was the plunge in yield more visible than in the US where the 10Y dropped as low as 1.65%, while the 30Y Treasury tumbled to 2.16%, just 3 basis points above the effective Fed Funds rate, meaning the entire US curve is about to be inverted today.

Away from crashing yields, an eerie calm returned to stock markets on Wednesday as the dovish central bank overtures offset fears of an escalating currency war, thanks to some softer rhetoric from Washington.  U.S. equity futures extended a rebound and European stocks rallied as markets continued to recover from a brutal selloff at the start of the week. We don't expect this sea of green to persist too long.

U.S. equity futures turned higher following the dovish central bank three-peat in Asia, after slumping earlier following the PBOC fix.

The MSCI world equity index rose 0.2%. The Stoxx Europe 600 index rose for the first time in four days, led by technology stocks after Microchip’s upbeat demand outlook. Chemicals producers advanced after Bayer and Lanxess agreed to sell their stakes in Currenta, while Glencore fell after its profits missed estimates. Shares were mixed but calmer in Asia, with Japanese stocks closing barely changed while equities in Shanghai declined.

Earlier in the session, Asian stocks inched higher, halting a five-day losing streak, after three central banks in the region delivered surprise rate cuts. Markets however were mixed, with Indonesia climbing and India retreating despite the bigger than expected rate cut. The Topix closed 0.1% higher, supported by Toyota Motor, Sony and Kao. The Shanghai Composite Index declined 0.3%, sliding for a sixth day, as the yuan weakened. Shanghai International Port and large financial firms were among the biggest drags. China’s central bank officials reassured foreign firms that the yuan won’t continue to drop significantly. New Zealand shares jumped in mid-afternoon trading after the central bank cut interest rates by more than economists had forecast. The Sensex fell 0.3% in a choppy session, as the Reserve Bank of India cut the annual economic growth forecast while reducing its benchmark interest rate by more than analysts had expected.

But caution was on display, however, as noted above with bonds soaring while currencies were roiled by a series of dovish central-bank moves in Asia. Gold, the Japanese yen and government debt remained in high demand as investors remained wary of riskier assets.

In FX, the star once again was the yuan, which dropped 0.3% to 7.0801 in offshore markets after China’s central bank set the daily fixing just a fraction stronger than the key level of 7 per dollar. The People’s Bank of China lowered the reference rate to 6.9996, an 11 year low. That leaves very little room for it to continue tracking the currency lower while setting the rate stronger than 7, a level that if breached could set the stage for further depreciation. "We had a little bit of recovery yesterday, but this morning we are seeing that stalling due to the PBOC fixing the dollar-yen higher again,” said Thu Lan Nguyen, FX strategist at Commerzbank. “It has caused markets to again be in a bit of a risk-off mode."The Japanese yen rose 0.2% to 106.27, although that was still some way from levels seen on Monday when the trade war’s escalation panicked investors.

Societe Generale said the yuan may fall to 7.7 per dollar if the U.S. ramps up tariffs on the nation’s goods, potentially bad news for other emerging markets that have been moving increasingly in lockstep with the currency.  “There will be an inflection point for investors to dip their toes in and position for a tactical rally or to monetize carry in high yielders, but not now,” said Jason Daw, the head of emerging market strategy at Societe Generale in Singapore.

The kiwi slumped after the RBNZ surprised the market with a bigger-than-forecast cut. The Australian dollar fell to a 10 year low in sympathy as traders bet the RBA may follow suit. The yen led gains in the Group-of-10 currencies as the PBOC set fixing close to 7 per dollar. India’s rupee fluctuated and the Thai baht slipped after policy makers in both countries lowered borrowing costs. The euro declined with the pound and the U.S. dollar was steady.

Meanwhile, in rates yields were plunging across the board, with the 10-year Treasury yield falling through 1.7% and German rates dropping to a record after industrial production in the euro-region’s biggest economy registered the biggest annual decline in almost a decade. Semi-core bonds and most peripheral notes lead euro-area gains while curves flattened amid relentless search for yield. Money markets now price in more ECB rate cuts after weaker-than-forecast German data, while China fixes the yuan weaker, stoking trade tensions. Bunds rise as industrial production missed the median estimate; core debt underperforms as Germany’s sale of EU4b five-year sees oversubscription fall to 1.2x versus 1.5x prior and undersubcription of 0.78x after accounting for retentions. German 2s30s curve narrows 8bps to 69bps, the flattest since 2008. Money markets price 30bps of ECB rate cuts in June 2020 versus 28bps on Tuesday. Gilts outperform bunds by 1bp and short sterling strip bull flattens.

Traders remain on tenterhooks after Monday’s moves, which included the biggest one-day plunge in global equities since February 2018. An escalation in the trade war between the world’s two biggest economies continues to unnerve investors, even after China said recent yuan depreciation was decided by the market, not Beijing. “We’re likely to see perhaps another shoe drop as the week progresses because this is not getting fixed,” Kristina Hooper, the Atlanta-based chief global market strategist at Invesco Ltd., told Bloomberg TV. “There really is the potential for it to get worse from here.”

Meanwhile, Gold continued to soar and reached a six-year high of $1,495.61 per ounce.

Finally, in commodity markets, oil prices slipped, with the potential for damage to the global economy and to fuel demand from the Sino-U.S. trade dispute casting a shadow over the market. Brent crude futures were at $58.79 a barrel by 0759 GMT, down 14 cents, or 0.05%, and trading near seven-month lows.

Market Snapshot

  • S&P 500 futures up 0.3% to 2,884.25
  • STOXX Europe 600 up 0.6% to 369.96
  • MXAP up 0.08% to 150.96
  • MXAPJ unchanged at 485.95
  • Nikkei down 0.3% to 20,516.56
  • Topix up 0.05% to 1,499.93
  • Hang Seng Index up 0.08% to 25,997.03
  • Shanghai Composite down 0.3% to 2,768.68
  • Sensex down 0.3% to 36,874.41
  • Australia S&P/ASX 200 up 0.6% to 6,519.46
  • Kospi down 0.4% to 1,909.71
  • German 10Y yield fell 2.9 bps to -0.565%
  • Euro down 0.04% to $1.1194
  • 10Y yield fell 5.3 bps to 1.162%
  • Spanish 10Y yield fell 6.7 bps to 0.164%
  • Brent futures down 0.4% to $58.68/bbl
  • Gold spot up 0.9% to $1,487.18
  • U.S. Dollar Index little changed at 97.72

Top Overnight News from Bloomberg

  • Three central banks across Asia Pacific delivered surprise interest-rate decisions Wednesday as policy makers take aggressive action to counter a worsening global economy. New Zealand and India led with bigger-than-expected interest rate cuts, while Thailand’s 25-point reduction was a surprise to all but two in a Bloomberg survey of economists
  • The escalating trade war between the U.S. and China is nudging the world economy toward its first recession in a decade with investors demanding politicians and central bankers act fast to change course
  • U.S. is still expecting China to visit in September, says Larry Kudlow, the White House’s economic adviser. Things could change in respect to China tariffs, he adds. The U.S. will also take a “careful look” at whether China took steps to reverse the decline in the yuan. In Trump-Xi fight, both leaders make big bets that may backfire
  • German industrial production registered its biggest annual decline in almost a decade, highlighting the severity of the trade- inflicted manufacturing slump in Europe’s largest economy
  • U.K. house prices fell for a second month in July as the market continued to “tread water” amid economic uncertainty, mortgage lender Halifax said.
  • Top European banks, such as Commerzbank, UniCredit, warned of weaker earnings as escalating trade tensions take a toll on their clients and the prospect of lower interest rates erodes their main source of income
  • Michael Gove, the minister in charge of planning for a no-deal Brexit, blamed the European Union for failing to engage on a new agreement, deepening the diplomatic standoff between the two sides less than three months before the U.K. is due to leave the bloc
  • Italy’s government won’t be able to contain the budget deficit below 2% if it’s going to deliver promised investments and tax cuts, Deputy Prime Minister Matteo Salvini said.
  • North Korean leader Kim Jong Un oversaw the test- firing of a “new type” of guided missile Tuesday and the weapon should serve as a warning to the U.S. and South Korea as they conduct joint military drills, the state’s media said
  • Gold futures rallied above $1,500 an ounce on sustained demand for the traditional haven as the U.S.-China trade war festers, global growth slows and central banks around the world ease monetary policy.
  • Brent crude held losses after falling into bear market as lingering U.S.-China trade concerns dent the outlook for global demand
  • The dovish turn sweeping the global economy gathered pace Wednesday as New Zealand shocked markets with a half-percentage point interest-rate cut, sending its currency tumbling

Asian equity markets traded mixed as the region observed caution despite the gains on Wall St. where stocks rebounded from their worst performance of 2019. ASX 200 (+0.6%) was initially indecisive as early gains were nearly wiped out by weakness in energy following a 2% drop in oil and with financials subdued after its largest lender CBA reported a decline in FY profits. However, Australia stocks were then boosted in late trade alongside outperformance in NZX 50 (+1.8%) after the RBNZ over-delivered with a surprise 50bps cut, while Nikkei 225 (-0.4%) was pressured as exporters digested a firmer currency and earnings updates. Hang Seng (U/C) and Shanghai Comp. (-0.3%) were lacklustre as trade concerns lingered and after the PBoC weakened the CNY reference rate to within a whisker of the 7.0000 ‘line in the sand’ level, although losses in the mainland were contained amid reports that China is to revise quota rules for farm product import tariffs in which it will remove soybean oil, rapeseed oil and palm oil import quotas. Finally, 10yr JGBs were underpinned as cautiousness spurred safe-haven demand and with global yields declining amid what some view as an ongoing race to the bottom among some of the world’s major central banks.

Top Asian News

  • Singapore Air Picks Crucial Fight Against Emirates in India
  • Aussie Dollar Slides to 10-Year Low as Traders Bet on Rate Cuts
  • Papua New Guinea Asks for China’s Help to Ease Debt Burden
  • Asia Surprises With Cuts in Global Race to the Monetary Bottom
  • China Summons Hong Kong Officials to Shenzhen to Discuss Unrest

European equities have extended on opening gains [Eurostoxx 50 +1.3%] following on from a cautious Asia-Pac handover in which the antipodean indices cheered a deeper-than-forecast RBNZ OCR cut whilst upside Japan and China were capped by a firmer JPY and ongoing trade concerns.  Major EU bourses are retracing recent losses with gains led by the DAX (+1.2%) as heavyweight Bayer (+7.0%) rallies on the back of its 60% stake sale in Currenta for EUR 1.17bln. The transaction also includes the minority shareholder Lanxess (+5.5%) who is poised to sell its 40% share for around EUR 700mln. Sector wise, healthcare names are lagging with the sector pressured by Novartis (-0.1%) after the US FDA stated that some data from early testing of its Zolgensma treatment was manipulated. Novartis opened lower by 2% before trimming losses. Other individual movers include UniCredit  (-3.1%), Commerzbank (-3.1%) and ABN AMRO (-1.9%) post-earnings, in which the former cut its FY 19 revenue forecast and the latter stated it sees a bleaker margin ahead.

Top European News

  • Commerzbank, UniCredit See Targets Under Threat From Low Rates
  • Ex-HSBC Banker Pleads Guilty in $1.8 Billion French Tax Probe
  • Muddy Waters’ Latest Short Is Woodford Holding Burford Capital
  • Nordea’s Main Owner Opts to Cut Stake to Ease Capital Burden

In FX, NZD/AUD/INR/THB - The Kiwi is trying to claw back some lost ground, but remains the outright G10 underperformer in wake of the RBNZ’s shock decision to slash the OCR by 50 bp overnight against forecasts for -25 bp, and with Governor Orr indicating that there is more to come in post-policy meeting commentary. In fact, NIRP is not out of the realms of possibility as the Bank strives to hit its dual inflation and jobs target. Nzd/Usd slumped to lows around 0.6379 at one stage, but has subsequently reclaimed 0.6400+ status with key Fib support (0.6367) holding for now, while Aud/Nzd has rebounded further from sub-1.0300 levels to almost 1.0500 as Aud/Usd contains knock-on losses to circa 0.6678 even though RBA easing probability for September has risen in response to the more aggressive/pre-emptive RBNZ action. On that note, remarks from RBA’s Bullock later today may be pertinent. Conversely, the Rupee has strengthened in wake of an above consensus 35 bp reduction in benchmark rates from the RBI, and perhaps the vote split with 2 dissents for -25 bp plus the fact that the Bank has already administered 75 bp worth easing via 3 successive moves is being deemed as enough for now, even though the bias remains accommodative. Usd/Inr now circa 70.8000 within 71.000-70.5910 parameters in contrast to Usd/Thb nearer the top of a 30.9200-6900 range after a surprise ¼ point BoT rate cut and pledge to use other measures to curb Baht strength.

  • JPY - Bucking broader trends again, and back on a firmer footing against the Dollar, as US Treasury yields retreat sharply from Tuesday’s fleeting retracement highs and the PBoC nudged the official Usd/CNY nearer 7.0000 to rekindle US-China trade concerns that seemed to abate a tad yesterday. Usd/Jpy is slipping back from just shy of 106.50 as the DXY continues to pivot 97.500 by virtue of greater gains vs riskier currency counterparts more than anything else as GOLD looks poised to breach Usd1500/oz amidst the escalation of trade wars and transition to conflicts of FX interests.
  • CHF/GBP/EUR/CAD - All weaker vs the Greenback, or handing back recent gains, with the Franc approaching 0.9800 vs nearly 0.9700 and underlying safe-haven demand offset by prospects of SNB intervention at any time if the Chf appreciates too much. Indeed, Eur/Chf has also bounced further from recent lows between 1.0925-50 confines even though Eur/Usd remains top heavy on the 1.1200 handle amidst increasingly soft/negative Eurozone bond yields. Elsewhere, Cable is also struggling to maintain recovery momentum through 1.2200 and 0.9200 in Eur/Gbp cross terms amidst ongoing Brexit no deal/UK political risk, while the Loonie is straddling 1.3300 ahead of Canadian Ivey PMI prints.
  • EM - Notwithstanding the wider swings in risk sentiment and specific factors impacting individual currencies and assets, the Lira revival continues, and the latest reversal in Usd/Try looks rather technical as key support ahead of 5.5000 has now given way.

In commodities, a day of respite thus far for the energy market following this month’s losses of almost 10%, pressured by the global oil demand outlook as the US-China saga intensifies. Yesterday saw the first of the monthly oil reports, the EIA STEO cut its 2019 global oil demand growth forecast by 70k BPD to a 1.0mln BPD Y/Y increase, albeit its 2020 forecast was raised slightly by 30k BPD. Investors will be keeping an eye on the IEA (Aug 6) and OPEC (Aug 16) Monthly reports for some harmony on the short-term global oil demand outlook. On the supply side, the weekly API crude stocks data showed a larger-than-forecast draw (-3.4mln vs. Exp. -2.8mln), the release did little to sway prices but may have underpinned the benchmarks in anticipation for today’s DoE data to confirm the drawdown (headline crude Exp. -2.845mln). Elsewhere, spot gold is inching closer to the key 1500/oz level with futures having already topped the level amid safe-haven inflows as US/China developments, global growth outlook and easing by global Central Banks. Spot gold printed a fresh 6yr peak at 1491/oz during early EU trade. Meanwhile, copper prices have rebounded off worst levels, albeit remain contained near 2yr lows with some support derived from news that Glencore is planning to shut its Mutanda cobalt and copper mine (which produced almost 200k tonnes of copper last year) by the end of 2019 due to lower cobalt prices impacting the economic viability of the project. Finally, Dalian iron ore prices extended its slide for a fifth session amid rising supply and weakening demand.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -1.4%
  • 3pm: Consumer Credit, est. $16.1b, prior $17.1b
  • 9:30am: Fed’s Evans Holds Media Breakfast in Chicago

DB's Jim Reid concludes the overnight wrap

5 days after my accident and sitting down on a firm surface is starting to be a less harrowing experience again. Nevertheless my coccyx remains sore. I’m still waiting for the call from GAP who must surely want to use me in their advertising campaign as even with a few frays and tears, their trousers managed to hold together and keep my legs from having any external injuries even as I crash landed and skidded. All my cuts and scrapes were from my uncovered arms. I noticed that on Bloomberg’s MVP page, news of my accident has catapulted me several hundred hits ahead of Mr President for the week. So come on GAP, use the publicity and I’ll take a year’s supply of Baby GAP clothes in return.

Despite a fairly light day of newsflow, which might explain the order on Bloomberg’s MVP, markets staged an impressive rebound during the New York trading session yesterday, with the S&P 500 ultimately ending +1.30% higher. At the margin, comments from top Trump economic advisor Larry Kudlow helped to calm markets, with most of the gains coming after he spoke. Kudlow said that “The President and our team is planning for a Chinese visit in September" and "movement towards a good deal would be very positive and might change the tariff situation. But then again, it might not". Despite the wide bid-offer in those remarks, it did seem that it represented a little shift in rhetoric from the White House. It will probably require something much more substantial to be sustainable though. In May/June markets recovered first because of a massive repricing of central banks expectations and then the news of the Trump/Xi meeting. It’s hard to believe that we could get the same impact from fresh central bank repricing which leaves us waiting for a trade de-escalation. This doesn’t feel that imminent but as ever we are a tweet away from a big shift in sentiment one way or another.

To put the recent moves in context, it’s worth highlighting a note DB’s Alan Ruskin did on Friday which looked at asset price performance through three previous periods where tariffs roiled financial markets (link here ). He found that the S&P 500 declined by a median of 10% and that Chinese equities were down less than the S&P. European equities held in a little better but were far from a great place to hide. As for bonds, in the past Bunds generally rallied more than Treasuries although clearly we’re now starting with the Bund curve mostly in negative territory. Growth sensitive commodities like Oil and Copper also struggled while interestingly the usual perceived safe haven assets like Gold and the Yen did not do as well as one might expect – although with the Fed expected to ease further, these assets might be more robust this time round. Food for thought in any case.

This morning in Asia markets are trading mixed with the Nikkei (-0.42%), Hang Seng (-0.37%) and Kospi (-0.15%) all lower while the CSI (+0.02%) and Shanghai Comp (-0.01%) are trading flat. The Japanese yen is up +0.368%, while the yield on 10yr JGBs in now trading below the lower end of the BoJ target range at -0.203% (-1.2bps). The PBoC has fixed the daily reference rate for the onshore yuan overnight at 6.9996 leading the currency to drop -0.34% to trade at 7.0434. Meanwhile, the RBNZ surprised the market by delivering a larger than expected rate cut of 50bps (market expectations were for a 25bps cut) thereby bringing the key policy rate to 1.0%. As a result, the New Zealand dollar (-1.92%, the largest daily decline in 4 months) and Australian dollar (-0.92%) are both trading weak this morning with the later sliding to a 10 year low. Elsewhere, futures on the S&P 500 are trading down -0.44%.

In other trade related news, the US Department of Commerce said yesterday that it will ask the US Customs and Border Protection to collect cash deposits from importers of wooden cabinets and vanities from China based on subsidy rates of as much as 229%. The preliminary response from the Commerce department came after a petition filed earlier this year by the American Kitchen Cabinet Alliance, alleging at least $2 billion in harm from Chinese shipments. The move is expected to affect $4.4bn in imported cabinets from China and while this is small numerically, the optics could weigh on the trade negotiations.

In addition Bloomberg has reported that the US is investigating hundreds of millions of dollars in financial transactions involving three big Chinese banks that allegedly helped finance North Korea’s nuclear weapons program, according to an appeals court opinion unsealed yesterday. Elsewhere, China's Ministry of Commerce official said in an interview with MNI that regardless of the trade talks, China will gradually reduce its holdings of Treasuries, in order to diversify its foreign reserves while adding that "there are many options," for China's reserves, mentioning gold, other governments' bonds, and other assets such as real estate and equities. The combination of this news and the uncertainty around escalating trade war has sent spot gold up this morning at 1485.15 (+0.72% ).

As for yesterday, the DOW and NASDAQ joined the S&P 500 rally, posting gains of +1.21% and +1.39% respectively, each bouncing off their morning lows amid higher-than-average trading volumes. That stemmed 6 consecutive daily losses for the S&P and NASDAQ and 5 for the DOW. Energy stocks (-0.06%) were the only sector to retreat, as Brent crude (-1.20%) slid into one definition of a bear market, as its level of $59.09 is now -20.76% off its April peak of $74.57. In Europe, equities actually traded fairly well through much of the session but a late dip saw bourses close in the red with STOXX 600 in particular down -0.47% and the trade sensitive DAX -0.78% after being up by a similar amount in the morning. The S&P 500 was only +0.38% higher at the European close so there is some catch-up likely. In bond markets, ten-year Treasuries rose as much as +6.4bps in line with the risk-on mood, but subsequently pared their gains to close near flat after a strong three-year auction. The 3y notes saw healthy demand and yielded the lowest in almost two years at 1.433%, ahead of today's 10-year auction. The yield curve ended -1.1bps flatter at 12.1, which is just 1.1bps away from its cyclical low from December. In Europe, yields headed lower with Bunds (-2.0bps) hitting a new record low of -0.536%. Where will it all end!!

From negative yields to (relatively) High Yield. Overnight Nick has published a presentation based note looking at supply and demand trends in EUR HY. It includes the latest data and charts on issuance, redemptions, coupons and transitions between HY and IG (link here ).

Back to yesterday and it was a more typical summer day of light newsflow with the earlier slightly improved tone helped by a comment from the PBoC telling foreign firms that the CNY “won’t keep falling”. Our FX team have argued that some two-way and even a move potentially back below 7.0 in the near-term wouldn’t be a surprise even if the medium path might be further weakness. Indeed our strategists continue to expect additional weakness, forecasting a level of 7.3 versus the dollar for year-end 7.5 by end-2020. Deprecation on that scale would likely be a sticking point with the US, especially since White House trade advisor Peter Navarro took a victory lap on TV yesterday, crediting the stronger CNY fix as evidence that "they heard us." He said "as soon as the president was firm - 'You’re a currency manipulator’ - the Chinese announced that they’re stabilising."

Meanwhile, two regional Fed presidents spoke and sent similar messages to Governor Brainard yesterday, that they are monitoring trade developments closely. St. Louis's Bullard said that the Fed "cannot reasonably react to the day-to-day give-and-take of trade negotiations,” but he did also emphasize that the fall in rates over the last several months in anticipation of Fed rate cuts will take time to feed through to the economy. He stopped short of fully endorsing market pricing, however, saying that he has one more hike "pencilled in" for this year. Separately, San Francisco's Daly noted that trade uncertainty has "re-emerged" and said that "I'm really focusing my attention (on) these headwinds." Bullard is a voting FOMC member this year, though Daly does not vote until 2021.

Meanwhile, there wasn’t much to report in terms of data yesterday. Early on Germany factory orders surprised to the upside in June posting a +2.5% mom rise (vs. +0.5% expected) after a -2.0% fall the previous month (though that was revised up +0.2pp from the initial print). On the other hand, Swedish industrial production, sometimes viewed as a leading indicator for European manufacturing, fell -0.7% yoy, matching its slowest pace since 2016. In the US the sole release was the albeit outdated June JOLTS report which showed that the job opening report slipped to 4.6% from 4.7% in the month prior while the pace of hiring stood pat at 3.8%.

Looking at the day ahead, this morning data releases include June industrial production in Germany, June trade balance in France and July house prices data in the UK. In the US the sole data release is the June consumer credit release. Away from that earnings releases include CVS Health Corp and Glencore.

Published:8/7/2019 7:01:14 AM
[Markets] How Congress Could Save the Stock Market from Steeper Losses — by Doing Nothing Here’s some good news for beleaguered stock market bulls: Congress is in recess. Research conducted by Michael Ferguson, a finance professor at the University of Cincinnati, and Hugh Douglas Witte, a finance professor at the University of Missouri at Columbia, found that more than 90% of the capital gains produced by the Dow since its creation in 1896 have come when Congress is out of session. A particularly important reality check on their findings came subsequent to their research: Another study found the same pattern in the Australian stock market. Published:8/7/2019 4:31:49 AM
[Markets] JPMorgan Slashes Yuan Forecast Ahead Of PBOC Fix; Bonds & Bullion Bid

With expectations for another weaker fix (at around 6.9994) tonight, it appears investors are seeking safe-havens (bonds and bullion bid) as equity futures slide.

Gold is bid...

Dow Futures are leaking lower...

But Treasury yields have plunged back to yesterday's lows (1.67%), dramatically decoupled from stocks...

Smashing the yield curve to new cycle lows (-36bps is the most inverted since 2008)...

So all eyes will once again be on the CNY Fix...

Is China going to unleash hell again tonight?

If you ask JPMorgan, the answer is a definite maybe as they slashed their forecast for USDCNY to 7.35 by year-end.

The risk profile of our China and global growth forecast has shifted to the downside alongside the global inflation forecast – as indirect demand depressing channels are likely to prove more  powerful than the direct effect of cost increases from trade restrictions. We have already added fiscal policy and monetary policy easing in China and there is likely to be more monetary policy easing than forecast elsewhere in the world.

Pressure on the USD is likely to be upward in this environment, particularly against the EM. While USD/CNY will not likely move in a straight line, we have revised downward the CNY forecast profile.  We are now forecasting USD/CNY to reach 7.35 by end 2019 and 7.40 by the middle of 2020.

In terms of the CFETS CNY basket, we are now expecting an 88.70 level move by year end, which would bring the basket change to 4.6% versus end 2018 levels.

As a reminder, the last time China devalued on that scale, VIX exploded to 40...

Published:8/6/2019 8:01:27 PM
[Markets] Apocalypse Later? Trumponomics On The Eve Of The 2020 Presidential Election

Submitted by, J.Hawk, Daniel Deiss, Edwin Watson; Voiceover by Coby B.

By way of introduction, it should be noted that the US economy is showing many signs of a classical bubble, starting with the incredibly over-valued US stock market. Only slightly more than a decade ago, at the peak of the real estate bubble, the Dow Jones Industrial Average (DJIA) barely managed to clear the 14,000 mark, before staging a spectacular plunge almost to 7,000. Since then DJIA nearly quadrupled in value, as of mid-July 2019 hovering at above the 27,000 mark. Since the US economy as a whole has not quadrupled during the same time interval, there is a clear dissociation between “Wall Street” and “Main Street” that will at some point inevitably lead to serious economic and political problems in the United States, to the point of considerably remaking its political landscape.  

The proverbial $64,000 question, however, is when will the US financial house of cards come tumbling down the next time, and what will be the triggering event?

“Pay No Attention to the Man Behind the Curtain”

Politics is a factor in the management of the US financial system. The US Federal Reserve, though it is rarely perceived as having its finger on the scale of US presidential elections, played a role during the 2000 and 2008 presidential elections and its monetary policy decisions do impact day-to-day presidential approval ratings indirectly, through their influence on DJIA fluctuations. The Fed contributed to the financial bubble bursting by raising its lending rates on the eve of the election, and while its actions may be justified in terms of preventing an even bigger bubble, the timing of the raising of interest rates was such that it hurt the candidates of the incumbent parties (Al Gore in 2000, John McCain in 2008), thus facilitating a change of flag, as it were, in the White House.

The 2008 election was particularly indicative of the power wielded by the Fed. It is all-but-forgotten that Obama-Biden’s nominating convention was a dud, while that of McCain-Palin was a success that gave the GOP team such a bounce in the polls that they were leading their Democratic opponents in the polls and provoking panic in Obama’s camp. Had Lehman Brothers not been allowed to fail, thus triggering a global financial meltdown, the outcome of the election may well have been very different.  However, on the eve of the 2016 election the Fed was very gun-shy when it came to raising interest rates—had it been as aggressive as it was in 2008, its monetary policy would have once again caused the grossly overvalued US stock market to crater, thus sending Trump into the White House with a far broader margin of victory than what he actually enjoyed.

Four More Years?

Therefore the question should be framed in terms of whether Trump is long for this political world. Sturm und Drang emanating from the establishment media notwithstanding, it does appear as if Trump succeeded in appeasing enough of Washington’s power players, not the least of them being the “intelligence community”, to give himself a solid shot at a second term. House Speaker Nancy Pelosi intimated as much when she announced, to the annoyance of a sizable portion of her caucus, that impeachment was off the table. Robert Mueller’s failure to deliver impeachable goods on Trump also suggests that the “intelligence community” no longer views its ostensible Commander-in-Chief as a threat to its institutional interests. The de-facto purge of Trump’s foreign policy apparatus followed by the installation of neocons such as Mike Pompeo at State, John Bolton at the NSC, and the reliable military-industrial complex lobbyist and functionary Mike Esper at the DOD, was probably enough to ensure smooth feathers ruffled by Hillary Clinton’s unexpected defeat.

Toward a Managed Economy

If the preference is, as it appears to be, to not sabotage Trump’s re-election bid by triggering an economic crisis, one should not expect a major crisis in the US economy within the next two years, or until the outcome of the 2020 election is decided. Observing the ups and downs of the DJIA since Trump took office, one is left with the impression that the US financial institutions are acting as if there existed an invisible “safety net” to catch them in the event of the onset of a “bear market” or even a proverbial “black swan” event that could trigger a US-wide or even global financial meltdown. Whenever one sees the DJIA drop by several hundred points in a single day, or even a thousand points within a few days, one can rest assured the drop will be followed by a spectacular rise in the following days. In a remarkable reversal of course, considering that the US economy is officially still “booming”, the Federal Reserve itself no longer seems willing to be interested in raising rates.

It does not mean that the US economy is entirely out of the woods. Certain sectors of it, for example retail, oil fracking, or even sub-prime auto loans, may suffer waves of bankruptcies. Those enterprises which are vulnerable to Chinese counter-tariffs, starting with the US agri-businesses, will also fare poorly. But if the situation gets too severe, one can expect the US Congress to vote in favor of subsidies, and the financial sector can count on the Federal Reserve to keep it afloat, so that the mounting bankruptcies are extremely unlikely to affect the “too big too fail” banks, not anymore than they did following the 2008 housing crisis.

The financial sector, in particular, is being treated as a de-facto US strategic asset. On the one hand, economic warfare being waged by the US Department of Treasury through its ever-expanding list of sanctioned entities is taking bread out of US banks’ mouths. This happens not only through the loss of actual business with the sanctioned entities but also due to the slowly progressing process of “de-dollarization” which in the long term could become an existential threat to the US status as the dominant center of global finance. But the US banks have met this situation with equanimity, indicating they are some form of compensation for their troubles.

The one threat to the stability of US economy that the US government or Fed might not be able to deal with are the consequences of the US trade war against the rest of the world. Should it trigger a financial crisis elsewhere, for example in the EU or China, then the US would find itself in a severe recession once again. However, both EU and China are developing their own capacity for dealing with US-induced economic shocks, in that respect following Russia’s example.

Disaster Capitalism on the Horizon?

This idyllic stagnation in the US is unlikely to continue forever. There are still a number of issues the US oligarchy needs tackled, first and foremost of them being the Medicare and Social Security entitlement programs.  With even frontrunner Democrats like Joe Biden proclaiming, on the presidential campaign trail, no less, that “Medicare is gone”, one should expect “entitlement reform” to be on the agenda of a future administration or perhaps even of Trump’s second term. To achieve that objective, a little controlled chaos following a financial meltdown and a recession to set Americans against one another along racial and generational lines, could be very useful. But it does not appear likely such a scenario will be enacted before 2021 at the earliest.

Published:8/6/2019 6:01:33 PM
[Markets] This act of Congress could save the stock market from steeper losses Here’s some good news for beleaguered stock market bulls: Congress is in recess. Research conducted by Michael Ferguson, a finance professor at the University of Cincinnati, and Hugh Douglas Witte, a finance professor at the University of Missouri at Columbia, found that more than 90% of the capital gains produced by the Dow since its creation in 1896 have come when Congress is out of session. A particularly important reality check on their findings came subsequent to their research: Another study found the same pattern in the Australian stock market. Published:8/6/2019 4:58:53 PM
[Markets] Mark Hulbert: This act of Congress could save the stock market from steeper losses Almost all of the Dow’s gains have come when Congress is in recess, writes Mark Hulbert.
Published:8/6/2019 4:29:38 PM
[Markets] Stocks rebound Tuesday from their biggest losing day of 2019, with Dow up 312 Stocks rebound Tuesday from their biggest losing day of 2019, with Dow up 312 Published:8/6/2019 3:27:50 PM
[Markets] Dow ends over 300 points higher as stocks bounce after worst day of year Stocks ended with strong gains Tuesday, taking back a chunk of the losses suffered a day earlier in Wall Street's worst session of 2019. The Dow Jones Industrial Average closed around 312 points higher, up 1.2%, near 26,030, according to preliminary figures, while the S&P 500 rose around 37 points, or 1.3%, to end near 2,882. The Nasdaq Composite rose around 107 points to end near 7,833, a gain of 1.4%. Stocks dropped sharply on Monday, with the Dow tumbling more than 700 points, on mounting trade-war tensions between the U.S. and China. The bounce came after China set its reference rate for its yuan currency at a stronger-than-expected level. Published:8/6/2019 3:27:50 PM
[Markets] Ring the buying bells — CNBC just ran its ‘Markets in Turmoil’ segment The stock market is bouncing back on Tuesday, with the Dow, S&P and Nasdaq all higher. It could be bargain hunters sniffing out a good deal. Or maybe it’s China’s central bank delivering a more market-friendly fix. Nah, it’s got to be CNBC. Published:8/6/2019 3:01:33 PM
[Markets] These 3 Macroeconomic Factors Are Driving Bitcoin Price Above $12,000

Bitcoin has staged a significant rally in recent days, but the reasons behind it could mean higher prices stick around much longer

With BTCUSD back above $12,000, CoinTelegraph's William Suberg lays out three of the main reasons the cryptocurrency industry considers lie behind Bitcoin’s latest surge higher.

1. Global stocks are tumbling

As Cointelegraph continues to report, the ongoing impact of the United States-China trade war is increasingly considered a boon for Bitcoin. 

On Tuesday, as tensions continued, stocks around the world showed considerable strain. As serial investor Tim Draper noted, the Dow Jones and Nasdaq fell by 2.9% and 3.4% respectively. For the Dow, it was the worst trading day of the year.

At the same time, Bitcoin gained 3.2%, the latest in a series of rebounds which ended several weeks of bearish sentiment. Just a week ago, BTC traded closer to $9,500.

2. Investors are waking up to Bitcoin as a hedge

Current price performance is fuelling attitudes that Bitcoin is becoming increasingly useful as a hedging instrument.

As cryptocurrency and blockchain lawyer Jake Chervinsky noted on Tuesday, this quality is an essential use case, with Bitcoin designed to reduce dependence on the centralized financial system.

“Bitcoin is doing exactly what it's designed for today,” he summarized. 

His comments were echoed on mainstream media, with the CEO of consultancy firm Agecroft Partners telling CNBC Bitcoin’s hedging properties will make it a firm favorite for funds in future.

3. Bitcoin profits from fiat currency blame games

As part of the trade war, the U.S. this week described China as a currency manipulator. The accusation came after Beijing significantly changed its policy of supporting the yuan, allowing it to slide against the dollar.

This in turn allowed China an unfair competitive advantage in global trade, treasury secretary Steven Mnuchin claimed. China retaliated by warning the U.S. was “deliberately destroying international order.”

For the average investor, an alternative thus makes perfect sense, Hayman Capital Management founder Kyle Bass explained to mainstream media.

“If you’re in Asia and China and you’re in a closed currency system, or if you’re in Hong Kong and you can’t seem to get a big conversion of Hong Kong dollars to U.S. dollars what are you going to buy?” he said in an interview with Yahoo! Tuesday.

As Cointelegraph reported, Jeremy Allaire, CEO of crypto payments firm Circle, also thinks the situation is spurring on Chinese investors to interact more with the cryptocurrency market.

“Humanity has now created a non-sovereign, highly secure mechanism to store value that can exist anywhere the internet exists,” he told CNBC Monday.

Additionally, the proxy for 'policy-maker-idiocy' - the volume of negative-yielding debt worldwide - is thrusting higher as global markets turmoil and that suggests Bitcoin (and gold) have further to run...

And in case you needed some proof of the demand for Bitcoin from overseas populations in fear of policymakers, CoinTelegraph's Marie Huillet notes that following President Trump's decision to freeze all Venezuelan government assets, trading volume on LocalBitcoins in Venezuela has surged to a new record high...

Weekly volume for Bitcoin against the Venezuelan Bolivar. Source:

We suspect China's 'local' volumes are following the same path of Hong Kong too...

Published:8/6/2019 2:28:59 PM
[Markets] Gold logs 3rd straight gain, holds near 6-year peak Gold prices on Tuesday settled higher, marking a third straight gain a day after the precious metal extended its rally toward fresh six-year highs, amid escalating trade policy tensions between China and the U.S. December gold trading on Comex added $7.70, or 0.5%, to end at $1,484.20 an ounce. The metal has gained for three straight days and seven of the past eight sessions, holding near its highest level since 2013, according to FactSet data. Bullion has been gaining traction on the back of worries that the U.S.-China tariff conflict won't subside soon. Meanwhile, the Dow Jones Industrial Average and the S&P 500 index were rebounded from their worst session in 2019 but trading off Tuesday's best levels and giving gold some room to rally as investors about slowing growth and trade spats. Published:8/6/2019 12:58:37 PM
[Markets] Dow gains as stock market struggles to claw back from Monday’s big losses U.S. stocks midday Tuesday trade off their best levels of the session, and the Dow briefly turned negative, as investors digest the latest development in an intensifying trade spat. Published:8/6/2019 12:29:14 PM
[Markets] Expeditors International's stock jumps to pace Dow transports gainers after Q2 profit beat expectations Shares of Expeditors International of Washington Inc. ran up 3.2% in morning trading Tuesday, to pace the Dow Jones Transportation Average's gainers, after the air and ocean freight services company beat second-quarter profit expectations, although revenue came up a bit shy. Net income rose to $153.1 million, or 88 cents a share, from $140.6 million, or 79 cents a share, in the same period a year ago, and was above the FactSet consensus of 82 cents a share. Revenue grew 4% to $2.04 billion, below the FactSet consensus of $2.07 billion. Chief Executive Jeffrey Musser said the air freight business was "challenged" as a result of a slowdown in export volumes out of North Asia and the U.S., and as "the current climate of geopolitical volatility has created uncertainty." The stock has now gained 5.7% year to date, while the Dow transports has advanced 10.0% and the Dow Jones Industrial Average has tacked on 10.6%. Published:8/6/2019 10:28:46 AM
[Markets] Dow's intraday gain has shrunk to 40 points Dow's intraday gain has shrunk to 40 points Published:8/6/2019 10:28:45 AM
[Markets] Gold Spikes To Overnight Highs As Dow Dumps Into Red

It's not over...

The Dow just turned red...

Joining Small Caps (and closely followed by S&P and Trannies)

For now, Nasdaq is holding gains.

As Gold surges back to overnight highs...

Published:8/6/2019 10:28:45 AM
[Markets] Dow up 100 points as stock market tries rebound after 767-point blue-chip plunge Dow up 100 points as stock market tries rebound after 767-point blue-chip plunge Published:8/6/2019 9:59:06 AM
[Markets] The Dow Is Rising Because China Sent a Positive Signal About the Yuan The Dow Jones Industrial Average was poised to open higher after China signaled that it doesn’t intend to let the yuan plunge, addressing concern about how strongly Beijing might respond to President Donald Trump’s new tariffs. European stocks made strong gains as China’s central bank set the yuan’s daily reference point—the midpoint of a range in which the currency is allowed to trade—higher than expected. The so-called fix was at 6.9683 yuan to the dollar. Published:8/6/2019 8:01:40 AM
[China] U.S. designates China a currency manipulator (Paul Mirengoff) The U.S. government has determined that China is manipulating its currency. It will engage with the International Monetary Fund to try to eliminate this unfair form of competition. If there is no progress within a year, China could face sanctions including its firms being prohibited from competition for U.S. government contracts. Treasury Secretary Steven Mnuchin made the announcement today. Stock prices fell dramatically, with the Dow Jones average shedding more Published:8/5/2019 9:54:24 PM
[Markets] Dow Jones Futures Plunge As U.S. Labels China 'Currency Manipulator'; Apple, AMD Extend Losses Dow Jones futures fell sharply. The U.S. labeled China a currency manipulator following Monday's yuan devaluation, escalating the China trade war. Published:8/5/2019 9:54:23 PM
[Markets] Do You Hear A Bell Ringing?

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

Do You Hear a Bell Ringing?

The sun shines brightest across the North American continent as we enter summer’s dog days.  Cold sweet lemonade is the refreshment of choice at ballparks and swimming holes alike.  Many people drink it after cutting the grass, or whenever else a respite from the heat and some thirst quenching satisfaction is needed.

The economy, after 10 years of growth, appears to be heading for a respite too.  Second quarter earnings, currently being reported by S&P 500 companies, have been a mixed bag thus far.  But in sectors that actually make stuff, like materials and industrials, earnings are suffering double digit declines.

Regardless of whether companies were able to “beat estimates” (which as often happens, were revised lower just before the reporting season started), their actual Q2 results didn’t look very encouraging so far. The manufacturing sector in particular looks a bit frayed around the edges as the saying goes. [PT]

From a practical standpoint, earnings are declining in these sectors because manufacturing is contracting.  For example, this week it was reported that the Chicago Purchasing Mangers’ Index (PMI) collapsed in July to 44.4.  That is the second weakest Chicago PMI reading since the Great Financial Crisis.

For context, a Chicago PMI reading below 50 indicates a contraction of the manufacturing sector in the Chicago region.  So far this year, the Chicago PMI has been down five out of seven months.  On top of that, weaker demand and production pushed the employment indicator into contraction for the first time since October 2017.

Chicago PMI – based on this indicator it looks as though the economy either has already entered a recession or is very close to doing so. Occasionally dips in the Chicago PMI do not presage a recession – as for example in late 2015/ early 2016. It remains to be seen if the signal is more meaningful this time, but it definitely constitutes a warning sign. [PT]

Unfortunately, the weakness in manufacturing extends beyond the Chicago region.  On Thursday it was reported that the U.S. Manufacturing PMI dropped in July to its lowest level since September 2009.  Employment also fell for the first time since June 2013.  What is going on?

US manufacturing PMI by Markit and the ISM manufacturing survey. These still indicate expansion, but are on the cusp of moving into contraction territory. Note: in terms of gross output, manufacturing remains the largest sector of the economy. [PT]

Economic Lemons

One place to look for edification is the auto industry.  Namely, car dealers are reporting fewer buyers. They are in turn ordering fewer vehicles from manufacturers. The dealers don’t have room for the cars they have.  Automakers, parts manufacturers and dealers directly employ more than two million people.  As demand for cars declines, the jobs associated with the auto industry also decline.

Having too many cars with too few buyers is something an economist would call a supply glut.  Of course, the easiest way to clear excess supply is to reduce prices.  This may work up to a point.  But if prices must be reduced beyond the cost of labor and materials inputs, there is a problem.

Making lemonade from these economic lemons is generally impossible.  Still, that doesn’t mean companies don’t try by taking on greater and greater levels of debt.  And the big banks, which are backstopped by the Fed, continue extending credit to keep the sham going.

U.S. non-financial corporate debt is about $10 trillion, or roughly 48 percent of gross domestic product (GDP).  That is up about 52 percent from its last peak in the third quarter of 2008, when corporate debt was about $6.6 trillion, roughly 44 percent of 2008 GDP.  In short, corporate debt is at record levels and is rising much faster than economic output.

US non-financial corporate debt is approaching USD 10 trillion. The corporate sector is not exactly prepared for an economic downturn.  [PT]

At this point in the business cycle, corporations have loaded themselves up with so much debt that they are extremely fragile.  Should the economy slow ever so slightly, it will be game over for countless over-leveraged companies. Defaults will pile up like old furniture and tires along the dry LA River bed.

Do You Hear a Bell Ringing?

But while Main Street has been cooling off, Wall Street has been running hot.  Promises of more cheap credit from the Fed have propelled stocks to record highs. Year-to-date, stocks, as measured by the S&P 500, are up over 17 percent.

On Wednesday, however, some uncertainty was added to the market. At the conclusion of the July Federal Open Market Committee (FOMC) meeting, Fed Chair Powell cut the federal funds rate 25 basis points.  But instead of telegraphing that additional rate cuts would follow like Wall Street expected, Powell said it was merely a mid-cycle adjustment.  In other words, he’s winging it.

S&P 500 Index, daily: a minor disturbance in the farce. This was the first time since 1987 that the index actually decline on the very day the first rate cut was announced. [PT]

Will the Fed cut rates further this year?  Will they hold?  These were the questions Wall Street was asking on Wednesday afternoon as the S&P 500 closed down 36 points.

Yesterday, after sleeping on the Fed’s ambivalence, traders showed up to work with focus and intent.  They bought the dip with confidence.  And everything was great until about mid-day.  The S&P 500 was up 33 points – and then something unexpected happened.

President Trump, via Twitter, dropped a turd in a crowded swimming pool:

“…the U.S. will start, on September 1st, putting a small additional tariff of 10% on the remaining 300 billion dollars of goods and products coming from China into our country.  This does not include the 250 billion dollars already tariffed at 25%.”

The market gets whacked by the God Emperor… [PT]

Following Trump’s tweet, Wall Street freaked out.  The S&P 500 dropped 68 points, ending the day at 2,953.

No one rings a bell at the top of the market,” says the old Wall Street adage. Make of this week’s manifestations what you will. We hear a bell ringing. Do you?

Published:8/3/2019 10:42:32 AM
[Markets] Stocks Suffer Worst Week Of Year; Beans, Bonds, & The Buck Blitz'd

Tariffs, Turmoil, & Tantrums...

Since Powell dropped the "mid-cycle adjustment" mic, Bonds and Bullion have been bid, the dollar is practically unchanged and stocks have plunged (hurt more by Trump Tariffs)...


Chinese stocks were lower for the last three days with big caps worst and tech names the least bad... for now...


European stocks cratered today - the biggest single-day drop since Dec 2018 - with Germany and France leading the way lower on the week...


For the first time ever, Germany's entire yield curve (30Y) traded with a negative yield...

10Y Bunds hit -50bps today!!!!

European banks crashed on the week to their lowest since Brexit vote (June 2016)


Broadly, this was the worst 3-day drop for US stocks since Christmas Eve and worst week of 2019... Stocks were  - as always - bid in the last hour... until Trump said "he could raise China tariffs to a much higher degree." Nasdaq was the week's biggest loser (and Dow lost the least of the majors)


US equities plunged to critical technical levels:

  • S&P 500 tested its 50DMA (2927) and 100DMA (2900)

  • Nasdaq tested its 50DMA (7971) and 100DMA (7927)

  • Dow broke below its 50DMA (26472) and tested its 100DMA (26276)

  • Trannies broke below the 50DMA (10358) and 100DMA (10478) and tested its 200DMA (10281)

  • Small Caps broke below the 50DMA (1540) and 100DMA (1551) and tested its 200DMA (1520)


VIX topped 20.00 intraday today before fading back...


FANG Stocks were down every day this week (2nd worst week of the year)...


Cyclical stocks tumbled, their worst week of the year, dramatically underperforming defensives...


Bank stocks were battered, tracking the collapse of the curve...


Despite this week's carnage, bonds and stocks remain dramatically decoupled...


Credit spreads blew wider on the week...


It was a bloodbath for bond bears this week (down 12-20bps across the curve with the long-end outperforming)...


10Y crashed to its lowest yield since before Trump's election...This was the biggest 10Y Yield drop in a week since Dec 2014.


2Y yields were even crazier - initially spiking on Powell then crashing on Trump...


30Y Yields are back at their lowest since Oct 2016...


The yield curve (3m10Y) crashed to cycle lows...


And finally, before we leave bond-land, longer-term inflation expectations have fallen the most in the past two days since 2016, based on 5-year 5-year forward breakeven rates... a total policy-failure


Amid all the chaos, the dollar index ended the week only marginally higher after a huge round trip the last few days

...After a false breakout to the highest since May 2017)...


Cable suffered one of its worst weeks since Brexit, dropping to its lowest weekly close since May 1985...


Yuan dropped five of the last six days closing the week at its weakest since Dec 2016 (Yuan has only closed weaker than this twice before... ever)


Emerging Market FX has really collapsed the last few days (Turkey surprisingly outperformed)...

The biggest 3-day drop since Aug 2018 to its lowest since May...


Cryptos had a mixed week - best gains since June for Bitcoin as Ether and Litecoin scrambled back to even...


Bitcoin surged back above $10,000 and extended gains...



Copper was crushed on the week but Gold outperformed as crude rebounded after its worst day in years...


In fact, Dr.Copper has collapsed to two year lows... what does the PhD economist commodity know?


Ugly week for crude...


Gold topped CNH10,000 for the first time since Feb 2013...


Gold reached a new record high against the pound sterling...


Soybeans were monkeyhammered (worst week since Aug 2018) to their lowest since May after Trump tariff headlines...


Finally, you are here...

It's different this time though - remember!

Different, because it's way more ridiculous (negative-yielding debt tops $14 trillion!!)

And gold and crypto appear to be where investors are going to hide from this policy-maker pandemonium!!

Published:8/2/2019 3:03:42 PM
[Markets] Dow Jones Undercuts This Key Support Level; These Growth Stocks Hold Up Better The Dow Jones Industrial Average, S&P; 500 and Nasdaq are all crossing below the 50-day moving average. A further big move down would be bearish. Published:8/2/2019 1:10:31 PM
[Markets] Jobs Report Highlights Risk Of U.S. Manufacturing Recession; Dow Jones Slides The U.S. economy added 164,000 jobs in July as the unemployment rate held at 3.7%, the Labor Department said Friday. Dow Jones futures pared losses. Published:8/2/2019 9:33:49 AM
[Markets] Nasdaq Dives As U.S. China Trade War Pressures Futures; July Hiring Tops Views Techs led futures lower Friday as HMS Holdings and Fortinet eyed buy points, Exxon propped the Dow, and investors waited on payrolls data and trade war news. Published:8/2/2019 8:31:23 AM
[Markets] Trump Ignored Mnuchin Advice To Give China Early Notice On New Tariffs

Earlier today we reported that contrary to the conventional wisdom that Trump blasted off his 1pm China tariff tweet - in which he singlehandedly ended the ceasefire between the US and China when he unveiled 10% tariffs on $300BN in Chinese imports starting September - on his own, instead a number of officials were in the room with President Trump as he drafted this Tweet, advising him on language. Among those: Treasury Secretary Mnuchin, Acting COS Mulvaney, trade advisor Navarro, and NEC Director Kudlow.

Now, we also learn that ahead of hitting send on his shocking tweet that sent stocks and bond yields plunging, there was also some discussion whether Trump should warn China in advance of blasting his decision to the entire world. However, according to Bloomberg, Trump ruled out giving Beijing advance notice of his intent to slap a new 10% tariff on $300 billion in Chinese goods in an Oval Office meeting before he announced the duties.

Citing "several people familiar with the discussion", Bloomberg reports that during the meeting, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer briefed Trump on their talks in Shanghai this week with their Chinese counterparts. While the White House called the talks “constructive” in a statement issued Wednesday, Trump concluded that the two U.S. officials actually came away with nothing.

Meanwhile, Mnuchin and Lighthizer knew the president was considering a new round of tariffs before they left for Shanghai, three of the people said. Trump has been unhappy about what the U.S. views as Chinese back-tracking on trade talks, and has recently said he believes Beijing may be trying to wait until after the presidential election in 2020 to conclude a deal.

In any case, fast forward to Thursday morning, and the meeting in the Oval Office which was reportedly "tense", and where Mnuchin recommended that the U.S. notify Beijing before Trump, but Trump refused suggesting that the trade hawks are now fully in charge of the situation in the White House. At the same time, acting Chief of Staff Mick Mulvaney talked through the market effects of increasing the China tariffs, Bloomberg sources reported.

Trump hit send on his tweets announcing the new tariffs at 1:26, while Mnuchin, Lighthizer, Mulvaney and others were still in the Oval Office.

* * *

Later in the day, Trump said he was not concerned about the drop in Dow stocks... for a good reason: it is Powell who should be concerned, because as the Fed chair, an escalating trade war is precisely one of the conditions that would prompt the FOMC to cut rates further, something which prompted us to predict earlier today that an escalation in trade war is imminent as Trump now knows precisely how to provoke the Fed into cutting further:

... if an acceleration in the trade war with China is what the Fed will need to cut more, it's pretty clear what that means for the chances of any trade deal between Washington and Beijing, since even Trump now understands that if he keeps escalating trade war with China, Powell will have no choice but to eventually cut to 0% (and lower).

A few hours later we were proven right.

Published:8/1/2019 5:57:50 PM
[Markets] Investing legend: The biggest risk facing the stock market is Donald Trump…losing Mark Mobius, the longtime Franklin Templeton fund manager who last year co-founded Mobius Capital Partners, has a stark warning for investors. Mobius, however, told CNBC on Thursday he believes it’s unlikely Trump will be a one-term president, considering his pro-business policies have helped support a stock market that’s already seen gains of more than 30% for both the S&P 500 (SPX)and the Dow Jones Industrial Average (DJIA)since the beginning of 2017. Published:8/1/2019 2:27:31 PM
[Markets] Escalation of trade war with China staggers stocks, with Dow down 200 points Escalation of trade war with China staggers stocks, with Dow down 200 points Published:8/1/2019 1:31:15 PM
[Markets] Stocks turn lower after Trump moves to put additional tariffs on Chinese imports Major U.S. stock indexes gave up gains to turn slightly lower after President Donald Trump announced on Twitter that he would impose a "small additional tariff" of 10% on $300 billion worth of Chinese imports beginning Sept. 1. The action doesn't apply to the $250 billion worth of goods already tariffed at 25%, Trump said. The Dow Jones Industrial Average fell nearly 140 points, or 0.5%, while the S&P 500 was also off 0.5% near 26,730. Published:8/1/2019 12:56:44 PM
[Markets] US STOCKS-Wall St rebounds on tech strength, eyes shift to earnings U.S. stocks rebounded on Thursday from a steep selloff in the prior session, boosted by technology shares, as investors shrugged off a cautious outlook from the Federal Reserve on interest rate cuts and focused on corporate earnings. The U.S. central bank reduced borrowing costs by a widely-expected quarter of a percentage point on Wednesday, but Fed Chairman Jerome Powell signaled a series of further cuts was unlikely, leading to a sharp selloff on the S&P 500 and Dow. Despite that, all three major indexes posted their second straight monthly gains in July, closing the book on a month in which the S&P 500 and the Nasdaq reached fresh record highs. Published:8/1/2019 12:30:35 PM
[Markets] Microsoft, Intel, Cisco, Apple, IBM powering triple-digit Dow bounce-back Microsoft, Intel, Cisco, Apple, IBM powering triple-digit Dow bounce-back Published:8/1/2019 9:57:22 AM
[Markets] Dow's tech stocks providing a 76-point boost, led by Microsoft The technology sector is providing the biggest boost to the Dow Jones Industrial Average , as all five of the index's biggest gainers Thursday are tech-sector members. Shares of Microsoft Corp. rallied 2.3% in morning trading Thursday, International Business Machines Corp. hiked up 2.0%, Intel Corp. rose 1.8%, Cisco Systems Inc. climbed 1.7% and Apple Inc. tacked on 1.7%. The stocks' price gains were adding about a combined 76 points to the Dow, which was up 192 points, or 0.7%, with 24 of 30 components gaining ground. The tech sector was the biggest gainer among the S&P 500's 11 key sectors, as the SPDR Technology Select Sector ETF rose 1.5%. Over the past three months, the tech ETF has gained 4.4% and the Dow has advanced 2.4%. Published:8/1/2019 9:57:21 AM
[Markets] Dow Jones, Nasdaq Lead Stock Market Rally; Hot IPO Stock Yeti Crumbles The tech-heavy Nasdaq led, the Dow Jones lagged the early stock market action Thursday. Hot IPO stock Yeti sold off after its quarterly earnings results. Published:8/1/2019 9:27:03 AM
[Markets] Peter Schiff: "Either [Powell] Is Lying, Or He's A Complete Idiot"


The Federal Reserve cut interest rates for the first time in over a decade Wednesday. And Jerome Powell left the door open for future cuts.

Peter Schiff broke it all down on his most recent podcast, saying this is the first interest rate cut on the short road to zero.

During his press conference after the FOMC meeting, Fed Chairman Jerome Power tried to straddle the fence. In the process, he ended up mixing his messages.

Powell called the 25 basis point cut a “mid-cycle adjustment.” When asked about future cuts, the Fed chair left that door propped open, saying “As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

About midway through the Q&A session, Powell said the Fed wasn’t embarking on a long rate-cutting cycle like it would during a recession. But then he backtracked and sounded a little more dovish later on.

Let me be clear: what I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that.”

Of course, when the Fed pivoted to the “Powell Pause” last December, most analysts weren’t expecting a rate cut down the road. And here we are.

Peter Schiff predicted all of this. During his podcast, Peter called this the first step on the road to zero. And he said it was going to be a pretty short road.

Powell claimed the Fed was cutting rates as an insurance policy to ensure problems in the global economy don’t spill over into a healthy US economy. Peter called this a load of BS.

Either he is lying, or he’s a complete idiot. And I tend to believe its the former. And the reason he is lying is because if he told the truth, he would scare the sh** out of the markets.”

Peter reiterated something he’s been saying all along — a 25-basis point cut isn’t going to cut it. To underscore this point, he noted that the Dow fell over 300 points after the announcement. But Peter said Powell was right when he said this wasn’t the beginning of a long easing cycle. That’s because it won’t take long to get to zero.

It doesn’t have a lot of ammunition to cut rates, and so I think we’ll get to zero relatively quickly. And we’ll stay there until the Fed completely loses control of this thing.”

Keep in mind the last two times the Fed started cutting rates a recession quickly followed.

Peter said he thinks the stock market will continue to trend downward until the Fed significantly softens the position that it took yesterday.

He reiterated that it’s clear Powell is lying about this just being a temporary measure in a good economy.

The fact that there was so much contradictory statements made by Powell during this conference, I mean, it’s obvious that he’s lying, he’s making up excuses because he’s trying to pretend the economy is great, but he’s cutting rates anyway. So, he’s trying to defend, really, a ridiculous story. He contradicts himself. If you’re being honest, it’s easy not to contradict yourself because you just tell the truth. But when you’re lying, you weave a very tangled web. One lie contradicts another lie because you can’t keep your story straight. And that is the position he was in.”

Listen to the whole podcast for more analysis on the Fed’s latest move and what may lie ahead.

Published:8/1/2019 7:33:58 AM
[Markets] Dow Jones Futures: Three Stock Market Lessons From Wednesday's Sell-Off; 5 Stocks Moving On Earnings Dow Jones futures: Wednesday's stock market action wasn't positive, but it teaches key lessons. Don't fight the Fed, focus on the real leaders and don't buy before earnings. Published:7/31/2019 5:51:29 PM
[Markets] Dow Jones Futures: Fed, Apple Teach Key Stock Market Lessons; 5 Stocks Moving On Earnings Dow Jones futures: Wednesday's stock market action wasn't positive, but it teaches key lessons. Don't fight the Fed, focus on the real leaders and don't buy before earnings. Published:7/31/2019 5:25:04 PM
[Markets] Dow sinks 330 points, leading a broad selloff following Fed interest-rate cut Dow sinks 330 points, leading a broad selloff following Fed interest-rate cut Published:7/31/2019 3:23:23 PM
[Markets] Dow drops over 300 points as Fed cuts but signals go-slow approach U.S. stocks tumbled Wednesday afternoon after the Federal Reserve cut interest rates, as expected, but indicated it was in no rush to deliver further easing. The Dow Jones Industrial Average lost about 325 points, or 1.2%, closing at about 26,882. The Dow was down nearly 500 points during Fed Chair Jerome Powell's afternoon press conference. The S&P 500 fell 30 points, 1%, and closed at 2,983. The Nasdaq closed at 8,182, lower by 93 points or 1.1%. One bright spot throughout the trading day was Apple Inc. , which closed more than 2% higher after a rosy earnings report on Tuesday afternoon. Published:7/31/2019 3:23:23 PM
[Markets] One And Done? A Stunned Wall Street Reacts To Powell

If one had to summarize Powell's press conference, in which he was so dazed and confused after facing a barrage of questions forcing him to explain just why he is cutting rates now when in the Fed's own words the US economy is doing great and "confidence is rebounding", and just what a mere 25bps "insurance" cut will achieve that it was painfully uncomfortable to watch, it was with the following two quotes:


... but


And as markets shook, stunned by Powell's revelation that today's rate cut was just a "mid-cycle adjustment", with the Dow Jones plunging briefly by over 400 points as hopes for an easing cycle were promptly dashed, Wall Street analysts sent out their hot takes of what Powell just did and said. Courtesy of Bloomberg here are some of the most notable responses, besides today's winner from Chris Rupkey of course:

Delores Rubin, a senior equity trader at Deutsche Bank Wealth Management

“The market was fine with the statement, but as seems to be the case, the press conference reveals details that do not sit well with the market. The response that this is a mid-cycle adjustment and not part of a longer term accommodative stance has raised concerns. The market has really talked itself into a need for lower rates. Obviously the FOMC still feels strongly the economy is resilient.”

Zhiwei Ren, Penn Mutual Asset Management portfolio manager.

“The market pricing is for 3 more cuts for the next one year. He is pushing back that market pricing. He says this is a mid-cycle rate cut, which means it is 1-2 cuts and done...he is not giving the market what it wants -- three cuts for next year. He basically said ‘At the beginning of the year, we were pricing a few hikes and turned patient -- no rate hike, no cut -- and now we’re cutting 25 bps. We think that’s accommodative enough.’ he didn’t say they need to cut more. That’s a big surprise to me and the market.”

Max Gokhman, the head of asset allocation for Pacific Life Fund Advisors.

“Two possible reasons. One is that the market thinks an ‘adjustment’ is a one-and-done thing. I doubt that’s the case, especially because there was also language in the statement about the ‘future path’ of rates being a subject of future data. To be clear, I’m not saying the market isn’t worried that it’s one-and-done -- that’s just not how I’m seeing it. The second reason is perhaps the market thinks that when Powell says “mid-cycle” he is giving credence to the (ahem) fact that business cycles have a beginning, middle and... END. Most likely the first reason is what moved prices though.”

Charlie Smith, founding partner and chief investment officer at Fort Pitt Capital Group in Pittsburgh.

“The catalyst for sell-on-the-news was that phrase. He made it explicit -- basically, that’s what that phrase means. An insurance cut implied ‘Hey, it’s just an insurance policy. It’s a one-time premium and we’re done.’ And then he made it explicit with that sentence and the market figured it out.”

Matt Maley, equity strategist at Miller Tabak + Co.

“His comment about an ‘adjustment’ probably means that those looking for an aggressive easing cycle over the next six to nine months are not going to see it. What it means is that there was a divergence between what investors were saying and what they were pricing in. Investors wanted Powell to say that he’s cutting, but they really wanted to see the Fed embarking on a rate-cutting cycle. The consensus belief on what the Fed would do was correct. It’s just that the markets pricing in an aggressive cycle of rate cuts were way off.”

And now, we wait for Trump to tweet his reaction to his demands for a rate cut... when what he got was a stock plunge and a dollar surge.

Published:7/31/2019 2:53:18 PM
[Markets] The Dow Dipped After the Fed Did Exactly What the Market Expected It to Do The Dow Jones Industrial Average is slipping after the Federal Reserve lowered interest rates by a quarter point and said it would stop reducing its securities holdings, ending the runoff of its balance sheet. Published:7/31/2019 1:53:53 PM
[Markets] Stocks turn negative after Fed decision to cut rates by quarter point U.S. stocks flipped from modest gains to losses Wednesday afternoon, following the release of a decision by the Federal Reserve's interest-rate setting committee to cut the federal funds rate by a quarter point to between 2% and 2.25%, while ending its plan to reduce its balance sheet through the sale of government bonds two months earlier than expected. The Dow Jones Industrial Average fell by 77 points or 0.3%, to 27,125 and the S&P 500 shed about 8 points, or 0.3% to 3,006. Meanwhile, the Nasdaq Composite index lost 12 points, or less than 0.1% to 8,265. Lower interest rates are typically bullish for stocks, as they compress the yield investors earn on bonds and other debt, making equity investments more attractive in comparison. They also are thought to stimulate economic activity by lower borrowing costs for households and corporations. However, investors were widely expecting a 0.25% cut and equity investors appear to be disappointed the Fed didn't lower interest rates by more than a quarter point, or clearly signal that further rate cuts were on the way. Investors will get more clarity regarding the path of future policy during a press conference with Federal Reserve Chairman Jerome Powell, set to begin at 2:30 p.m. Eastern Time. Published:7/31/2019 1:41:28 PM
[Markets] Apple Breaks Out Again, Leads Dow Jones Up; This Social Media Stock Crosses New Buy Point The Dow Jones Industrial Average and Nasdaq edged up quietly ahead of the Federal Reserve announcement. A NYSE-listed social media firm is outperforming. Published:7/31/2019 12:53:59 PM
[Markets] Apple Heads Dow Jones, Early Stock Gains; Markets Look Toward Fed Rate Vote Dow Jones stock Apple and Electronic Arts drove early gains Wednesday, but the Fed's rate news was the focal point for July's final trading session. Published:7/31/2019 8:51:05 AM
[Markets] GE's stock surges after profit and FCF beats, raised outlook Shares of General Electric Co. surged 2.3% in premarket trading Wednesday, after the industrial conglomerate reported a second-quarter adjusted profit and revenue that topped expectations and raised its full-year outlook, as strength in renewable energy helped offset continued weakness in the power business. GE swung to a net loss of $61 million, or 1 cent a share, from income of $615 million, or 7 cents a share, in the same period a year ago. Excluding non-recurring items, adjusted EPS came to 17 cents, above the FactSet consensus of 12 cents. Total revenue fell 1% from a year ago to $28.83 billion, above the FactSet consensus of $28.68 billion. Within GE's business segments, power revenue dropped 25% to $4.68 billion to miss the FactSet consensus of $5.84 billion, aviation revenue rose 5% to $7.88 billion, just below expectations of $7.91 billion, healthcare revenue declined 1% to $4.93 billion to miss expectations of $5.04 billion, oil and gas revenue grew 7% to $5.95 billion to beat expectations of $5.73 billion and renewable energy revenue climbed 26% to $3.63 billion to exceed expectations of $2.37 billion. Industrial free cash flows was a negative $1.0 billion, compared with expectations of negative $1.25 billion. For 2019, the company raised its guidance range for adjusted EPS to 55 cents to 65 cents from 50 cents to 60 cents and its free cash flow outlook to negative $1 billion to positive $1 billion from negative $2 billion to flat. The stock has soared 44.6% year to date through Tuesday, while the SPDR Industrial Select Sector ETF has climbed 22.2% and the Dow Jones Industrial Average has advanced 16.6%. Published:7/31/2019 5:52:20 AM
[Markets] Dow Still Underwater As Pfizer Stock Slammed; Will Apple Earnings Beat? The Dow Jones industrials and other major indexes stayed red in the stock market today as the Fed started its meeting and investors awaited Apple earnings. Published:7/30/2019 12:44:05 PM
[Markets] Tuesday kicks off with triple-digit Dow loss and 25 of 30 blue chips in the red Tuesday kicks off with triple-digit Dow loss and 25 of 30 blue chips in the red Published:7/30/2019 9:00:45 AM
[Markets] Case-Shiller Home Price Appreciation Slows For 14th Straight Month

US home price appreciation slowed for the 14th month in a row in May, rising only 2.39% YoY (below expectations), its weakest home price growth since Aug 2012...

“Though home price gains seem generally sustainable for the time being, there are significant variations between YOY rates of change in individual cities,” Philip Murphy, managing director and global head of index governance at S&P Dow Jones Indices, said in a release.

“Seattle’s home price index is now 1.2% lower than it was in May 2018, the first negative YOY change recorded in a major city in a number of years.”

Las Vegas, Phoenix and Tampa reported the highest year-over-year gains among the 20 cities; seven of the 20 cities reported greater annual price increases in May.

Finally, there is a potential silver lining - if history is any guide...

Lower rates may be set to drag home prices higher.

Published:7/30/2019 8:13:02 AM
[Markets] Here’s What Wrong With Dow, DuPont, and Corteva None of the three stocks have kept pace with the Dow Jones Industrial Average, but it’s now possible to calculate the cost basis for the shares. Published:7/30/2019 6:43:23 AM
[Markets] Merck shares climb 3.7% after earnings blow past estimates Merck & Co. Inc. shares jumped almost 5% in premarket trade Tuesday, after the drug company trounced earnings estimates for the second quarter and raised its guidance. Kenilworth, N.J.-based Merck said it had net income of $2.670 billion, or $1.03 a share, in the quarter, up from $1.707 billion, or 63 cents a share, in the year-earlier quarter. Adjusted per-share earnings came to $1.30, well ahead of the $1.16 FactSet consensus. Sales rose to $11.760 billion from $10.465 billion, also ahead of the FactSet consensus of $10.957 billion. Sales of the company's best-selling drug, the cancer therapy Keytruda, rose to $2.634 billion in the latest quarter from $1.667 billion a year ago, beating the FactSet consensus of $2.521 billion. The company said it was narrowing and raising its full-year guidance and now expects EPS of $3.78 to $3.88, adjusted EPS of $4.84 to $4.94 and revenue of $45.2 billion to $46.2 billion. Shares have gained 7.9% in 2019, while the S&P 500 has gained 20.5% and the Dow Jones Industrial Average has gained 16.7%. Published:7/30/2019 6:16:12 AM
[Markets] Dow Jones Futures: Beyond Meat Leads 5 Key Movers Late; Apple Earnings Loom Dow Jones futures: Beyond Meat stock dived late on mixed results and a share offering. RingCentral, Chegg rallied on earnings after closing in buy range. Apple earnings are on tap. Published:7/29/2019 5:08:59 PM
[Markets] The Dow Added 29 Points Because the Market Already Knows the Fed Will Cut Rates on Wednesday U.S. stocks saw mixed results on Monday. The Dow finished with gains, but the S&P 500 and the Nasdaq Composite ended in the red. Macro factors are overshadowing the market in a week that the Fed is widely expected to cut interest rates. Published:7/29/2019 4:45:49 PM
[Markets] Bonds & Bullion Bid But Stocks Slide As Firms Slash Earnings Outlooks

A quiet day for sure but the trends remain - dollar and gold higher together, bond yields fading, and stocks clinging near record highs...

Powell better not let the world down!!

Chinese stocks trod water overnight...

UK's FTSE exploded higher as the pound plunged, Italy underperformed in Europe but the rest of the majors were flat...


And a mixed bag in US stocks too with The Dow clinging to some semblance of positivity as Small Caps and Nasdaq underperformed...


FANG Stocks erased Friday's gains...


It's Beyond Meat's earnings tonight - make or break time for shorts who are paying 144% borrow...


The S&P continues to dramatically outperform the broadest US equity index - not exactly what one would hope for in a broad-based re-acceleration in growth...


Treasuries were bid after Europe closed and ended lower in yields on the day (but traded in a very narrow range)...


30Y Yields erased the losses from Draghi's disappointment...


The dollar rallied once again - nearing its highest since May 2017...


Cable was clubbed like a baby seal today as no-deal expectations ramp up...


Cryptos had a flash-crashy like move overnight but recovered from that - although they remain lower from Friday...

With Bitcoin holding back below $10,000...


Despite dollar gains, commodities managed gains with Crude and Copper leading but PMs rallying towards the US close...


Gold spiked up to pre-Draghi levels...


Oil was volatile intraday testing below $56 and up to $57...


Gold in Yuan jumped up to recent resistance...


And gold in Sterling is very close to a record high...


Finally, there's this... While the S&P 500 is up 20% YTD, earnings expectations for the next 24 months has slumped...

As 60% of companies have cut Q3 EPS expectations in recent weeks...

Will traders sell the Fed news?

Published:7/29/2019 3:11:44 PM
[Markets] Dow ekes out gain as stocks close little-changed ahead of Fed meeting Dow ekes out gain as stocks close little-changed ahead of Fed meeting Published:7/29/2019 3:11:44 PM
[Markets] Dow Jones Beats Nasdaq As This FAANG Stock Retakes A Subtle Buy Point The Dow Jones Industrial Average rose mildly Monday, helped by gains in Apple and several other components in the blue chip gauge. Apple is in buy range. Published:7/29/2019 11:39:51 AM
[Markets] Dow Jones Industrial Average Bucks Drop In Tech Stocks, Nasdaq Sinks; Chipotle Surges Growth stocks fell hard in the first hour of trading in the stock market today. Blue chips in the Dow Jones Industrial Average remained flat. Published:7/29/2019 9:38:55 AM
[Markets] Markets Coiled Ahead Of "Most Important Week Of The Year"

For what has been widely accepted as "the most important week for markets of 2019", the market sure is taking its time to get excited, with overnight volumes subdued and global shares easing modestly on Monday with US equity futures hugging the unchanged line as the dollar shit a two-month high against a basket of currencies as markets began the 2-day countdown to a guaranteed rate cut in the US on Wednesday, with much riding on whether the Federal Reserve cuts 25 or 50bps and signals more cuts are to come.

Interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday, with a tiny chance of a half-point move.  As such any hawkish surprise by the Fed threatens to crash risk assets, something which Powell is now terrified of doing after the late 2018 near bear market. More important will be what the central bank flags for the future, given the market implies 100 basis points of easing over the next year or so. “The market has fully baked in a 25 basis point cut,” Eugenia Victorino, SEB head of Asia strategy, said on Bloomberg TV.

“The week is off to a mixed start which isn’t wholly surprising given just how much investors have to follow in what is typically a peaceful time of year,” said Craig Erlam, senior market analyst at OANDA. “There’s no summer lulls just yet, with the Fed about to embark on an easing cycle, the BoE (Bank of England) offering its first assessment since Boris Johnson became PM, a third of S&P 500 and a quarter of Dow companies reporting second quarter earnings, the US jobs report being released and trade talks restarting between the US and China. As ever, this is almost entirely spread over four days so today may be the calm before the storm.”

MSCI’s All Country World Index of stocks, down by as much as 0.2% on the day, erased some losses to trade 0.05% lower.

After initially opening lower, European shares moved into positive territory thanks to a surge for the U.K index after the London Stock Exchange Group’s investors backed its proposed $27 billion deal to acquire Refinitiv. Generic drugmaker Mylan NV surged and Pfizer was slightly higher in premarket trading after the companies announced plans to merge their off-patent drug businesses. Deutsche Telekom rose the most in almost 10 months after the U.S. Justice Department gave the green light for its T-Mobile US unit to acquire Sprint Corp. Automakers in Europe lagged as major carmakers prepare to report results this week, while Heineken NV shares fell after the brewer reported a hit to earnings growth. On the other side, the Stoxx 600 Automobiles & Parts Index (SXAP) fell as much as 1.2%, making it the worst performer on the broader Stoxx Europe 600. Both car and parts manufacturers dropped, dragging down the sub- index to its third consecutive day of decline. Robert Bosch GmbH warned of a 5% decline in automotive production this year, echoing Continental’s forecast last week. The sector’s retreat comes after a three-day winning streak last week when investors focused on good news.

In addition to the Fed, the other key event is the restart of US-China trade talks: negotiators from Washington and Beijing will meet in Shanghai this week for their first in-person talks since a G20 truce last month, but expectations are low for a breakthrough. Data on the weekend showed profits earned by China’s industrial firms contracted in June, fuelling concerns that the trade war will drag on economic growth. “The markets are now pricing in a protracted negotiation” on trade, said Victorino. “We don’t expect much breakthrough.”

“We remain cautiously optimistic that both sides can agree on a narrow agreement that addresses important trade-related issues, such as U.S. demands to increase exports,” said analysts at Barclays in a note. “That said, we are skeptical about the prospects of a broader agreement that includes the more challenging security-related issues.”

In Asia, MSCI’s broadest index of Asia-Pacific shares was half a percent lower as hopes for progress at U.S.-China trade talks failed to offset worries over Korean corporate earnings and civil unrest in Hong Kong. Most markets in the region were down, with South Korea’s Kospi Index declining 1.8% and Hong Kong’s Hang Seng Index falling 1%. South Korea is already North Asia’s worst performer this year, and its slump continued Monday due to a weaker earnings outlook. Hong Kong, where several demonstrations happened during the weekend, pared losses in late afternoon as China reiterated “one country, two systems” in the city. Other than regional issues, two days of trade talks between the U.S. and China remained the key event investors are watching closely this week. While it will mark the two countries’ first important meeting since the G-20 summit in Osaka, mixed signals and news indicated that neither side is showing an urge to compromise. READ: U.S.-China Talks Set to Resume as Neither Seems Eager for a Deal Australia’s benchmark closed at 6,825.8, near previous record close of 6,828.705 set Nov. 1, 2007. Thailand’s market is closed for a holiday.

In geopolitical news, thousands of Hong Kong protesters clashed with police over the weekend in which dozens were arrested as protests regarding the extradition bill continued. In response, China’s Hong Kong Affairs Office says no one should sit by and allow a few individuals to trample on the rule of law, and the central Government firmly support Chief Executive of Hong Kong Carrie Lam and the Hong Kong police.

Elsewhere, Iranian Official Araqchi said emergency meeting with parties related to 2015 nuclear deal was constructive and unresolved issues remain, while he added Iran will continue to reduce its nuclear commitments if the EU cannot save the deal. Iran Vice President says Iran's foreign policy is to protect multilateralism and confront US hegemony.

In FX, the dollar index - which measures the greenback against a basket of peers - was higher by 0.1% and at its highest since May 31. A stronger-than-expected U.S. GDP report on Friday gave the dollar wings, as it led some investors to doubt whether the Fed will continue easing this year after its Wednesday meeting. Elsewhere in currencies, sterling fell to a fresh 27-month low around $1.2325 amid reports the government of Prime Minister Boris Johnson was preparing the ground for a “no-deal” Brexit.

In the latest Brexit news, UK Cabinet Minister Gove stated the government will make intensive efforts to get a better Brexit deal, but added we must operate on assumption we will not and that there will be a no-deal Brexit which we must be ready for. Further reports suggest that PM Johnson is to launch the largest advertising campaign since WW2 to get Britain ready for a no-deal Brexit, with an unprecedented marketing blitz on billboards, radio and television. FT reports that UK chancellor of the exchequer, Sajid Javid, is preparing to announce more than GBP 1bln in increased funding for a no-deal Brexit, according to people familiar with the matter. Institute for Government (IfG) has warned that there is no such thing as a managed no deal, and that predictions of a clean break from the EU made by hard Brexiteers will not occur.

In bonds, euro zone bond yields dipped as jittery investors eyed more U.S.-China trade talks and waited for a likely U.S. Federal Reserve interest rate cut, after the European Central Bank’s dovish signaling last week disappointed some. The benchmark German 10-year Bund yield fell more than 1 basis point to -0.3910%, not far from the record low of -0.422% touched last week.

In commodities, oil prices fell as investors fretted over the outlook for global economic growth, while weekend talks between Iran and major powers ended on a generally positive note, suggesting an easing of tensions in the Middle East.Brent crude futures eased 0.74% to $62.99, while U.S. crude lost 0.34% to $56.01 a barrel. Spot gold was flat at $1,418.13 per ounce.

Today's economic data include the Dallas Fed Manufacturing Outlook. Scheduled earnings include Booz Allen Hamilton and J&J Snack Foods Corp.

Market Snapshot

  • S&P 500 futures little changed at 3,023.50
  • STOXX Europe 600 up 0.2% to 391.58
  • MXAP down 0.4% to 159.40
  • MXAPJ down 0.5% to 523.58
  • Nikkei down 0.2% to 21,616.80
  • Topix down 0.2% to 1,568.57
  • Hang Seng Index down 1% to 28,106.41
  • Shanghai Composite down 0.1% to 2,941.01
  • Sensex down 0.6% to 37,664.74
  • Australia S&P/ASX 200 up 0.5% to 6,825.80
  • Kospi down 1.8% to 2,029.48
  • German 10Y yield fell 1.7 bps to -0.393%
  • Euro down 0.09% to $1.1118
  • Italian 10Y yield rose 4.8 bps to 1.214%
  • Spanish 10Y yield fell 3.2 bps to 0.34%
  • Brent Futures down 0.3% to $63.29/bbl
  • Gold spot little changed at $1,419.19
  • U.S. Dollar Index up 0.1% to 98.06

Top Overnight News from Bloomberg

  • China’s economy continued to weaken in July, bolstering the case for greater policy support to shore up growth as talks over the trade dispute with the U.S. continue
  • ECB President Mario Draghi didn’t pull his punches when he said the economic outlook is getting “worse and worse”; this week, he’ll get more insight into how bad it really is out there
  • Mylan Co.’s EU1b 2024 euro notes surge 4.6 cents to 108.1 cents, the biggest daily increase on record, after reports that Pfizer plans to combine its off- patent drug business with Mylan
  • Almost three months after their trade talks broke down in acrimony, Chinese and American negotiators meet again in Shanghai this week amid tempered expectations for breakthroughs in their year-long trade war
  • U.K. Prime Minister Boris Johnson’s high-level Brexit cabinet holds its first meeting Monday, and will gather every day to ensure the country leaves the European Union on Oct. 31
  • Former Fed Chair Janet Yellen says she would have supported a 25bps interest cut at the FOMC meeting this week, because of global economic growth slowdown and low inflation, the Wall Street Journal reported, citing her speech in Aspen, Colorado
  • Oil traded near $56 a barrel as the U.K. deployed a warship to the Strait of Hormuz to help escort commercial ships, while U.S.-China trade talks are set to resume amid little expectations for a breakthrough
  • The Treasury Department is expected to hold its quarterly note and bond sales at record levels for the third straight time as Washington’s latest budget deal shows that the U.S.’s debt binge will continue
  • China’s top office for Hong Kong affairs plans a briefing on the city’s unrest, after a weekend of demonstrations

Asian equity markets began the week tentative as the upcoming slew of key risk events such as the resumption of US-China trade talks, heavy central bank activity including the FOMC and the latest US NFP jobs data, clouded over last Friday’s record highs on Wall St where tech earnings and better than expected US GDP underpinned stocks. As such, ASX 200 (+0.5%) and Nikkei 225 (-0.2%) were mixed with tech and telecoms front-running the gains in Australia to push the benchmark index to record all-time high, while Tokyo sentiment was subdued by a firmer currency and with earnings in focus. Hang Seng (-1.0%) and Shanghai Comp. (-0.1%) weakened amid modest expectations regarding the US-China trade talks in Shanghai this week and following a decline in Chinese Industrial Profits, with underperformance in Hong Kong after violent clashes over the weekend in protests that entered an 8th consecutive week. Finally, 10yr JGBs traded flat despite the weakness in Tokyo stocks, with demand for bonds subdued as participants were sidelined ahead of tomorrow’s BoJ policy announcement in which it is expected to maintain its policy settings of QQE with YCC control and NIRP at -0.10%. PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.8821 (Prev. 6.8796)

Top Asian News

  • India’s Finance Minister Seeks ‘Significant’ Rate Cuts from RBI
  • In Latest China Bank Rescue, Authorities Avoid a Takeover
  • Jack Ma’s $290 Billion Loan Machine Is Changing Chinese Banking
  • Swissport Plans to Refinance Outstanding Debt
  • Activist Calls on U.S. to Stop Selling Tear Gas to Hong Kong

European indices have largely started the week off mixed/flat [Stoxx 50 unch], though the FTSE 100 (+1.1%) is outperforming as sterling has continued to move lower throughout the session. Sectors are similarly mixed with some underperformance in the Auto sector, with auto names down in sympathy with Peugeot/PSA Group (-2.6%) afflicted by reports that the Co. are to move all production from their UK, Ellesmere Port to mainland Europe in the event that Brexit makes the plant unprofitable. Other notable movers include, Just Eat (+24.1%) and LSE (+14.9%) who are at the top of the Stoxx 600 and FTSE 100 after the confirmation of takeover discussions with and sources indicating that the merger with Refinitiv is to be finalised within a week respectively. In contrast, at the bottom of the Stoxx 600 are Heineken (-5.3%) after the Co. reported operating profits of EUR 1.78bln vs. Exp. EUR 1.90bln for H1, though consolidated beer volume increased by 3.1% for the period. Finally, Novartis (-1.4%) are lower after the Co’s Paragon study just missed the statistical significance levels on its primary endpoints. Pfizer (PFE) is expected to announce that they will combine their off-patent drug business with Mylan (MYL) resulting in a market value of around USD 9.5bln.

Top European News

  • LSE Soars on Bet $27 Billion Refinitiv Bid Will Boost Bourse
  • U.K. Starts No-Deal Brexit Meetings as It’s Now a Real Prospect
  • Sports Direct Falls as Shock Tax Bill Deepens Governance Worries
  • Rightmove Results Mask Worrying Trend as Agents Leave: Berenberg

In FX, another day of mild gains for the broad Dollar and index in a continuation from Friday’s GDP-induced momentum and ahead of an action packed week for the Buck, which will see the currency tackle US-China trade talks in Shanghai, the FOMC’s latest monetary policy decision, US ISM and jobs data. DXY gains more ground above 98.00 having eclipsed last week’s high (98.09) ahead of the YTD high at 98.37, meanwhile today’s docket sees a lack of Tier 1 data and no notable scheduled speakers (with the Fed on blackout until Wednesday evening)

  • GBP, EUR, JPY - The Pound has succumbed to further Brexit angst and has given up the psychological 1.2350 mark to the downside, with the move lower coinciding with usual punchy language from UK’s newly appointed Foreign Minister Raab, who reiterated hard lines on Brexit negotiations. As the prospect of a no-deal exit intensified, some desks are observing the declining GBP/USD 3-month risk reversals, which indicate that options skewing leans more towards Sterling weakness in the near-term. Cable has fallen to fresh 2yr lows and currently hovers just under 1.2325 with little by way of immediate tech levels to the downside. Elsewhere, the rising EUR/GBP cross has somewhat cushioned the single currency from Dollar headwinds, with EUR/GBP gaining further tractions above the 0.9000 level. Meanwhile, EUR/USD sees a cluster of options around 1.1100-10 (800mln) and 1.1135-50 (800mln) ahead of today’s NY cut. USD/JPY action is largely dictated by the Dollar ahead of this week’s key risk events and with the BoJ set to publish its latest monetary policy decision overnight. USD/JPY trades closer to the top of a 108.42-70 intraday range with 1bln in options expiring at strikes 108.95-109.05.
  • AUD, NZD - The antipodeans are somewhat resilient to an extent against the firmer Dollar and remain in tight intraday parameters following last week’s losses. Participants are keeping a close eye on US-Sino trade developments as delegates convene in Shanghai in an attempt to restart talks where it was left off, although officials from US have downplayed expectations of a breakthrough. AUD/USD currently trades a whisker away from 0.6900, with the next support level to the downside highlighted at 0.6890 ahead of the psychological 0.6850 while NZD/USD keeps its head above 0.6600.
  • TRY - Further gains for the Lira in the aftermath of the CBRT’s deeper-than-forecast rate cut as the prospect of a normalising economy seemingly materialises. Analysts at SocGen also speculate that yield-seekers may be bypassing G10 currencies and instead chasing EM yields. USD/TRY trades around 5.6370 and nearest to the bottom of a 5.6240-6710 parameter

In commodities, WTI and Brent are also posting a relatively subdued start to the week, with prices little changed though they have regained the USD 56.00/bbl and USD 63.00/bbl levels to the upside respectively after a brief dip in the complex took them below these levels this morning. Some are attributing this dip to comments from Iran referring to emergency talks on a nuclear agreement as ‘constructive’ which may indicate a easing of tensions in the region which; though the dip was short-lived as there is no sign of respite for UK-Iranian tensions as a second UK warship arrives in the Gulf after Iran seized a UK tanker last week. On the complex, PVM notes that due to the lack of a convincing bullish move on Friday, WTI still has a viable objective to the downside as such a move below near-term support levels in todays session would be sufficient to move the complex lower. In terms of metals, Gold (U/C) is unchanged but towards the bottom of the days range on a lack of catalysts thus far ahead of this weeks aforementioned risk events, similarly copper prices are little changed on the lacklustre risk sentiment.

US Event Calendar

  • 10:30am: Dallas Fed Manf. Activity, est. -5, prior -12.1

DB's Jim Reid concludes the overnight wrap

Welcome to the last few days of July, and a very important FOMC at month-end on Wednesday. If you’ve spent the weekend castigating your children for playing endless rounds of video games bear in mind that a packed Flushing Meadows in New York witnessed the Fortnite World Cup this weekend with the 16 year old winner taking home $3M. Indeed a British 15 year old boy took home $1.125m for finishing second in the pairs competition. To put things in perspective the Tour De France winner yesterday earned €450k in prize money after three weeks and a lifetime of pain and self denial. It really makes me wish I’d have progressed from being satisfied at getting an unbeatable world record in the Javelin on Daley Thompson’s Decathlon 30 years ago on the ZX Spectrum. With a bit more concentration on that and less on school work I could have been someone!

The FED will take care of the main market joystick this week and it’s hard to look past Wednesday’s FOMC conclusion when looking for the highlight of the week - if not the entire summer. Before we preview what will almost certainly be the first cut since 2008, the other main events are as follows. Staying with central banks the BoJ (Tuesday) and BoE (Thursday) sandwich the Fed this week with the no direct policy changes expected but with pressure on both to turn more dovish. The other blockbuster moment is the US jobs report (Friday) after a strong report last month dispelled some fears from previous months. Q2 Euro Area GDP (Wednesday) and the global manufacturing PMIs/ US ISM (Thursday) are the rest of the main data highlights. As all this occurs, we’ll see the resumption of US-China trade talks as the US delegation flies into China today, along with further earnings releases as 168 S&P 500 companies report.

Returning to the Fed, although a 25bps rate cut has been pretty much fully priced in, there is still a chance (or maybe a hope from many in the market) that it will be 50bps even if the Fed have done little to encourage such an assumption. Even to the point that when NY Fed President Williams perhaps did 11 days ago in a speech, the NY Fed took the unusual step of putting out a statement a few hours later downplaying any signalling.

DB’s US economists are expecting a 25bp cut, before further cuts in September and December. Powell’s press conference will be key to how much the committee signals further cuts though. The domestic data has held up ok recently so it will be a hard balance to out dove a market baying for stimulus. Maybe the ECB meeting last week serves as a warning on this front. I suspect we won’t know too much about what they’ll do next as they’ll keep maximum optionality and data dependency. It’s worth reminding readers that as we embark on a 19th Fed easing cycle since the 1950s, 9 have not been able to prevent the US economy moving into an imminent recession (see full report from our asset allocation team last week here ).

Turning to politics, this week will see the resumption of trade talks between the US and China, with the US team, including Trade Representative Lighthizer and Treasury Secretary Mnuchin, travelling to Shanghai today to meet their Chinese counterparts, with discussions starting tomorrow. Sticking with politics, this week will see the second round of the Democratic primary debates for the 2020 Presidential election, with the two debates taking place on Tuesday and Wednesday night. Meanwhile in the UK, there’ll be a parliamentary by-election on Thursday in the Welsh constituency of Brecon and Radnorshire which could easily reduce Boris Johnson’s majority to two (even including the DUP). The full day by day week ahead is at the end as usual for a Monday.

Asian markets have started the week on the back foot with the Hang Seng (-1.20%) and Kospi (-1.46%) leading declines. For the former the continued local protests, which started over the proposed extradition bill to China, are weighing while for the latter, weak earnings seem to be the issue. The Nikkei (-0.39%) and Shanghai Comp (-0.14%) are also seeing relatively modest declines. Elsewhere, futures on the S&P 500 are down -0.10% and the Chinese onshore yuan is trading -0.18% this morning at 6.8928. In terms of overnight data releases, Japan’s June retail sales came in at +0.5% yoy (vs. +0.2% yoy expected) with the previous month revised up by one-tenth to +1.2% yoy.

Staying with Asia, Bloomberg has reported overnight that three Chinese state-owned financial heavyweights, including Industrial & Commercial Bank of China Ltd., agreed to buy at least 17% of Hong Kong-listed Bank of Jinzhou Co. on Sunday. Bank of Jinzhou’s fate, which has been facing liquidity issues, has been a focus since China unexpectedly seized control of Baoshang Bank, earlier in May. Elsewhere, Bloomberg reported over the weekend that several Chinese companies have been approved to buy certain US farm goods tariff free.

Meanwhile here in the UK, PM Boris Johnson’s high-level Brexit cabinet will hold its first meeting today and will gather every day to ensure the country leaves the EU on October 31. Today’s meeting will be led by Michael Gove and he wrote in the Sunday Times that unless the EU agrees to re-open negotiations, “No deal is now a very real prospect, and we must make sure we are ready.” Sterling is trading -0.15% this morning at 1.2366. In other news, Turkey’s President Erdogan said after last week’s interest rate cut by the country’s central bank that, “This was what needed to be done,” while adding, “Even this cut is not enough. Cuts may continue gradually until year-end.”

Last week’s price action was dominated by the trend of US economic outperformance relative to the rest of the world. That trend was emphasized by the strong US GDP report on Friday, which showed a 4.3% expansion in consumption spending, though investment did subtract around 0.1pp from the headline GDP growth print of 2.9%. Net exports and inventories also dragged. That contrasts with Europe, where manufacturing PMIs were worse than expected and President Draghi failed deliver a comprehensively dovish message at the ECB’s press conference after what initially seemed a very dovish statement. There’s little doubt that major ECB easing is coming but it seems there remain a few hurdles in getting council agreement.

This divergence was evident in markets as well, with the euro weakening -0.85% versus the dollar (-0.19% on Friday) and bund yields falling -5.2bps (-1.3bps Friday) compared to a +1.5bps increase in treasury yields (-1.1bps Friday). US equities outperformed, with the S&P 500 and NASDAQ rallying +1.65% and +2.26% (+0.74% and +1.11% Friday) respectively, to both close at fresh all-time highs. The DOW gained a more modest +0.14% (+0.19%) as a few corporate earnings, especially Boeing (-8.57% on the week), weighed on the price-weighted index. However, overall, earnings reports were generally positive, with Alphabet (+10.05%), Texas Instruments (+9.30%), and UPS (+16.76%) some obvious highlights. In aggregate, S&P 500 earnings are beating consensus expectations by +5.3%, which is better than the historical average of around 3.4%. In Europe, the STOXX index gained +0.90% (+0.31% Friday) on the week, while the MSCI EM index fell -0.37% (+0.21% Friday).

In other markets, credit rallied in both the US and Europe, with indexes of cash HY spreads tighter by -13.5bps and -18.5bps in the US and Europe, respectively (-3bps and -1bps on Friday). As mentioned the fallout from the ECB’s policy meeting where they signalled imminent easing was mixed, and peripheral spreads to bunds widened by +1.4bps in Italy (+6.3bps Friday) and +3.7bps in Spain (+2.9bps Friday) with politics in both countries providing additional noise. On the other hand, inflation expectations rose, with the 5y5y inflation swap rate up +4.4bps (+3.9bps Friday) to its highest level in eleven weeks and around 20bps higher than pre-Sintra levels. Volatility remains subdued, with the VIX back down -2.3pts (-0.6pts Friday) to 12.16, right around its lowest level in a year.

Published:7/29/2019 7:08:00 AM
[Markets] Mylan CEO Heather Bresch to retire after deal to merge with Pfizer's Upjohn closes Mylan N.V. said that in connection with the deal to merge with Pfizer Inc.'s Upjohn business announced Monday, Chief Executive Heather Bresch will retire, after more than 8 years in the role and 28 years at the company. The retirement will be effective when the deal closes, which is expected in mid-2020. Bresch has been CEO since Jan. 1, 2012, after joining Mylan in January 1992. "So, as the company sets out on this exciting new journey, I too will be beginning a new chapter that will continue to be focused on serving people, patients and public health," Bresch wrote in a letter to employees. The stock soared 19% in premarket trading after the deal was announced and second-quarter earnings were reported. The stock has tumbled 49% over the past 12 months, while the SPDR S&P Pharmaceuticals ETF has lost 17% and the Dow Jones Industrial Average has gained 6.8%. Published:7/29/2019 6:38:01 AM
[Markets] Dow Jones Futures: Can Fed Rate Cut, China Trade News, Earnings Drive Stock Market Rally Higher? Apple, AMD, Shopify On Tap Dow Jones futures: China trade news, Fed rate cut hopes and strong earnings have fueled the stock market rally. But is the good news priced in? Published:7/28/2019 5:42:20 PM
[Markets] Dow Jones Closes Week Bullishly, 2,512 Points Above June Low; 4 Growth Stocks Lead The Market Last week's losses got recouped this week and more by key indexes as well as the Dow Jones Industrial Average. Growth stocks showed bullish leadership. Published:7/26/2019 3:54:04 PM
[Markets] Stocks Soar To Record Highs As Corporate Profits Hit 8 Year Lows

GDP beat, record high stocks, tumbling VIX... but corporate profits are weakest since 2011, global bond yields are at record lows, and delinquencies are on the rise... Still , forget all that, it's all Powell baby!!


Chinese stocks managed gains on the week thanks to a big buying panic Tues/Weds


European stocks ended the week green, thanks to a bounce today after yesterday's Draghi-driven dump...


The Nasdaq and S&P both reached new record highs as The Dow flatlined on the week...


Let's hope Powell delivers because global liquidity is starting to diverge again...


Alphabet's outsized gains led Nasdaq to new record highs


Oh and while we are talking about GOOGL...


FANG stocks were up on the week, retracing about half of last week's NFLX losses...


BYND is insane!


Today's gains were dominated by defensives...


"Most Shorted" stocks ended the week unchanged...


VIX dumped back towards an 11 handle today but on the week, HY spreads really collapsed relative to IG...


Bonds and stocks continue to diverge ahead of next week's FOMC...


Treasury yields were higher on the week, mainly driven by Draghi's disappointment (with barely any reaction on GDP)...


10Y Yields spiked up to pre-FOMC levels but twice tested 2.10% and faded...


The market's expectation of what The Fed will do in 2019 tightened quite significantly this week...

With a 17.5% chance of a 50bps cut next week...


Despite all the talk about weak dollar policies and sources claiming WH discussions, the dollar spiked back to 6-week highs around the pre-FOMC levels...


Yuan ended the week unchanged...


Mixed picture in cryptos this week with Bitcoin worst and Bitcoin Cash best...


Bitcoin is down for the 3rd week in a row and closed the week below $10k...


And just in case you think Bitcoin is in another bubble... "that's not a bubble, this is a bubble"


Ugly week for Dr.Copper and a down week for gold as silver outperformed...


What is Dr.Copper telling us?


After a 10-day run of silver outperformance, gold has gained more than silver in the last two days...


Hedge funds have held a net-long position in Gold since April, and the options markets registered a bullish skew for 48 sessions -- the longest run since 2009.


Finally, with stocks spiking to new record highs ahead of next week's FOMC meeting, we note that today's historical GDP data revisions indicate that revised numbers of corporate profits show that operating profits peaked in Q3 2014 and have been moving sideways ever since... dipping to the lowest since 2011.

Operating profits in the GDP accounts and S&P 500 operating profits over the long run track fairly close to one another, although there can be large differences in any given year... and they don't tend to end well.

Like in 2007...

And in 2000...

Allocate accordingly!

Published:7/26/2019 3:24:00 PM
[Markets] Dow Stock Is ‘Stuck in Neutral.’ Blame the Economy. (DOW)’s chemicals businesses are “stuck in neutral,” given prospects for demand and global production, Bank of America Merrill Lynch said Friday, disclosing a downgrade of the stock to Neutral from Buy. “With the macro [economic environment] still soft and supply adequate, we believe pressure on Dow’s profitability is likely to remain well into first half of 2020,” Steve Byrne, an analyst at the bank, wrote in a Friday research report. The chemicals companies in the S&P 500 have started to lag behind the market, rising less than 1% so far this month, compared with the benchmark’s 2.9% gain and the 2.2% move in the Dow Jones Industrial Average. Published:7/26/2019 1:21:27 PM
[Markets] Amazon extends streak of not buying back its stock to over 7 years Inc. has extended its streak of not buying back its stock to over seven years, according to the e-commerce and cloud giant's latest 10-Q filing with the Securities and Exchange Commission. Amazon said it still has a $5 billion share repurchase program in place, since February 2016, with no expiration date. But the last time Amazon repurchased shares was the first quarter of 2016, when it paid $960 million to buy back 5.3 million shares, according to filings. Amazon had 494,656,015 shares outstanding as of July 17, according to the 10-Q, compared with 492,331,776 shares outstanding three months ago. Amazon's stock, which fell 1.5% in midday trading, has rallied 29.4% year to date, while the Dow Jones Industrial Average has gained 16.4%. Published:7/26/2019 10:51:04 AM
[Markets] Dow Jones Sinks Less Than Nasdaq; Will These 3 Growth Stocks Soar On Earnings? The Dow Jones Industrial Average got hobbled by a sell-off in Boeing but still fell less than the Nasdaq. Watch Twitter, Square and Sleep Number stocks. Published:7/25/2019 3:47:36 PM
[Markets] Tesla Tumbles, Boeing Battered, Stocks & Bonds Dump On Draghi Disappointment

Steve Ballmer mimics the excitement in the room ahead of Draghi's press conference...

But the euro shows the post-Draghi disappointment nothing-burger...

German Bund yields spiked as Draghi began speaking but buyers came back in after he finished with yields ending just 1bps higher on the day (after making a new record low)...

And the entire Swiss yield curve - out to 50Y - is now negative...


Chinese stocks lifted overnight with tech-heavy ChiNext outperforming...


US Small Caps were the day's biggest loser (after being yesterday's big winner).. weak close


"Most Shorted" stocks plunged by their most since May 13th...


S&P tested back below 3,000 intraday but was bid each time...


Dow Futures pushed down to 2-week lows...


Tesla was monkeyhammered 15% lower...


Boeing puked...


Facebook was FUBAR (after tagging record highs immediately after earnings)...


But BYND is beyond belief...

With a massive $875 mm (44.75% of float) short...


VIX mini flash-crashed to an 11 handle ahead of the bell as Draghi spoke but pushed back above 13 as stocks sank...


Which is notable since VIX calls have been aggressively bought...


HY Credit risk compressed on the day - despite the broader derisking, but VIX and IG risk increased...


Treasury yields jerked higher on Draghi's disappointment today (up 3-4bps across the curve)...


10Y Yields spiked intraday from 2.00% to 2.10% before leaking a little lower...


The Dollar Index ended higher, despite the roundtrip on the EUR...


Bitcoin and Ethereum managed gains on the day but broadly speaking, Cryptos are lower on the week...


Bitcoin spent the day hovering around $10,000...


Commodities all drifted lower during the US day session...


Gold modestly outperformed silver for the first time in 10 days...


Finally, The Fed better cut now that The ECB has waited... USD liquidity measures are screaming for some help...

Published:7/25/2019 3:17:13 PM
[Markets] Late in the day, the Dow and Nasdaq are on track for their worst day in 4 weeks Late in the day, the Dow and Nasdaq are on track for their worst day in 4 weeks Published:7/25/2019 2:50:20 PM
[Markets] "The Downturn Could Be Particularly Brutal" - 'First' Fed Cuts Are Not Bullish

Authored by Kevin Ludolph via Crescat Capital,

Crescat Capital Quarterly Investor Letter Q2

We believe there is an opportunity to capitalize on a material downturn in the business cycle based on the composite of timing and imbalance indicators in Crescat’s 16-factor macro model.

US Equity Markets

The downturn could be particularly brutal for US stocks because we are record late in a fading economic expansion and at historical high valuations relative to underlying fundamentals across a broad composite of eight measures that we follow at Crescat.

We hear two opposing valuation arguments from bulls today:

1. P/E ratios are reasonable; and

2. Valuations remain attractive relative to interest rates.

Let’s address them both.

First off, P/Es often appear reasonable at business cycle peaks because that’s when earnings are their strongest. For instance, back in mid-1929, prior to the stock market crash and Great Depression, S&P 500 real earnings per share (on a GAAP standard) had been growing at a unsustainably high 20% year-over-year rate, almost as high as the fleeting 21% growth we just had in 2018. Similarly, profit margins are cyclical. They top out at the peak of an expansion, making P/Es appear artificially low. US corporate profit margins in 2018 were the highest they have been since 1929. P/Es are always a potential value trap at the peak of a cycle. But today, P/Es are not even that cheap. Going all the way back to 1871, today we would have potentially the second highest P/E ratio ever for the S&P 500 at a market top prior to a recession, worse than 1929 and the housing bubble.

Tackling the second bull argument that low interest rates justify today’s high valuations, the flaw in this thinking is just as pronounced. The reality is that stocks have never been this expensive for how low the 10-year Treasury yield is today. It’s true that all else equal, low interest rates justify higher valuations. However, the lowest interest rates historically haven’t corresponded to the highest P/E markets because extremely depressed yields also signal fundamental problems in the economy. Ultra-low rate environments are often marked by highly leveraged economies where future growth is likely to be weak. Growth must also be discounted in the valuation formula.

While many US equity indices have marginally broken out to new highs recently, they have done so in the face of weakening market internals. Equity indices are being propped up by a narrowing group of leaders. The deteriorating breadth is most evident in the NASDAQ Composite, home to today’s leading growth stocks. While the overall index has reached record levels, the number of declining stocks has significantly outpaced the number of advancing stocks since last September. The collapsing internals point to an exhausted bull market.

Stocks are also rising in defiance of extremely low volume. On July 16th, the SPDR S&P 500 ETF (SPY) had its lowest daily volume in almost 2 years. In a 15-daily average terms, volume is now as low as it was at the peak of the housing bubble and prior to the last two selloffs in 2018. Unusual calmness and breadth deterioration are not a good set up for record overvalued stocks.

The following chart is yet another illustration of how this recent rally in equities is running on empty, and again lacking substance. On July 15th, S&P 500 reached record levels, but only three sectors were at all-time highs. Market breadth today is faltering just as much as it did ahead of the last two recessions. In 2015, this was also the case, but back then only 20% of the yield curve was inverted. Now it’s close to 60%!

As we previously said, the unemployment rate has been one the most reliable contrarian indicators throughout history. It reaches a cyclical low prior to every recession since the 1970s. The year-over-year change, however, is what tends to confirm the turning points in the economy. Most of the times this rate shifted to positive, a market downturn followed. In this business cycle, the YoY change likely bottomed in late 2014 and it has now been flirting with the positive camp since then. However, other labor market indicators are already showing signs of weakening economic conditions. The Conference Board’s Jobs Hard to Get Index is one of them. It has recently spiked and is yet another classic late-cycle development in the economy.

Consumer surveys are also critical to identify the stage of the economy we are in today. It’s another great contrarian indicator as strong consumer confidence has an uncanny relationship with market tops. We’ve noted this before, but since the 1960s, every time the Conference Board index surpassed the 135 level, it coincided with the peak of the economic cycle. The same source also reports two components of this survey that differentiate between consumer’s present situation and future expectations. As John Hussman originally pointed out, the spread between these two sub-indices tends to reach an extreme prior to a recession. That’s usually caused by consumers’ future expectations starting to fall first. The University of Michigan also publishes a survey on consumer sentiment. That compared with the Conference Board index forms another important indicator. All previous declines from cyclical highs in the spread between these two indices led to recessions. This time, the spread is plunging after reaching record levels.

Crescat’s robust calculation of percentage of inversions in the US yield curve remains at recession-signaling levels. Over 55% of all 44 spreads are now inverted, being just as much as it was at the peak of the tech and housing bubbles. Nevertheless, another important development in credit markets occurred in the first week of July. As show below, the US 30-year yield dropped below the upper bound of the federal funds rate (FFR) for the first time since the global financial crisis. It’s one more bearish signal that adds to Crescat’s fire hose of cycle-ending macro data. The same warning occurred ahead of the GFC, tech bust, Asian crisis, S&L crisis, and 1980’s double dip recessions. The only false signal was in 1986, but one could argue that it did ultimately lead to the 1987 crash. Above all, as of July 2nd, we had the entire US Treasury curve below the Fed overnight rate. Perhaps the bond market is trying to tell us something.

Cracks in the market are spreading and it could be pointing to a market meltdown. Copper, for instance, is now diverging from the S&P 500 by over 35% since September of 2017. Last time this separation reached similar extremes was at the September 2018 market peak. Dr. Copper is reputed to have a Ph.D. in economics because of its ability to help predict turning points in the global economy. Because of copper’s widespread applications — from homes and factories to electronics and power generation and transmission — strengthening or weakening demand for the red metal can be a leading indicator for the economy at large. The decline of the industrial metal itself doesn’t necessarily tell us enough to call for a downturn in the economic cycle. However, its deterioration versus other risk assets in combination with a litany of macro indicators adds conviction to our overall bearish thesis.

The US is the only equity market in the world to make new highs recently in US dollar terms. Every other G-20 index already peaked a long time ago, a troubling divergence. We believe the US stock market is likely to be the one to catch up to the downside.

The US market is fundamentally and technically overvalued to an extreme. But, how much should we expect it to be down in a coming bear market? Just to get to mean historical valuations, it could be a 50% plunge. The problem is, a 50% decline would equate to the highest ever valuation at the depth of a bear market and recession in the US, so it could be a best-case scenario. That is how over-valued the US equity market is today! The downside in the market today is perhaps easiest to visualize in a logged version of the longest running US stock index, the Dow Jones Industrial Average.

Conventional wisdom is that the first Fed rate cut is bullish, but this was not true with the last two business cycles as we clearly show in the chart below. It will likely not be true in this one either because we are record late into the expansion at historic high valuations. It’s true that all else equal, monetary easing is fundamentally bullish for stocks and the economy, while tightening is bearish. The problem is that central bank policy works with a lag. The delayed reaction to Fed interest rate policy is why our macro model uses the 24-month trailing rate-of-change in the federal funds rate as one of our factors to forecast the economy and the stock market.

The interest rate hikes and quantitative tightening of the last three years, are the substantial bearish macro drivers that have only now started to transmit into economic weakening in the US. Meanwhile, the Fed has also just acknowledged the deterioration in the overall global economy. We think the truth of the economic weakening matters more than the hope from imminent Fed easing. Only at the depths of the recession, when everyone else is panicking and dumping stocks that are already down substantially, should we get excited about Fed easing transmitting to a new bull market.

The Fed’s polices of near-zero interest rates and quantitative easing since the global financial crisis have created enormous asset bubbles in stocks and corporate credit. Investors’ speculative behavior is a natural reaction to cheap money and has played an integral role in inflating these bubbles. Just as asset prices rise in a positive feedback loop of easy credit, investor speculative behavior, consumer and business spending, so they decline in the opposite self-reinforcing fashion: credit defaults, credit tightness, investor risk aversion, and business and consumer retrenchment. Such is the natural ebb and flow of the business cycle.

The property market in the US is also richly valued, in our view, though home prices are not as frothy relative to income and household debt as they were in the housing bubble. The big housing bubbles in the world today by these measures are in China, Hong Kong, Canada, and Australia.

Because the US dollar is the largest fiat reserve currency, the Fed’s past accommodative policies has allowed other countries to pursue their own easy money schemes and accumulate record levels of debt. Across the globe, these levels are higher on average than they were prior to all major credit busts of the last 30 years.


We have written extensively about China’s currency and credit bubble in past letters. China was responsible for over 60% of global GDP growth since the global financial crisis. The country’s massive investments in non-productive infrastructure assets was financed on credit and created high GDP growth but failed to add wealth or debt-servicing capacity. China has created an enormous currency and credit bubble in the process. The problem is that its central planners accomplished this incredible economic growth through an unsustainable growth in fractional reserve bank credit. Since 2008, China’s banking system assets have grown 400% to USD 40 trillion!

This insane level of expansion for a large economy was made possible because China’s communist leaders mandated high lending growth from its state-owned banks. At same time, they ignored the true write-down of non-performing loans.

As a result, we believe the value of China’s banking system today is grossly mismarked. The Chinese financial system in our view is a Ponzi scheme poised to unravel and is likely to be a major contributor to the coming global economic downturn. The Chinese citizens are the primary creditors who could be on the line, but the rest of the world that has invested in China will almost certainly suffer with them.

We believe the Chinese government will be forced to print money to recapitalize its banks and bail out its citizens to attempt to quell social unrest. The massive monetary dilution could lead to a currency crisis which is the lesson of almost every emerging market credit bubble in history from Latin America to Asia. Currency crisis is also the ultimate consequence of economic failure of centrally planned communism as we have learned from the Soviet Union to Venezuela.

Our outlook for both the Chinese yuan and Hong Kong dollar is extremely bearish and we are positioned accordingly in our global macro fund. The warning signs of the coming Chinese crisis are everywhere from the Trump administration’s year-long hardball on Chinese trade, to the recent Chinese government seizure of failed Baoshang Bank, to the current mass anti-Chinese Communist Party protests in Hong Kong.

Precious Metals

Precious metals are one of the few pockets of this market offering tremendous value to hedge against extreme monetary policies, bursting asset bubbles, and record global leverage. We see this opportunity playing out across gold, silver and related mining stocks. Gold is the ultimate form of money with a long history of storing value for investors and outperforming risk assets during market downturns. In our view, a new wave of global fiat currency debasement polices is now in its early stages. Gold should become a core asset for those who believe in this macro development, but it is still widely under-owned today.

With the Fed shifting back to easing mode as the global economy is faltering, new fuel has ignited a precious metals fire. It is still very early in the game in our analysis. Rate cuts point to a new trend of declining real yields to drive precious metals higher even before inflation returns. Below we show seven-year trends in real rates and gold that have just reversed.

Credit markets tend to serve as a bellwether for stocks and the economy, and rising yield curve inversions happen to be great times to buy gold and sell stocks. For instance, 3 and 5-year yields have recently dipped below Fed funds rate for the first time since the global financial crisis and the tech bust. As history has shown, this is bullish for the gold-to-S&P 500 ratio.

Another way to see how incredibly undervalued precious metals are relative to other risk assets is by looking at the relative performance. The commodities-to-S&P 500 ratio has just reached a fresh 50-year low. The last times we had such historic imbalances we were at the peak of the 2000 tech and the 1972 “Nifty Fifty” stock bubbles. If one uses a simpler version of this relationship, using the Dow Jones Industrial Average index, the ratio is well below the cyclical 1929 lows that lead to the Great Depression.

Silver, a more speculative version of gold, also looks historically cheap. One way to see this is by comparing it against the total return for broad US stocks. The Russell 3000-to-silver ratio is still near all-time highs. This puts into perspective the incredible opportunity likely ahead of us today and how truly early and undervalued it is. In technical terms, look at the double top formation after a retest of peak tech bubble levels.

We also feel very strongly that gold and silver mining stocks are undervalued as the current macro set up seems largely optimistic for precious metals. This entire industry has been through and eight-year bear market with some of these stocks down by over 80% since 2011.

Published:7/25/2019 11:47:31 AM
[Markets] The Dow Is Climbing as the ECB Turns Dovish, and Facebook’s Earnings Shine Stocks are mixed Thursday morning, with Dow Jones Industrial Average futures adding 0.4%, S&P 500 futures up 0.2%, and the Nasdaq Composite slipping 0.1% ahead of the open. Published:7/25/2019 8:47:37 AM
[Markets] Stocks Open Lower; Dow Jones Stock 3M Soars, Facebook Stock In Buy Zone 3M hoisted Dow Jones futures in early trade, as Nasdaq futures traded lower. Facebook stock was in a buy zone, rising after its Q2 report. Published:7/25/2019 8:47:36 AM
[Markets] Dow Jones Futures Lead Mixed Premarket; 3M Soars, Facebook Stock In Buy Zone 3M hoisted Dow Jones futures in early trade, as Nasdaq futures traded lower. Facebook stock was in a buy zone, rising after its Q2 report. Published:7/25/2019 8:17:59 AM
[Markets] US Futures Flat, Global Stock Rally Fizzles Ahead Of ECB Announcement

S&P futures struggled for direction on Thursday, with Nasdaq futs down following a plunge in Tesla following dismal guidance, even as European stock were modestly higher ahead of what many expect will be an easing signal by the ECB as a bevy of earnings reports again pointed to a slowing global economy, while holding up in the face of already reduced expectations.

The S&P 500 and Nasdaq hit a new all-time high once again on Wednesday after Texas Instruments hinted that a global slowdown in microchip demand would not be as long as feared, which countered bleak earnings from bellwether companies Boeing and Caterpillar.

The mood was more subdued on Thursday, when Tesla stock tumbled 12.3% and pressured Nasdaq futures after the electric carmaker pushed back its profit timeline once again after missing its quarterly financial targets. On the other hand, 3M rose 4.5% after the manufacturing conglomerate reiterated its full-year earnings forecast despite slowing growth in high-profile markets such as China. Facebook gained 1%, after the social media giant reported quarterly revenue that beat estimates, but said new rules and product changes aimed at protecting user privacy would slow its revenue growth into next year. Ford Motor dropped 4.6% after the automaker reported a lower-than-expected profit, weighed down by charges to restructure its units in Europe and South America, and gave a disappointing full-year earnings forecast.

Two weeks into the second-quarter earnings season, Reuters reports that about 77% of the 138 S&P 500 companies that have reported so far have topped earnings estimates. Overall earnings are now expected to fall 0.1%, compared with a prior estimate of a rise of about 1%.

Meanwhile, hopes that key central banks would take monetary measures to impede the impact of a protracted U.S.-China trade war has helped Wall Street’s main indexes hit record highs this month; moments ago Turkey became the latest country to join the easing bandwagon when its central bank cut rates by a whopping 425bps to 19.75%, in line with Erdogan's demands.

In Europe, the Stoxx Europe 600 pared some of its earlier gains, with health care shares the top performers after earnings for AstraZeneca and Roche beat estimates. AEX (-0.1%) lagged peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) benefited from its largest weighted stock LVMH (+1.5%) which rose after the company posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV.

Earlier in the session, Asian stocks advanced, heading for a third day of gains though Korean stocks declined for a second day, after U.S. equities climbed to record highs. Communications and technology were among the best-performing sectors. Most markets in the region were up, with the Philippines leading gains. The Topix added 0.2%, supported by chemical firms, as investors gauged a raft of mixed corporate results. Shin-Etsu Chemical Co. and Advantest Corp. jumped after reporting first-quarter operating profits above estimates. The Shanghai Composite Index rose 0.5%, with banks and Kweichow Moutai Co. among the biggest boosts. Beijing gave the green light for some companies to buy U.S. soybeans free of retaliatory import tariffs in a goodwill gesture amid trade negotiations with Washington. India’s Sensex gained 0.3%, set to end a five-day losing streak, as investors sought out value with equities near a two-month low. Most Nifty companies that have reported earnings so far have either met or exceeded analyst estimates.

In Rates, Germany’s 30-year bond yield fell to a record on deteriorating business confidence:

  • German Ifo Business Climate New (Jul) 95.7 vs. Exp. 97.1 (Prev. 97.4, Rev. 97.5).
  • German Ifo Current Conditions New (Jul) 99.4 vs. Exp. 100.4 (Prev. 100.8, Rev. 101.1)
  • German Ifo Expectations New (Jul) 92.2 vs. Exp. 94.0 (Prev. 94.2, 94.0)

Ifo economists said that the German economy faces a turbulent time ahead. He sees a slightly positive growth rate in H2, although recession is spreading in all important sectors of German industry. Business Climate has deteriorated in key sectors except for the auto industry.

In FX, the euro fell for a fifth day and Treasuries gained along with European government bonds as the market braced for an easing signal from the European Central Bank’s latest meeting. The dollar was little changed, with the yen gaining ground and the Aussie dollar falling to a two-week low after the RBA said policy makers are prepared to lower interest rates again. The pound steadied as new U.K. Prime Minister Boris Johnson picked a pro-Brexit government team. The Turkish Lira first tumbled, then surged after the CBRT cut rates by more than expected 425bps to 19.75%, its biggest rate cut on record.

In geopolitics, North Korea fired 2 projectiles which flew 430km but did not reach Japan’s exclusive economic zone. Following news of the launch, South Korea Defence Ministry spokesperson urged North Korea to stop acts which are not helpful in easing military tensions, while Japanese PM Abe suggested the North Korea missile launch poses no threat.

Expected data include durable goods orders and wholesale inventories. Amazon, American Airlines, Alphabet, Intel, Starbucks, and T-Mobile are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 3,022.50
  • STOXX Europe 600 up 0.2% to 392.51
  • MXAP up 0.2% to 161.31
  • MXAPJ up 0.3% to 530.23
  • Nikkei up 0.2% to 21,756.55
  • Topix up 0.2% to 1,577.85
  • Hang Seng Index up 0.3% to 28,594.30
  • Shanghai Composite up 0.5% to 2,937.36
  • Sensex up 0.1% to 37,884.49
  • Australia S&P/ASX 200 up 0.6% to 6,818.03
  • Kospi down 0.4% to 2,074.48
  • German 10Y yield fell 1.4 bps to -0.392%
  • Euro down 0.07% to $1.1132
  • Italian 10Y yield fell 10.7 bps to 1.143%
  • Spanish 10Y yield fell 3.1 bps to 0.316%
  • Brent futures up 0.7% to $63.62/bbl
  • Gold spot up 1% to $1,427.32
  • U.S. Dollar Index little changed at 97.76

Top Overnight News from Bloomberg

  • Boris Johnson executed a brutal clear-out of more than half of his predecessor’s top team, installing supporters in key roles as the new prime minister signaled his intent to deliver Brexit in 98 days. Sajid Javid picked to steer the British economy through Brexit
  • The European Central Bank is set to signal that it is once again preparing to step in to support the euro zone. On the eve of the seventh anniversary of President Mario Draghi’s landmark “whatever it takes” speech, policy makers will decide how to confront an economic slowdown amid risks from U.S. protectionism to Brexit
  • German companies’ business outlook tumbled to the lowest in a decade, adding to signs that Europe’s largest economy is getting dangerously close to a recession
  • Treasury Secretary Steven Mnuchin said a strong dollar is good for the U.S. economy in the long term and that he wouldn’t advocate for a weak-dollar policy in the near future
  • North Korea launched at least two short-range missiles into the sea east of the Korean Peninsula, stepping up pressure on the U.S. as it tries to resume nuclear disarmament talks with Pyongyang
  • Former Federal Reserve Chairman Alan Greenspan endorsed the idea that the U.S. central bank should be open to an insurance interest-rate cut, to counter risks to the economic outlook, even if the probability of the worst happening was relatively low
  • Oil held its biggest loss in a week as signs that growth is slowing in major economies overshadowed the longest run of declines in U.S. crude stockpiles since the start of 2018

Asian equity markets mostly traded with cautious gains after a similar performance on Wall St where strength in financials and tech fuelled the S&P 500 and Nasdaq to all-time record highs, although the DJIA underperformed on disappointing blue-chip earnings. ASX 200 (+0.6%) and Nikkei 225 (+0.2%) were higher but with gains capped by weakness in mining related sectors and with Tokyo trade also contained by an uneventful currency after source reports suggested a lack of consensus within the BoJ regarding additional easing measures at next week’s meeting. Elsewhere, the KOSPI (-0.4%) underperformed after North Korea conducted a short-range missile launch and with earnings also heavily in focus, while Hang Seng (+0.3%) and Shanghai Comp. (+0.5%) were choppy as another substantial liquidity drain by the PBoC was counterbalanced by trade optimism after suggestions that next week's US-China trade meeting is to be held in Shanghai to allow the possibility of President Xi joining in and that the meeting will be followed up by talks in Washington. Finally, 10yr JGBs were relatively flat as they mirrored the rangebound trade in T-notes and with demand also dampened by the indecisive gains in the region, although prices later found mild support after the 2yr auction which attracted a higher b/c and narrower tail in price.

Top Asian News

  • Digger Giant Warns of ‘Dark Turn’ as Chinese Sales Start to Ebb
  • Hong Kong Names Eddie Yue as Next Monetary Authority Chief
  • More Chances to Get Rich Quick in China’s New Stock Venue
  • China’s Embattled Jinzhou Bank Courts Investors as Bonds Tumble

European equities are directionless with large-cap earnings dictating the state of play of thus far. AEX (-0.1%) lags its peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) is benefitting from its largest weighted stock LVMH (+1.5%) which rose after the Co. posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV. Over in the States, Facebook (+1.2% pre-market) reported last night with miss on top line and a beat on bottom line. The Co. also noted that EPS would have been higher excluding the FTC legal fees of USD 5bln over privacy violations. Meanwhile, Tesla (-10.8% pre-market) missed on top and bottom line. Looking ahead, around 10% of the S&P 500 is reporting today, whilst DJIA component 3M is also on the docket, with a 4.5% weighting in the index.

Top European News

  • German Business Confidence Deteriorates as Factory Slump Deepens
  • Merkel Leaves Europe’s Sputtering Engine to Ride Out the Storm
  • ECB Is Set to Signal Rate Cut as Economy Slows: Decision Day Guide
  • ABB Beats Estimates as Activist-Driven Overhaul Bears Fruit
  • Wizz Air Jumps on Raised Growth Target at Expense of Rivals

In FX, EUR/TRY are not the biggest currency movers, but both certainly prone to big reactions and price action depending on Central Bank policy decisions as the ECB and CBRT both deliver verdicts today. Market pricing for the former is extremely tight between no change and -10 bp, even though the ‘consensus’ leans towards a tweak in guidance for easing in September rather than any adjustments this time, with the probability roughly 50-50. However, the latter is unanimously expected to lower its benchmark and the uncertainty rests on how much given a gaping range of forecasts, from -100 bp to -500 bp, while some observers also suggest that a loud -800 bp call exists. In the run up, the single currency and Turkish Lira are on the defensive, with Eur/Usd teetering above ytd lows in a 1.1145-23 range and capped by yet another bleak German survey in the form of Ifo that missed consensus across the board and compounded by a gloomy statement from the institute noting the spread of recession through all key industrial sectors. Meanwhile, Usd/Try is pivoting 5.7100 and also acknowledging a deterioration in manufacturing sentiment and a decline in cap u.

  • NZD/AUD - Dovish rate vibes are undermining the Kiwi and Aussie as well, with Westpac recalibrating its RBNZ outlook to match the RBA by pencilling in 2 more 25 bp eases from 1 previously. Nzd/Usd has retreated from 0.6700+ in response, but the Aud/Nzd cross remains anchored near 1.0400 as Aud/Usd slips a bit further from 0.7000 to 0.6965 in wake of comments from RBA Governor Lowe indicating further OCR reductions if demand disappoints and acknowledging that inflation will take time to hit target.
  • JPY/CAD/GBP/CHF - All narrowly mixed vs a solid Greenback, as the DXY continues to test a key Fib retracement level at 97.776 within a tight 97.778-679 band, with the Yen still stuck around 108.00 and embroiled in decent option expiries (1.7bn from 107.75 to 107.80 and 1.5 bn between 107.90-108.00) vs technical resistance at 108.31 (also a Fib). Meanwhile, the Loonie hugs 1.3128-44 ahead of Canadian wage data, Cable retains a recovery tone within 1.2450-1.2500 and the Franc remains underpinned around 0.9850 vs the Buck and over 1.1000 against the Euro, expecting the SNB to match or counteract any ECB moves.
  • ZAR - The Rand is underperforming after a stark warning from Moody’s that the latest state aid for Eskom will put further strain on the Government’s finances and threaten SA’s rating, with Usd/Zar nudging the top of 13.9750-8600 range.

In commodities, WTI and Brent futures are marginally firmer, albeit it seems to be more of a consolidation from yesterday’s DoE-induced decline and on the news that Kuwait and Saudi officials discussed resuming production from the neutral zone which had previously provided around 500k bpd of supply. WTI and Brent currently reside around the 56.00/bbl and 63.50/bbl levels with the former eyeing its 50 DMA at 56.87/bbl ahead of its 200 DMA at 57.11/bbl (with the psychological 57/bbl level in-between). News flow for the complex has been light thus far with traders eyeing the ECB’s latest monetary policy decision (full preview available in the Research Suite) for the next possible catalyst. Elsewhere, gold prices are relatively steady above the 1400/oz mark with Central Bank decisions very much in focus. Elsewhere copper is little changed amid the cautious/tentative risk tone whilst Shanghai lead climbed over 1% overnight amid revived supply concerns due to maintenance activity in China.

US Event Calendar


  • 8:30am: Durable Goods Orders, est. 0.7%, prior -1.3%; Durables Ex Transportation, est. 0.2%, prior 0.4%
  • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.2%, prior 0.5%; Cap Goods Ship Nondef Ex Air, est. -0.2%, prior 0.6%
  • 8:30am: Advance Goods Trade Balance, est. $72.5b deficit, prior $74.5b deficit
  • 8:30am: Wholesale Inventories MoM, est. 0.5%, prior 0.4%; Retail Inventories MoM, est. 0.2%, prior 0.5%
  • 8:30am: Initial Jobless Claims, est. 218,000, prior 216,000; Continuing Claims, est. 1.69m, prior 1.69m
  • 9:45am: Bloomberg Consumer Comfort, prior 64.7
  • 11am: Kansas City Fed Manf. Activity, est. 2.8, prior 0

DB's Jim Reid concludes the overnight wrap

Welcome to ECB day, and a meeting where we should move closer to what is likely to be a round of global policy easing in the months ahead. Mr Draghi paved the way at Sintra last month where he laid the foundations to make further policy easing feel less conditional. Our economists, in their preview note last week ( link ), believe that September is the natural occasion for the big decisions and details but expect some preparation today. They expect the "or lower" easing bias to be reintroduced into rates guidance and that this will be the prelude to a 10bp deposit rate cut and tiering in September. They also expect a further 10bp cut in December. They also believe we will see upgraded forward guidance used to underline the ECB's "absolute commitment" to the price stability mandate. If the Council is unable to strengthen forward guidance sufficiently, a new wave of net asset purchases may be required in the not too distant future. If so, the team would not be surprised by new QE of EUR30bn per month for a minimum 9-12 months split equally between public and private assets and with a commitment to relax the limits if necessary.

Ahead of this, fixed income rallied across Europe yesterday as the European preliminary PMIs for July showed the manufacturing sector continuing to disappoint - something the ECB will have to acknowledge. The manufacturing PMI for the Eurozone fell to its lowest in over six years at 46.4 (vs 47.6 last month), the German figure fell to a seven-year low of 43.1 (vs. 45.0) and France recorded a flat 50.0 (vs. 51.9) reading. The services readings also fell, but were mostly in line with expectations, with the Eurozone figure at 53.5 (vs. 53.6 last month), Germany at 55.4 (vs. 55.8) and France at 52.2 (vs. 52.9). In response, ten-year bund yields closed down –2.3bps with the previous on the run hitting a fresh all-time low of -0.423%. BTPs fell -10.9bps to a fresh one-year low on news that auctions had been cancelled, while Greek ten-year yields fell -5.7bps to close below 2% for the first time ever. That takes their yield to -6.2bps lower than US treasuries, their lowest level versus the US benchmark since October 2007. Treasuries joined the European rally with 10-year yields ending -3.8bps lower at 2.043%.

Despite the rally for rates and the tepid manufacturing surveys, equities mostly rallied yesterday. The S&P 500 gained +0.47% to 3019.6, a new all-time high. The DOW (-0.29%) again lagged as Boeing (-3.12%) and Caterpillar (-4.48%) dragged on the index after their earnings reports. Boeing saw a net loss of -$2.94bn in the second quarter, paired with a -35% yoy drop in revenues, as the company continues to suffer from the grounding of the 737 MAX. Caterpillar is viewed as a global macro bellwether, and overall its guidance was soft, saying they expect profits “to be at the lower end” of their full-year outlook range. Digging into their results showed healthy sales growth in North America (+11%) and Latin America (+9%), but weakness in Europe, Africa, and the Middle East (-6% combined) and in Asia (-7%), which is consistent with the general trend of US macro outperformance.

Away from industrials, tech was also in focus yesterday. The NASDAQ and Philly semiconductor indexes advanced +0.85% and +3.10%, respectively, both to new record highs. The sector benefited from positive sentiment post Texas Instrument’s (+7.44%) strong earnings report from Tuesday night, plus further strong guidance from Taiwan Semiconductor Manufacturing co, the world’s biggest chipmaker. Facebook (+0.80% after hours) posted strong revenue and active users figures, which ended up trumping new regulatory headwinds for the company. Facebook announced that the Federal Trade Commission has opened an antitrust investigation of the company, which comes after Facebook said earlier that it had agreed to pay a $5bn settlement and accept new privacy restrictions on its social media platform, to address a separate investigation.

This morning in Asia markets are largely trading up with exception of the Kospi which is -0.60%. The Nikkei (+0.36%), Hang Seng (+0.26%) and Shanghai Comp (+0.29%) are all up. The Australian dollar is trading down -0.07% after the country’s central bank chief Philip Lowe said that he’s ready to ease policy further if his recent back-to-back cuts fail to revive economic growth and flagged “an extended period” of low interest rates. Elsewhere, futures on the S&P 500 are trading flat while those on the Nasdaq are down -0.26%. In terms of overnight data releases, South Korea’s preliminary Q2 GDP printed at +2.1% yoy (vs. +1.9% yoy expected and +1.7% yoy last quarter). In details it showed that private-sector investment shaved 0.5pp off quarterly growth, meaning government investment drove the expansion and underlines the fragility of the rebound in growth.

In other overnight news, India is considering an option to raise $10bn from its first sovereign foreign currency bond offering with bonds likely to be denominated in either the Japanese yen or euros to take advantage of lower yields. The proposed offering could come to markets in October. Elsewhere, North Korea launched at least two short-range missiles into the sea east of the Korean Peninsula, stepping up pressure on the US as it tries to resume nuclear disarmament talks with Pyongyang and bringing geopolitical risks back into some focus.

Back to yesterday and in the UK, Boris Johnson was appointed by the Queen as the prime minister yesterday, facing perhaps the most difficult set of circumstances of any incoming PM for decades. On the steps of Downing Street, Johnson struck an aggressive tone on Brexit, reiterating that the decision of the referendum in 2016 must be respected. He said he wanted to reach a “new deal” with the EU, with the backstop removed, and see the country leave on the October 31 deadline “no ifs or buts”. Johnson also said that he would prepare for a no-deal outcome and that “the doubters, the doomsters, the gloomsters are going to get it wrong again.” In a letter to the incoming Prime Minister, European Council President Donald Tusk said pointedly that “I look forward to meeting you to discuss – in detail – our cooperation.”

Johnson began assembling his cabinet after his appointment, and the clear signal is that committed supporters of Brexit are in the key positions, and also those who support his pledge to leave the EU without a deal if necessary by October 31. Former DB employee Sajid Javid was appointed as Chancellor of the Exchequer, while Dominic Raab was made foreign secretary. In terms of the market reaction, sterling was unaffected by Johnson’s speech, although it strengthened +0.33% against the dollar before Johnson’s meeting with the Queen.

Without a general election, Johnson faces much the same constraints as his predecessor, in that his party lacks a majority in the House of Commons and relies on the DUP’s 10 MPs in order to win key votes. With an upcoming parliamentary by-election next week in Wales, where pro-EU Liberal Democrats are favourites to take the seat off the Conservatives (per the Independent), that could shrink even further. So the honeymoon won’t last long.

In terms of other data released yesterday, the flash PMIs from the US also saw an increasing divergence between manufacturing and services, repeating the theme seen in Europe. The manufacturing reading fell to a flat 50.0 (vs. 50.6 last month), its lowest level since 2009, while the services reading rose to 52.2 (vs 51.5 last month). Elsewhere, the new home sales data disappointed, with the 646k reading for June below the 658k expected, while the previous month’s reading was revised down by 22k. In France, the Insee’s business climate indicator fell by one point to 105 in July (vs. 106 expected). The business climate indicators for both the manufacturing and services indicators also fell by one point, to 101 and 106 respectively, while the employment climate reading rose by one point to 107.

In terms of the day ahead, the aforementioned ECB policy decision and press conference will be the highlight, (along with Prime Minister Johnson’s first appearance as PM in the House of Commons). Looking at data releases, we have US durable goods orders, wholesale inventories, and weekly initial jobless claims. There’ll also be the Kansas City Fed’s manufacturing index, the German Ifo Survey, and the latest CBI data from the UK. Elsewhere, Amazon and Alphabet will be announcing earnings.

Published:7/25/2019 6:46:48 AM
[Markets] Dow matches profit expectations but sales fall more than forecast Dow Inc. reported Thursday a second-quarter profit that matched expectation but sales that fell short, citing price declines in polyethylene, siloxanes and isocyanates and lower sales of hydrocarbon co-products. The stock was still inactive in premarket trading. Net income fell to $75 million, or 10 cents a share, from $1.33 billion, or $1.78 a share, in the year-ago period. Excluding non-recurring items, core EPS fell to 86 cents from $1.41, but matched the FactSet consensus. Net sales fell to $11.01 from pro forma sales of $12.85 billion a year ago, to miss the FactSet consensus of $11.29 billion. Volume declined 3%, primarily because of higher ethane feedstock usage and lower hydrocarbon sales. Year ago pro forma results reflect the separation from DowDuPont Inc., which was completed on April 1. The chemical company said given that the pace of global economic growth has slowed, and that buying patterns remain cautious because of ongoing trade and geopolitical uncertainties, it will reduce planned capital expenditures to $2.0 billion from $2.5 billion. The stock has lost 4.6% over the past three months, while the Dow Jones Industrial Average has gained 3.1%. Published:7/25/2019 6:14:21 AM
[Markets] 3M's stock surges after profit and sales fall less than expected, guidance maintained Shares of 3M Co. surged 3.4% in premarket trading Thursday, after the consumer, health care and industrial products company reported a second-quarter profit and sales that fell less than expected, while maintaining its full-year outlook. Net income fell to $1.13 billion, or $1.92 a share, from $1.86 billion, or $3.07 a share, in the year-ago period. Excluding non-recurring items, adjusted EPS declined to $2.20 from $3.07, but was above the FactSet consensus of $2.05. Sales declined 2.6% to $8.17 billion but beat the FactSet consensus of $8.05 billion. Among 3M's business segments, health care sales 5.8% rose above expectations, transportation and electronics sales fell 2.9% but topped expectations, consumer sales declined 0.5% roughly in line with expectations and safety and industrial sales dropped 9.0% to be just shy of expectations. For 2019, 3M cut its net EPS guidance to $8.25 to $8.75 from $8.53 to $9.03 to reflect a charge for the deconsolidation of its Venezuelan subsidiary, but maintained its adjusted EPS outlook of $9.25 to $9.75 and its return on invested capital guidance of 20% to 22%. "Our execution was strong in the face of continued slow growth conditions in key end markets, as we effectively managed costs and improved cash flow," said Chief Executive Mike Roman. The stock has lost 5.9% over the past three months while the Dow Jones Industrial Average has gained 3.1%. Published:7/25/2019 5:54:58 AM
[Markets] The Dow Lost 79 Points Because Boeing and Caterpillar Earnings Came Up Short The three major U.S. stock indexes closed with mixed results on Wednesday. The Dow Jones Industrial Average was dragged lower by downbeat earnings news from Boeing and Caterpillar. Published:7/24/2019 5:02:56 PM
[Markets] S&P 500, Nasdaq stock indexes close at new record but Dow hit by Boeing The S&P 500 and Nasdaq Composite stock indexes closed at new record highs on Wednesday despite mixed earnings and economic data and news of anti-trust investigations into leading U.S. technology stocks, but the Dow closed lower. Published:7/24/2019 3:56:00 PM
[Markets] This Index Crushes Dow Jones, Nasdaq Up; Will These Growth Stocks Join Breakouts? Caterpillar and Boeing reflected global trade problems among stocks in the Dow Jones Industrial Average. Chip and small caps gave a bullish display. Published:7/24/2019 3:27:09 PM
[Markets] Dow Lags As Boeing Dives, But Nasdaq Hits New High As Chips Soar Soaring chip stocks boosted the Nasdaq in today's stock market, but Boeing and Caterpillar dragged the Dow Jones Industrial Average into the red. Published:7/24/2019 2:26:32 PM
[Markets] Snap Is Soaring, UPS Is Jumping, but the Dow Is Sliding Lower U.S. stock indexes were mixed after the Justice Department began an antitrust probe into big tech companies, as Boeing and Caterpillar sink the Dow. Snap and UPS stocks were climbing after releasing earnings. Published:7/24/2019 11:56:57 AM
[Markets] ECB Rate Cut Odds Jump After "Dismal" PMIs

Stock bulls got some unexpected "good" news this morning following the latest dismal manufacturing survey data out of the Eurozone. As we noted earlier, Eurozone manufacturing PMI was the worst in six years, with the German Mfg component printing the worst number in seven years, caused by "an accelerated drop in export orders—the most marked in over a decade” per Markit, while French data saw both Services and Manu numbers miss consensus as well.

Why is this good news for stocks? Because as Nomura's Charlie McElligott writes this morning, the case for imminent ECB “easing” - which may be announced as soon as tomorrow - grows, with a 10bps cut probability rising as much as 51% for tomorrow according to EONIAs...

... with two full cuts priced-in, and causing a “volatility pause” in Bund futures trading, with lower Bund yields tumbling back to just shy of all time lows at -0.39%...

... and feeding into an initial EURUSD dip to 1.1127, just shy of two year lows.

Meanwhile, stocks were happy with the DAX rising to session highs, and just shy of 1 year highs, on this escalating likelihood of an imminent ECB policy rate cut/enhanced easing package, according to McElligott (for a full "menu" of what the ECB may announce tomorrow, see this post).

Putting the latest data, and market reaction in context, the Nomura strategist repeats that his best-case “Dovish Surprise” scenario for global risk-assets at tomorrow’s ECB meeting would be a

  1. 10bps cut with
  2. announced tiering of deposits (+++ EU Banks), something which is critical as otherwise EU banks face dramatic losses as explained last night
  3. enhanced fwd guidance,
  4. resumption of QE in Sep

Yet while McElligott concedes that "that is a lot to deliver on short notice" at this point the manufacturing slowdown in the Eurozone  - especially in Germany and France - and speculation of an imminent recession so real now "that it risks dragging Services with it, which could trigger an actual recession." As such, the Nomura strategist is confident that the market will "see through" any ECB disappointment tomorrow as purely “delaying the inevitable” and continue pricing-in an aggressive easing package.

Of course, this being McElligott, he quickly looks at the quant factor that are behind the latest move in European stocks and finds that EuroStoxx dynamics “under the hood” once again highlight the Growth Scare/Duration Bid story, "with “Cyclicals” as the three worst performing sectors (Energy, Financials, Materials) while the best performing sectors on the session are the Duration-sensitive “Slow-flation Risk Barbell Longs” of 1) Defensives / Min Vol / Bond Proxies (Utilities, REITS) and 2) Secular Growers (Technology, Comm Services and Cons Disc)." Which is to be expected considering the resumption of the plunge in yields.

However, as Nomura observes, there is one potential offset to the aforementioned dynamic in US equities today that could “soften the blow” for “Value” factor market-neutral: namely the pressure exerted on tech/growth stock, i.e., the prominent “Growth Longs” (also known as “Value Shorts,” because they’re expensive) which are likely to be under with regard to this US DoJ antitrust probe into the Tech giants, although it now appears that the early weakness in the Nasdaq has fizzled and instead the market is more focused on Boeing and CAT which have dragged the Dow lower.

One final point from McElligott: "Gold continues to hold very firm in light of the evidence pointing to likely escalation of “beggar thy neighbor” global FX depreciation wars, $1426.50 last—as we continue seeing macro fund interest in upside expressions across GDX/GLD."

Published:7/24/2019 9:54:49 AM
[Markets] Global Stocks Slump As German Manufacturing Craters, Tech Spooked By DOJ Probe

S&P futures reversed a two-day rally, dropping alongside European stocks, led by the tech sector after the DOJ announced it was launching a broad, anti-trust review of the mega-tech (FANG) names, while weaker-than-expected composite PMIs in the Eurozone weighed on equities and sent bond yields to new all time lows, with manufacturing readings in Germany and France standing out. The dollar slumped while cable spiked one day after BoJo was elected as the next prime minister.

Weaker-than-expected composite PMIs in Germany and France weighed on equities and lifted bond prices, with manufacturing readings in Germany and France standing out, as the recession in Germany’s manufacturing sector worsened in July with the performance of goods producers dropping to the lowest level in seven years while French business growth slowed unexpectedly, the latest PMIs showed.

Trade tensions, weaker demand abroad and the travails of the car industry have built up over the past year to take a toll on the engine of Europe’s economy. They’ve dragged manufacturing into its deepest slump in seven years, and some of the nation’s biggest corporate names from BASF SE to Daimler AG and Continental AG have had to come to terms with a new reality for business. As one of the world’s biggest exporters, Germany is paying a high price for the the slowdown in global trade. The economy is forecast to grow the least in six years in 2019, the Bundesbank sees no sign of an export recovery and some are even saying there’s a risk of recession.

Beyond manufacturing, Germany’s image has also been dented by the troubles at Deutsche Bank AG, which is cutting thousands of jobs, and warned Wednesday that its trading slump deepened sending its stock sharply lower.

Downbeat earnings as well as the weaker-than-expected Eurozone manufacturing surveys took European shares and the euro a leg lower, with the single currency hitting two-month lows. Following strentgh in Asia, MSCI’S All-Country World index extended its previous day’s gains by a whisker, rising 0.02%. Sentiment was boosted by a Bloomberg report that U.S. Trade Representative Robert Lighthizer would travel to Shanghai next week for meetings with Chinese officials.

“While the resumption of trade talks appears to mitigate any near-term deterioration in US-China tensions, prudent investors will not get carried away, seeing as a meaningful deal still seems a long way off,” said Han Tan, market analyst at FXTM.

Asian stocks climbed for a second day, led by communications firms, as U.S. officials prepare to travel to China next week for trade negotiations. Markets in the region were mixed, with China and Australia advancing and India retreating. The Shanghai Composite Index rose 0.8% for its biggest gain in three weeks, as large insurers and banks offered strong support. The Topix added 0.4%, driven by Toyota Motor and Sony. SoftBank gained 1% following a report that it’s close to announcing the launch of a new technology investment vehicle modeled on its giant $100 billion Vision Fund. The Bank of Japan may lower its inflation forecast for this fiscal year and downgrade some of its economic growth projections. India’s Sensex slipped 0.2%, with Reliance Industries and Larsen & Toubro among the biggest drags, as investors judged bad debt risks at some financial companies.

With the latest PMIs confirming Europe is on the edge of recession, the ECB is thought likely to at least offer a nod to easier policy at its meeting on Thursday. Meanwhile, in the US, futures remain 100% priced for a rate cut of 25 basis points from the Federal Reserve next week, and even imply an 18% chance of 50 basis points. The prospect of widespread central bank largesse helped take the sting out of a downgrade to the IMF’s global growth forecasts.

“There are two conflicting catalysts for stock traders right now: on one hand, central banks around the world are about to embark on an easing initiative...,” said Konstantinos Anthis, head of research at ADSS. “On the other though, the slowdown in growth on a global scale and various geopolitical factors keep weighing down on corporate profitability, asking questions on whether equities have peaked.”

In FX, the euro declined for a fourth day after manufacturing gauges in Europe came in weaker than forecast. The common currency hit a two-month lows at $1.1127, falling further after the weak PMIs. It also hit a near seven-month trough against the yen at 120.19 though it recovered from a two-year low versus the Swiss franc.  The Australian dollar tumbled after a domestic bank that has correctly called previous policy decisions flagged two more rate cuts. The pound reversed losses before Boris Johnson was set to be appointed U.K. prime minister, with a cabinet reshuffle expected later Wednesday, with investors unclear as to whether he will lead the country to a no-deal EU exit or find a compromise.

“We believe that in the short term the market is overstating the risk of a no deal,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “While a no-deal Brexit remains possible over the longer term, our view is that the most likely path in the short term is for a further extension to the UK’s 31 October exit day, either due to a change in stance from PM Johnson, or in the case of a general election.”

In rates, fears of a European recession sent investors toward the safety of German bunds, with Treasury and gilt yields also sliding lower in unison.  European bond yields lower across the curves, also dragging down UST yields, with BTPs and Bonos outperforming.

Expected data include PMI readings, mortgage applications and new home sales. AT&T, Boeing, Caterpillar, UPS, Facebook, Ford, and Tesla are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 0.3% to 2,998.25
  • STOXX Europe 600 down 0.1% to 391.14
  • MXAP up 0.2% to 160.97
  • MXAPJ down 0.03% to 528.60
  • Nikkei up 0.4% to 21,709.57
  • Topix up 0.4% to 1,575.09
  • Hang Seng Index up 0.2% to 28,524.04
  • Shanghai Composite up 0.8% to 2,923.28
  • Sensex down 0.3% to 37,881.58
  • Australia S&P/ASX 200 up 0.8% to 6,776.67
  • Kospi down 0.9% to 2,082.30
  • German 10Y yield fell 2.6 bps to -0.381%
  • Euro down 0.1% to $1.1137
  • Italian 10Y yield fell 5.0 bps to 1.25%
  • Spanish 10Y yield fell 3.1 bps to 0.363%
  • Brent futures up 0.4% to $64.11/bbl
  • Gold spot up 0.4% to $1,423.97
  • U.S. Dollar Index little changed at 97.71

Top Overnight News from Bloomberg

  • European Central Bank policy makers have plenty of reasons to wait until September before committing to more stimulus; in the run-up to their meeting, Governing Council members have said that additional support measures are available, if needed, to boost the euro zone’s ailing economy
  • U.S. Trade Representative Robert Lighthizer and senior U.S. officials are set to travel to China next Monday for the first high-level, face-to-face trade negotiations between the world’s two biggest economies since talks broke down in May
  • Boris Johnson will formally take office as U.K. prime minister Wednesday and seek to build a government that will bring his Conservative Party together and deliver Brexit The new leader will give hardline Brexiteer Priti Patel a cabinet role and promote politicians of all stripes to try to reflect modern Britain, according to a person familiar with his plans
  • U.K. businesses urges Johnson to soften “hugely worrying” Brexit stance
  • China’s central bank governor said the country’s current interest rates are at an appropriate level, and policy will reflect domestic considerations
  • Bank of Japan will probably lower its inflation forecast for this fiscal year and may also downgrade some of its economic growth projections at its meeting next week, according to people familiar
  • Oil rallied as plans for a meeting between the U.S. and China offered a hint of progress in the trade war dividing the world’s two biggest economies
  • Speaker Nancy Pelosi says the House will have the votes to pass the budget, debt limit deal

Asian equity markets traded mostly higher with sentiment lifted by US-China trade hopes after reports US Trade Representative Lighthizer will lead a small team of negotiators to China next Monday for trade discussions. This underpinned major indices on Wall St. with outperformance seen in the trade sensitive sectors such as materials and industrials, although futures pared some of the gains after-market on news the DoJ is to open a broad antitrust review on the large tech firms. Nonetheless, ASX 200 (+0.8%) and Nikkei 225 (+0.4%) were higher with broad strength seen in Australia aside from the mining sector, while gains in Tokyo were capped amid a downturn among JPY-crosses. Hang Seng (+0.3%) and Shanghai Comp. (+0.8%) showed a strong performance on the trade optimism which was also helped by US Commerce Secretary Ross who said he will deal with Huawei waiver applications within the next few weeks, while China was also said to be looking to make more agricultural purchases as a goodwill gesture. Finally, 10yr JGBs were uneventful with demand sapped following similar uninspiring trade in USTs amid the positive risk tone and with the BoJ also absent from the market today.

Top Asian News

  • World’s Top Toymaker Joins Companies Leaving China’s Factories
  • Japan May Soon Gain A Powerful Trade Weapon Against South Korea
  • Hong Kong’s NWS Is Said to Mull Sale of Public Transport Assets
  • Malaysia’s PE Fund Said to Weigh Options for Oil Tanker Operator

Major European bourses are marginally lower [Eurostoxx 50 -0.2%] following on from a relatively flat open as overall downbeat flash PMIs from Europe weighted on the region. UK’s FTSE 100 (-1.0%) lags its peers amid unfavourable currency action coupled with underperformance in heavyweight mining names following a barrage of broker downgrades. As such, Rio Tinto (-4.0%), BHP (-3.4%) and Anglo American (-3.1%) all rest at the foot of the index. Sectors are mixed with defensive sectors supported due to the current cautious risk tone. In terms of individual movers, ASM (+7.3%), ITV (+6.1%) and Akzo Nobel (+4.1%) shares are all fuelled by earnings and trade at the top of the Stoxx 600. On the flip side, Deutsche Bank (-3.7%) shares plumbed the depths post-earning after the German lender reported a larger than expected net loss and cut its FY 19 revenue guidance.

Top European News

  • Euro Area’s Economic Struggles Persist as Industry Slump Deepens
  • Dovish ECB Renders More Czech Rate Hikes Pointless for Michl
  • Paris Scorches in Historic Drought as Heatwave Fries Europe
  • Repsol Announces Buyback Plan as Oil Earnings Kick Off

In FX, dollar bulls have gleaned even more encouragement from unfolding US-China trade developments given that face-to-face talks look set to resume early next week, and Beijing offers to buy more agricultural goods as a good will gesture in response. Moreover, the Dollar continues to proffer from the demise of others and increasingly constructive technical impulses with the DXY eclipsing a Fib retracement level and inching closer towards the psychological 98.000 mark.

  • AUD/NZD - The Aussie has given up 0.7000+ status and is now threatening to slide below 0.6975 in wake of slowdowns in all CBA PMI readings overnight and yet another dovish RBA policy call looking for 2 further cuts in the OCR (Westpac this time eyeing moves in October and February 2020). All this ahead of comments from RBA Lowe in the early hours on Thursday and in contrast to the Kiwi that is keeping in contact with 0.6700 after a wider than forecast NZ trade balance, albeit due to a bigger miss on the import side vs exports.
  • EUR/CHF/CAD - The single currency has also been undermined by PMI surveys, and in particular the manufacturing prints showing France on the 50 threshold and Germany sinking deeper into contraction. With Eurozone M3 also softer than expected, rate cut odds have now tipped in favour of 10 bp for tomorrow’s ECB meeting and Eur/Usd is losing sight of decent option expiry interest at 1.1150 (1 bn) as a result, but holding above the ytd base and 1.1100 where big barriers lie. Meanwhile, the Franc has retreated further vs the Buck within a 0.9850-75 band, but remains above 1.1000 against the Euro pending Thursday’s ECB policy pronouncements and the SNB’s response, but the Loonie has clawed back some lost ground vs its US counterpart to meander between 1.3129-47 compared to 1.3164 or so at one stage on Tuesday.
  • GBP/JPY - Relative outperformers and bucking the overall trend, as the Pound maintains its recovery momentum following confirmation that Boris Johnson will take over the reins from Theresa May as Tory Party head. Cable has extended its rebound from near 1.2400 to 1.2480+ awaiting the official unveiling of the new PM and his Cabinet line up, with Eur/Gbp down towards 0.8925 and early July mtd lows. Similarly, the Yen is still displaying resilience in the face of overall Usd strength and upbeat risk sentiment despite ongoing geopolitical tensions, with a reluctance to stray too far from 108.00 where massive expiries roll off (4.3 bn) and technical resistance capping the upside (108.31 Fib).
  • EM - The Rand remains in the spotlight amidst comments from SARB Governor Kganyago underlining post-rate cut guidance for limited additional monetary stimulus and CPI data that was slightly firmer than anticipated in m/m terms. Usd/Zar is hovering just below 13.9500 as the Central Bank head highlights the fact that neutral rates have risen due to risk premia of late and this makes it tougher for further easing.

In commodities, WTI and Brent futures are taking a breather from last night’s geopolitical-induced gains in which the benchmarks reclaimed USD 57/bbl and USD 64/bbl to the upside on reports that UK approached EU nations to join a European-led mission for safe shipping via the Strait of Hormuz. Furthermore, reports of a US delegation heading to China on Monday exacerbated upside in the complex on sentiment. Meanwhile, the mammoth drawdown in API crude stocks (-10.96mln vs. Exp. -4.0mln) added further fuel to the upside for oil, although the immediate jolt was quickly faded due to bearish components of the release including a surprise build in gasoline inventories, it’s worth noting that this week’s inventory data also captures the late effects of Storm Barry. Elsewhere, spot gold in is crawling higher as the yellow metal consolidates following its recent decline from 6yr highs. Copper prices are marginally lower amid the cautious risk tone, albeit remain above USD 2.70/lb, while Dalian Iron ore extended losses amid slowing demand in the wake of output restrictions on steel producers in China’s top steel-making city Tangshan.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -1.1%
  • 9:45am: Markit US Manufacturing PMI, est. 51, prior 50.6; Services PMI, est. 51.8, prior 51.5
  • 10am: New Home Sales, est. 658,000, prior 626,000; est. 5.11%, prior -7.8%

DB's Jim Reid concludes the overnight wrap

I’ve been promised the hottest night of my life this week. For the avoidance of doubt, meteorologists have suggested that this week will likely see the hottest overnight temperatures on record here in the UK and the hottest July day on record and possibly a new overall record. I must admit the more I read about climate change the more worried I get. However all I will say is that since we moved house three months ago we must have eaten outside in the evening 90% of the time I’ve been around. It’s been absolutely fantastic. Not even a swarm of flying ants could stop us last night. The only thing missing was a glass of Rose. Interestingly flying ants have been so prevalent over the last week in the South of England that they’ve appeared on weather radars and some forecasters initially mistook them for a band of rain!

As well as potentially being the hottest day ever tomorrow, it’s possible we’ll also start the latest round of global monetary stimulus or at least get new dovish forward guidance from the ECB. Given we’re on the eve of such an event and given that we have seen a big rally in global assets as a prelude, I found it interesting to read DB’s Binky Chadha’s latest asset allocation piece yesterday (see link here). In it he showed that since the 1950s, the Fed has embarked on 19 easing cycles, including the unconventional easing measures adopted during the course of this economic recovery. However of these, 9 or almost half, saw the economy eventually slip into recession. The episodes that ended in recession saw the ISM continue to weaken, eventually bottoming - 8 months after the Fed began cutting - at low levels (median 36). In these recession episodes, the S&P 500 saw a full bear market, typically falling -27% from peak to trough, with a bulk of the decline occurring after the Fed had started easing. Indeed, on average, the S&P 500 did not bottom until 5 months after the Fed started cutting. The distinguishing characteristic of the episodes that did not end in recessions was that after a moderate further decline in growth (to a median ISM 48), on average within 2-3 months after the Fed began easing, growth rebounded quickly. The equity market typically fell -7% after the Fed began easing, but bottomed quickly with growth. The S&P 500 ended above the pre-easing level within 6 months each and every time, rising a robust 12% on average. So my take on this is that history suggests a much higher probability of an imminent recession than markets do and also that we’re at quite a binary moment for markets as the Fed (and other central banks) embark on a fresh easing cycle. See the piece for much more detail.

In terms of markets yesterday, the focus was a further rally for equities across the world, with the S&P 500 closing +0.69% higher and above the 3000 level for only the fourth time in history. Elsewhere, the DOW and NASDAQ advanced +0.65% and +0.58%. After US markets closed, the Justice Department said it is investigating tech firms for antitrust violations, which caused the Nasdaq to retrace a bit more than half of its gains from yesterday, with futures down -0.18% overnight. Shares of Amazon (-0.95%), Alphabet (-0.96%) and Facebook (-1.54%) declined c.1% in after-hours trading. Prior to that, indexes were supported by strong earnings reports, as well as positive news on the trade front after Europe went home. USTR Lighthizer and other senior officials will reportedly travel to China on Monday for face-to-face talks, likely staying through Wednesday. European equities rallied as well before this news, with the STOXX 600 up +0.98% and the DAX trading +1.64%.

The positive trade news has also supported the Asian session overnight with Chinese markets leading advances – the CSI (+1.03%), Shanghai Comp (+1.01%) and Shenzhen Comp (+1.39%) are all up over 1%. The Nikkei (+0.46%) and Hang Seng (+0.93%) are also up while the Kospi is down -0.25%. Elsewhere, futures on the S&P 500 are trading largely unchanged while crude oil prices (WTI +0.41%, Brent +0.27%) are up for the fourth day in a row on a report from the American Petroleum Institute which showed a 10.96 million barrel decline in US crude stockpiles last week. In terms of overnight data releases Japan’s preliminary July manufacturing PMI came in at 49.6 (vs. 49.3 last month) while the services PMI stood at +52.3 (vs. 51.9 last month) bringing the composite PMI print to 51.2 (vs. 50.8 last month).

Ahead of tomorrow’s ECB meeting the next test will be the rest of today’s flash global PMIs. The last few months have seen some stabilisation in the data with the manufacturing PMI for the Euro Area hitting 47.6 in June (vs. 47.7, 47.9 and 47.5 in the three months prior). The consensus expects a 47.7 reading for July. As for the services reading the consensus expects a 53.3 print which compares to 53.6 last month. We should note that we'll also get country level PMI data for Germany, France, and also the US.

Turning back to the earnings reports from yesterday, Coca-Cola (+6.07%) and United Technologies (+1.50%) led gains. Coca-Cola shares climbed to a record high after their results showed a strong increase in demand, with full-year revenue growth estimated to grow 5%, up 1pp from the previous guidance. Demand from China has been a key driver of that growth, with sales volumes up 7% in Asia’s largest economy. United Technologies also raised their guidance, citing strong jet engine sales. After hours, Texas Instruments (+7.01%) and Snap (+9.10%) rallied strongly, as the former raised its guidance and the latter increased its daily user count to 203 million, compared to consensus estimates for 192 million.

The risk-on sentiment bled over into fixed income markets, where 10-year treasury yields rose +2.6bps. Two-year yields rose +2.5bps, leaving the 2y10y curve roughly flat. Earlier in the session, European yields rallied with bund yields down -0.9bps to -0.355%. BTPs outperformed, gaining -5.1bps. In the UK, gilt yields fell -1.6bps and the Treasury sold new 10-year notes at their second lowest ever yield at 0.