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[Markets] Stocks - Dow Closes Higher Despite Giving up Gains in Roller-Coaster Trade - The Dow closed higher Thursday, despite giving up most of its gains, as optimism over U.S.-China trade faded and weakness in financials weighed. Published:12/13/2018 6:03:17 PM
[Markets] Bankers, Politicians, & Angry Citizens: Nomi Prins Exposes A World That Is The Property Of 'The 1%'

Authored by Nomi Prins via,

The Inequality Gap on a Planet Growing More Extreme

As we head into 2019, leaving the chaos of this year behind, a major question remains unanswered when it comes to the state of Main Street, not just here but across the planet.

If the global economy really is booming, as many politicians claim, why are leaders and their parties around the world continuing to get booted out of office in such a sweeping fashion?

One obvious answer: the post-Great Recession economic “recovery” was largely reserved for the few who could participate in the rising financial markets of those years, not the majority who continued to work longer hours, sometimes at multiple jobs, to stay afloat. In other words, the good times have left out so many people, like those struggling to keep even a few hundred dollars in their bank accounts to cover an emergency or the 80% of American workers who live paycheck to paycheck.

In today's global economy, financial security is increasingly the property of the 1%. No surprise, then, that, as a sense of economic instability continued to grow over the past decade, angst turned to anger, a transition that -- from the U.S. to the Philippines, Hungary to Brazil, Poland to Mexico -- has provoked a plethora of voter upheavals. In the process, a 1930s-style brew of rising nationalism and blaming the “other” -- whether that other was an immigrant, a religious group, a country, or the rest of the world -- emerged.

This phenomenon offered a series of Trumpian figures, including of course The Donald himself, an opening to ride a wave of “populism” to the heights of the political system. That the backgrounds and records of none of them -- whether you’re talking about Donald Trump, Viktor Orbán, Rodrigo Duterte, or Jair Bolsonaro (among others) -- reflected the daily concerns of the “common people,” as the classic definition of populism might have it, hardly mattered. Even a billionaire could, it turned out, exploit economic insecurity effectively and use it to rise to ultimate power.

Ironically, as that American master at evoking the fears of apprentices everywhere showed, to assume the highest office in the land was only to begin a process of creating yet more fear and insecurity. Trump’s trade wars, for instance, have typically infused the world with increased anxiety and distrust toward the U.S., even as they thwarted the ability of domestic business leaders and ordinary people to plan for the future. Meanwhile, just under the surface of the reputed good times, the damage to that future only intensified. In other words, the groundwork has already been laid for what could be a frightening transformation, both domestically and globally.

That Old Financial Crisis

To understand how we got here, let’s take a step back. Only a decade ago, the world experienced a genuine global financial crisis, a meltdown of the first order. Economic growth ended; shrinking economies threatened to collapse; countless jobs were cut; homes were foreclosed upon and lives wrecked. For regular people, access to credit suddenly disappeared. No wonder fears rose. No wonder for so many a brighter tomorrow ceased to exist.

The details of just why the Great Recession happened have since been glossed over by time and partisan spin. This September, when the 10th anniversary of the collapse of the global financial services firm Lehman Brothers came around, major business news channels considered whether the world might be at risk of another such crisis. However, coverage of such fears, like so many other topics, was quickly tossed aside in favor of paying yet more attention to Donald Trump’s latest tweets, complaints, insults, and lies. Why? Because such a crisis was so 2008 in a year in which, it was claimed, we were enjoying a first class economic high and edging toward the longest bull-market in Wall Street history. When it came to “boom versus gloom,” boom won hands down.

None of that changed one thing, though: most people still feel left behind both in the U.S. and globally. Thanks to the massive accumulation of wealth by a 1% skilled at gaming the system, the roots of a crisis that didn’t end with the end of the Great Recession have spread across the planet, while the dividing line between the “have-nots” and the “have-a-lots” only sharpened and widened.

Though the media hasn’t been paying much attention to the resulting inequality, the statistics (when you see them) on that ever-widening wealth gap are mind-boggling. According to, for instance, those with at least $30 million in wealth globally had the fastest growth rate of any group between 2016 and 2017. The size of that club rose by 25.5% during those years, to 174,800 members. Or if you really want to grasp what’s been happening, consider that, between 2009 and 2017, the number of billionaires whose combined wealth was greater than that of the world’s poorest 50% fell from 380 to just eight. And by the way, despite claims by the president that every other country is screwing America, the U.S. leads the pack when it comes to the growth of inequality. As notes, it has “much greater shares of national wealth and income going to the richest 1% than any other country.”

That, in part, is due to an institution many in the U.S. normally pay little attention to: the U.S. central bank, the Federal Reserve. It helped spark that increase in wealth disparity domestically and globally by adopting a post-crisis monetary policy in which electronically fabricated money (via a program called quantitative easing, or QE) was offered to banks and corporations at significantly cheaper rates than to ordinary Americans.

Pumped into financial markets, that money sent stock prices soaring, which naturally ballooned the wealth of the small percentage of the population that actually owned stocks. According to the Fed’s own Survey of Consumer Finances, “It is hardly a stretch to conclude that QE exacerbated America’s already severe income disparities.”

Wall Street, Central Banks, and Everyday People

What has since taken place around the world seems right out of the 1930s. At that time, as the world was emerging from the Great Depression, a sense of broad economic security was slow to return. Instead, fascism and other forms of nationalism only gained steam as people turned on the usual cast of politicians, on other countries, and on each other. (If that sounds faintly Trumpian to you, it should.)

In our post-2008 era, people have witnessed trillions of dollars flowing into bank bailouts and other financial subsidies, not just from governments but from the world's major central banks. Theoretically, private banks, as a result, would have more money and pay less interest to get it. They would then lend that money to Main Street. Businesses, big and small, would tap into those funds and, in turn, produce real economic growth through expansion, hiring sprees, and wage increases. People would then have more dollars in their pockets and, feeling more financially secure, would spend that money driving the economy to new heights -- and all, of course, would then be well.

That fairy tale was pitched around the globe. In fact, cheap money also pushed debt to epic levels, while the share prices of banks rose, as did those of all sorts of other firms, to record-shattering heights.

Even in the U.S., however, where a magnificent recovery was supposed to have been in place for years, actual economic growth simply didn’t materialize at the levels promised. At 2% per year, the average growth of the American gross domestic product over the past decade, for instance, has been half the average of 4% before the 2008 crisis. Similar numbers were repeated throughout the developed world and most emerging markets. In the meantime, total global debt hit $247 trillion in the first quarter of 2018. As the Institute of International Finance found, countries were, on average, borrowing about three dollars for every dollar of goods or services created.

Global Consequences

What the Fed (along with central banks from Europe to Japan) ignited, in fact, was a disproportionate rise in the stock and bond markets with the money they created. That capital sought higher and faster returns than could be achieved in crucial infrastructure or social strengthening projects like building roads, high-speed railways, hospitals, or schools.

What followed was anything but fair. As former Federal Reserve Chair Janet Yellen noted four years ago, “It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.” And, of course, continuing to pour money into the highest levels of the private banking system was anything but a formula for walking that back.

Instead, as more citizens fell behind, a sense of disenfranchisement and bitterness with existing governments only grew. In the U.S., that meant Donald Trump. In the United Kingdom, similar discontent was reflected in the June 2016 Brexit vote to leave the European Union (EU), which those who felt economically squeezed to death clearly meant as a slap at both the establishment domestically and EU leaders abroad.

Since then, multiple governments in the European Union, too, have shifted toward the populist right. In Germany, recent elections swung both right and left just six years after, in July 2012, European Central Bank (ECB) head Mario Draghi exuded optimism over the ability of such banks to protect the financial system, the Euro, and generally hold things together.

Like the Fed in the U.S., the ECB went on to manufacture money, adding another $3 trillion to its books that would be deployed to buy bonds from favored countries and companies. That artificial stimulus, too, only increased inequality within and between countries in Europe. Meanwhile, Brexit negotiations remain ruinously divisive, threatening to rip Great Britain apart.

Nor was such a story the captive of the North Atlantic. In Brazil, where left-wing president Dilma Rouseff was ousted from power in 2016, her successor Michel Temer oversaw plummeting economic growth and escalating unemployment. That, in turn, led to the election of that country’s own Donald Trump, nationalistic far-right candidate Jair Bolsonaro who won a striking 55.2% of the vote against a backdrop of popular discontent. In true Trumpian style, he is disposed against both the very idea of climate change and multilateral trade agreements.

In Mexico, dissatisfied voters similarly rejected the political known, but by swinging left for the first time in 70 years. New president Andrés Manuel López Obrador, popularly known by his initials AMLO, promised to put the needs of ordinary Mexicans first. However, he has the U.S. -- and the whims of Donald Trump and his “great wall” -- to contend with, which could hamper those efforts.

As AMLO took office on December 1st, the G20 summit of world leaders was unfolding in Argentina. There, amid a glittering backdrop of power and influence, the trade war between the U.S. and the world’s rising superpower, China, came even more clearly into focus. While its president, Xi Jinping, having fully consolidated power amid a wave of Chinese nationalism, could become his country’s longest serving leader, he faces an international landscape that would have amazed and befuddled Mao Zedong.

Though Trump declared his meeting with Xi a success because the two sides agreed on a 90-day tariff truce, his prompt appointment of an anti-Chinese hardliner, Robert Lighthizer, to head negotiations, a tweet in which he referred to himself in superhero fashion as a “Tariff Man,” and news that the U.S. had requested that Canada arrest and extradite an executive of a key Chinese tech company, caused the Dow to take its fourth largest plunge in history and then fluctuate wildly as economic fears of a future “Great Something” rose. More uncertainty and distrust were the true product of that meeting.

In fact, we are now in a world whose key leaders, especially the president of the United States, remain willfully oblivious to its long-term problems, putting policies like deregulation, fake nationalist solutions, and profits for the already grotesquely wealthy ahead of the future lives of the mass of citizens. Consider the yellow-vest protests that have broken out in France, where protestors identifying with left and right political parties are calling for the resignation of neoliberal French President Emmanuel Macron. Many of them, from financially starved provincial towns, are angry that their purchasing power has dropped so low they can barely make ends meet

Ultimately, what transcends geography and geopolitics is an underlying level of economic discontent sparked by twenty-first-century economics and a resulting Grand Canyon-sized global inequality gap that is still widening. Whether the protests go left or right, what continues to lie at the heart of the matter is the way failed policies and stop-gap measures put in place around the world are no longer working, not when it comes to the non-1% anyway. People from Washington to ParisLondon to Beijing, increasingly grasp that their economic circumstances are not getting better and are not likely to in any presently imaginable future, given those now in power.

A Dangerous Recipe

The financial crisis of 2008 initially fostered a policy of bailing out banks with cheap money that went not into Main Street economies but into markets enriching the few. As a result, large numbers of people increasingly felt that they were being left behind and so turned against their leaders and sometimes each other as well.

This situation was then exploited by a set of self-appointed politicians of the people, including a billionaire TV personality who capitalized on an increasingly widespread fear of a future at risk. Their promises of economic prosperity were wrapped in populist platitudes, normally (but not always) of a right-wing sort. Lost in this shift away from previously dominant political parties and the systems that went with them was a true form of populism, which would genuinely put the needs of the majority of people over the elite few, build real things including infrastructure, foster organic wealth distribution, and stabilize economies above financial markets.

In the meantime, what we have is, of course, a recipe for an increasingly unstable and vicious world.

Published:12/13/2018 4:59:06 PM
[Markets] The Dow Gains 70 Points While GE Surges 7.3% An upgrade pushed the conglomerate’s stock higher, while the Dow Jones Industrial Average rose 0.3% to close at 24,597.38. The Nasdaq Composite slipped 0.4%, ending at 7070.33. Published:12/13/2018 4:59:06 PM
[Markets] Dow closes off session highs, Nasdaq snaps 3-day win streak Dow closes off session highs, Nasdaq snaps 3-day win streak Published:12/13/2018 3:28:21 PM
[Markets] U.S. Stocks Close Mixed After Late Rally; GE, P&G Gain The Dow Jones Industrial Average rose Thursday as Wall Street expressed optimism over U.S. and China trade talks. said Thursday it would invest $1 billion to build a new campus in Austin, Texas. Stocks traded mixed on Thursday, Dec. 13, as Wall Street monitored trade developments between the U.S. and China, the world's two largest economies. Published:12/13/2018 3:28:21 PM
[Markets] Dow Declines, Gives Up Earlier Gains as Rally Fizzles The Dow Jones Industrial Average rose Thursday as Wall Street expressed optimism over U.S. and China trade talks. said Thursday it would invest $1 billion to build a new campus in Austin, Texas. Stocks fluctuated on Thursday, Dec. 13, as Wall Street monitored trade developments between the U.S. and China, the world's two largest economies. Published:12/13/2018 1:32:06 PM
[Markets] "Mission Critical" - Revisiting The 'Most Important Chart' In Markets

Authored by Sven Henrich via,

As markets are on the cusp again with only a few trading days remaining before year end it is time to revisit the most important chart in markets. I’ve shown this chart in various forms for the past year and it shows the relationship between $SPX and the 10 year yield in context of the broader economic cycle as expressed by the unemployment rate.

The chart is mission critical as it highlights where we are in the broader macro sense:

Let me highlight several key components of the chart:

Previous bull markets ended when multi year channels or wedge patterns broke their long term trends. Currently $SPX is at risk of breaking its 2009 trend. It may save it again for the third month in a row into year end and, if it does it, it has room to rally again. But be clear, when this trend line breaks, and it eventually will, the price consequences will be substantial as evidenced by previous breaks.

Notable here too is that the lows following the 1987 crash marked the beginning of a multi decade trend line that initially found support at the 2002/2003 lows, but then was broken the downside during the financial crisis in 2008. This trend line has remained resistance to this day, firstly in 2014 and 2015 and then again earlier in January 2018 and September 2018. All of the attempts to break above this trend line have failed.

The combination of the 1987 trend line and the 2009 trend line have formed a massive rising wedge that is narrowing dramatically.

Also note the break of the most recent bull markets, 2000 and 2007, coincided with the 10 year peaking near its multi decade trend line dating back all the way to 1982. It is during these yield peaks we’ve witnessed the end of recent economic cycles as shown by the change in the unemployment rate. Low unemployment rates have no history of sustaining themselves. They can extend but they can’t sustain.

When business cycles end central banks (for decades now) have reacted with lower rates to combat recessions. The unemployment rate is currently at 3.7% while recession risks have been rising and many economists and CFOs are now expecting one to arrive in 2019 or 2020.

2018 also saw a yield scare as the 10 year pushed toward 3.2%. But it’s actually the rejection of yields from that particular level that serves as a warning sign.

Hence it is particularly notable that the 2018 yield scare ended precisely at the 1982 trend line repeating a familiar historical script and that is the Fed is looking to pause its rate hike cycle into 2019.

What’s the message of this chart?

Simple: Unemployment will rise at some point and $SPX will break its trend line eventually. Be it this month or at some future month to come. Both things will happen and the 36 year history of this cycle chart implies that the Fed will eventually have to intervene again. Because they’ll have no choice. And then the cycle repeats itself. One problem though: With each cycle the system ends up carrying more and more debt and the Fed’s ability to generate sufficient ammunition to deal with the next downturn becomes ever more limited.

These trend lines matter big time, they are mission critical. Right this moment.

You can see how everything in markets centers around these trend lines and the synchronicity of it all can’t help but impress.



$DJW (Dow Jones Global Index):

Perhaps markets have never needed a Santa rally more than now. Perhaps the Fed realizes this. We’ll find out next week.

*  *  *

For the latest public analysis please visit NorthmanTrader. To subscribe to our subscription products please visit Services.

Published:12/13/2018 12:27:59 PM
[Markets] Dow Rises Modestly as Wall Street Monitors U.S.-China Trade Developments The Dow Jones Industrial Average was rising for the third day in four amid optimism over U.S.-China trade talks. Stocks were mixed on Thursday, Dec. 13, as Wall Street monitored trade developments between the U.S. and China, the world's two largest economies. Wall Street finished higher on Wednesday, Dec. 12, as investors cheered progress in U.S.-China trade talks and after a report said China was planning a new program that promised greater access for foreign companies. Published:12/13/2018 12:01:23 PM
[Markets] Dow Rises but Stocks Turn Mixed as Wall Street Monitors U.S.-China Trade Talks The Dow Jones Industrial Average was rising for the third day in four amid optimism over U.S.-China trade talks. Stocks turned mixed on Thursday, Dec. 13, as Wall Street monitored trade developments between the U.S. and China, the world's two largest economies. Wall Street finished higher on Wednesday, Dec. 12, as investors cheered progress in U.S.-China trade talks and after a report said China was planning a new program that promised greater access for foreign companies. Published:12/13/2018 10:28:32 AM
[Markets] Dow rises 100 points amid cautious optimism on U.S.-China trade deal The major U.S. stock benchmarks edged higher at the start of trade Thursday, as investors continue to digest headlines surrounding the potential for a U.S.-China trade deal. The Dow Jones Industrial Average (DJIA) rose 131 points, or 0.5%, to 24,656 while the S&P 500 index (SPX) rose 16 points, or 0.6% to 2,666. U.S.-China trade concerns remain at fore of investor minds Thursday, as they continue to digest headlines from earlier in the week that suggested the Chinese were ready to make significant concessions to their industrial policy and reduce tariffs on imported autos, while President Trump indicated he would intervene in the arrest of Huawei’s chief financial officer Meng Wanzhou if it would help ensure a trade deal with China. Published:12/13/2018 9:27:49 AM
[Markets] Dow Jumps, Stocks Advance as Trade Optimism Lifts Wall Street The Dow Jones Industrial Average was rising for the third day in four amid optimism over U.S.-China trade talks. Stocks advanced on Thursday, Dec. 13, and shares in Asia closed higher as trade tensions eased between the U.S. and China, the world's two largest economies. Wall Street finished higher on Wednesday, Dec. 12, as investors cheered progress in U.S.-China trade talks and after a report said China was planning a new program that promised greater access for foreign companies. Published:12/13/2018 8:59:27 AM
[Markets] Stocks Edge Higher On Dovish ECB; GE Jumps on JPMorgan Upgrade UK pound rallies as Prime Minister Theresa May survives leadership challenge and heads to Brussels on a last-ditch effort to extract support from EU leaders for her Brexit deal. U.S. equity futures gain, with the Dow called 65 lower and the Nasdaq poised for a modest upside start, with GE shares surging on a rare upgrade from JPMorgan's Stephen Tusa. Published:12/13/2018 8:28:32 AM
[Markets] Dow Drops 60 Points Because the Market Can’t Decide Which Way Is Up STOCKSTOWATCHTODAY BLOG 6:57 a.m. Are we buying or selling? The market appears to be having a hard time figuring that out. Yesterday, for instance, looked like it would be a great day for the Dow Jones Industrial Average, but instead finished up with about a third of those gains. Published:12/13/2018 6:26:43 AM
[Markets] Rally Fizzles: Europe, US Turn Red After Warnings From ECB, PBOC

With algos trying to force a rally for the third day in a row, the "STFR" crowd arrived early as stocks in Europe and S&P futures surrendered early gains as investors initially bought on the latest optimistic developments in America-China trade relations, which however turned into selling after a BBG report that the ECB - as everyone had already expected - will lower its inflation forecast for 2019 when it publishes an updated outlook on Thursday.

Europe's Stoxx 600 declines were led by energy shares as oil slide back under $51, offsetting gains in raw materials as the index erased an early advance to turn lower. Hong Kong and Chinese stocks outperformed as equities across Asia continued their rebound ignoring news that a second Canadian citizen had "disappeared" in China.

In the U.K., gilts climbed and the FTSE 100 edged lower after May won a vote of confidence in her leadership of the Conservative Party, though it’s likely to be only a temporary reprieve as the embattled premier faces hardened opposition to her Brexit deal.

Earlier, the Nikkei and other Asian stocks had pushed roughly 1 percent higher ahead of several central bank meetings including a landmark one for the ECB which was set to end its quantitative easing program. Gains were concentrated in Chinese shares, with Chinese blue-chips up 1.5 percent and Hong Kong’s Hang Seng index gaining 1.1 percent. Japan’s Nikkei stock index ended 1 percent higher, while Australian shares gained 0.1 percent.

“All eyes will be on the ECB,” said Morgan Stanley FX strategist Hans Redeker. “It may revise its growth projections lower but continue to prepare the markets for allowing QE to end.”

Futures on the S&P 500 initially rose after news broke that Chinese importers have bought U.S. soybeans, though they since hit an air pocket and dropped after US traders got to their desks and after PBOC Governor Yi Gang warned that China's economy faces rising downward pressure. And since the market is entirely controlled by algos, spoos hit yesterday's lows before rebounding.

Investor optimism was boosted on Wednesday after China resumed purchases of American soybeans and reiterated its officials were in close contact with U.S. counterparts on negotiating details of a broader deal, while considering revising the controversial "Made in China 2025" strategy. Still, worries for global relations remain after China detained a second citizen of Canada for questioning, further heightening tensions between those two countries. Also on Wednesday, Trump administration officials signaled that Beijing will have to do more to end the tariff war.

Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management, cautioned against reading too much into trade headlines: “U.S.-China trade negotiations are subject to very high uncertainty. So lots of headlines come and go, and markets come and go also,” he said. “We have to see the evolution of this negotiation.”

US Treasuries popped higher as NBC suggested that Trump is increasingly concerned about impeachment, while in Europe Italy's BTPs resume their upward trend, breaking through 126.00 after PM Conte confirmed that Italy's proposed budget deficit has been cut to just the laughably precise 2.04% in Italy's latest concession to the European Commission.

Two-year Italian bond yields tumbled to 0.51 percent which took them back to where they were before a late May eruption of tensions triggered the worst day for short-term Italian debt in 25 years. Italy’s five-year and 10-year government bond yields dropped to their lowest level in 2 1/2 months and the closely watched Italy/Germany 10-year bond yield spread improved to its tightest since the start of October.

“I think the momentum can carry on in the near term as we have a number of supportive factors for Italian debt beyond just the hopes the budget deal can be reached,” said Commerzbank rates strategist Christoph Rieger.

The euro was steady as the ECB was said to be lowering its inflation forecast for 2019 in an outlook due Thursday, while the dollar was little changed. The pound added to its advance after May survived an attempted ouster, although little has changed on the ongoing Brexit impasse. The Norwegian krone was the biggest gainer versus the dollar as the central bank maintained its key rate but said it sees a hike “most likely” in March 2019. The yen weakened against all of its major peers as demand for haven assets waned amid signs of a further thaw in U.S.-China trade ties.

On Brexit UK Prime Minister May was heading to an EU summit in Brussels following her confidence vote win to try and get some additional concessions on the controversial Irish border aspect of the agreement to placate rebels within her own party and Ulster unionist allies. Markets reckon May’s continued premiership for now makes a ‘no deal’ Brexit less likely at the margins and her survival takes at least some of the immediate headline risk out of the market – even if the Brexit impasse is really no clearer.

Elsewhere, WTI oil slipped below $51 a barrel as a smaller-than-expected decline in U.S. crude stockpiles renewed fears a global glut. In terms of recent newsflow, the latest IEA’s monthly report saw the agency cut non-OPEC oil supply growth forecasts by 415,000 BPD to 1.5mln BPD vs. 2.4mln BPD in 2018. The IEA also left global oil demand growth unchanged at 1.3mln BPD and 1.4mln BPD for 2018 and 2019 respectively. This follows yesterday’s monthly OPEC report where demand estimates were left unchanged. Gold is trading flat within a slim USD 2/oz range, as the dollar steadies with the DXY unchanged on the day. Base metals continue to see support after yesterday's news that China are preparing to increase access for overseas companies with sentiment also bolstered this morning after the Chinese Commerce Ministry stated that they would welcome a US trade delegation visit.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,653.5.50
  • STOXX Europe 600 down 0.2% to 349.21
  • MXAP up 0.6% to 151.37
  • MXAPJ up 0.8% to 488.58
  • Nikkei up 1% to 21,816.19
  • Topix up 0.6% to 1,616.65
  • Hang Seng Index up 1.3% to 26,524.35
  • Shanghai Composite up 1.2% to 2,634.05
  • Sensex up 0.3% to 35,901.53
  • Australia S&P/ASX 200 up 0.1% to 5,661.61
  • Kospi up 0.6% to 2,095.55
  • German 10Y yield unchanged at 0.28%
  • Euro up 0.09% to $1.1379
  • Italian 10Y yield fell 11.9 bps to 2.637%
  • Spanish 10Y yield fell 0.8 bps to 1.421%
  • Brent futures down 0.6% to $59.79/bbl
  • Gold spot little changed at $1,245.01
  • U.S. Dollar Index down 0.1% to 96.96

Top Overnight News from BBG:

  • The European Central Bank is set to lower its inflation forecast for 2019 when it publishes an updated outlook on Thursday, according to people familiar with the matter
  • Theresa May heads for Brussels Thursday to plead for a lifeline after her Brexit plans provoked a revolt from her Conservative Party. “I will be seeking legal and political assurances that will assuage the concern that Members of Parliament have” on the backstop, May said
  • EU27 leaders will affirm after dinner at their meeting in Brussels that the EU stands by the withdrawal agreement “and intends to proceed with its ratification,” Politico reported, citing draft summit conclusions
  • Mario Draghi is about to end an era by halting the European Central Bank’s flagship stimulus program even with an economic outlook that is murky at best
  • China is considering plans to delay some targets in its strategy to dominate high-end technologies as it tries to ease trade tensions with America. Beijing may postpone some aspects of its ambitious industrial program by a decade to 2035, according to people familiar with the matter
  • Chinese importers have purchased 1.5m to 2m metric tons of American soy over the past 24 hours, the U.S. Soybean Export Council said, citing industry sources
  • President Recep Tayyip Erdogan put Turkey on course for another clash with the U.S. by threatening to start a military operation within a few days targeting America’s Kurdish allies in northeastern Syria
  • Italian Prime Minister Giuseppe Conte proposed to cut the deficit target to 2.04% of output for next year in a significant concession to the European Commission
  • Global funds snapped up a record amount of Japanese bonds last week in a trend that threatens to complicate the central bank’s yield-curve-control policy

Asian equity markets traded positively as the region followed suit to the gains on Wall St amid trade-related hopes after news of further potential concessions by China. As such, ASX 200 (+0.1%) and Nikkei 225 (+1.0%) were higher but with gains in Australia capped by losses in the telecoms sector after the competition regulator expressed preliminary concerns regarding proposed TPG Telecom - Vodafone Hutchison Australia merger which resulted to a near-17% drop in TPG shares, while property-related weakness also restricted upside. Hang Seng (+1.3%) and Shanghai Comp. (+1.4%) were lifted amid the encouraging trade-related developments with China preparing to increase access for overseas companies and is working to replace its Made in China 2025 plan with one that tones down its bid to dominate manufacturing, while Chinese importers have also resumed purchases of US soybeans and are said to purchase as much as 2mln tons of US soybeans vs. earlier reports of 500k tons. Finally, 10yr JGBs traded lacklustre amid gains in stocks and similar subdued price action in T-notes, with a mixed 5yr auction result adding to the drab mood.

Top Asian News

  • Philippines Puts Rate Hikes on Pause as Inflation Eases
  • Nissan Said to Be Repatriating Cash as Renault Tensions Brew
  • Air China Is Said to Have Held Talks to Buy HNA’s Airlines
  • Qinghai Provincial Says in Talks With SOEs on Restructuring

Major European Indices are mixed with the FTSE MIB (+1.0%) outperforming due to the indices banks outperforming on Italian PM Conte stating the nations deficit goal is now 2.04%; while the EC comments that good progress has been made on this. FTSE 100 (U/C) is trading flat, with Associated British Foods (-0.6%) and 3I group (-2.1%) trading ex-dividends towards the bottom of the index.  At the top of the index are TUI (+5.0%) expecting 10% underlying earnings growth at constant currencies for 2019. In terms of other notable movers G4S (+9.0%) are reviewing separation options for their cash solution business and Sainsbury’s (+1.3%) are up as they are challenging a refusal for additional time by the regulator regarding their merger with Asda. Sectors are broadly in the red with some underperformance seen in Energy while Utilities are the outperforming sector.

Top European News

  • ECB Is Said to Lower 2019 Inflation Forecast as Bond-Buying Ends
  • Italy Offers 2.04% Budget Deficit Target in EU Peace Gesture
  • France’s Yellow Vests Are Starting to Enjoy the Radical Life
  • Ukraine’s Renewed Privatization Drive Falls at First Hurdle
  • SNB Sees Downside Risks as It Keeps Crisis Policy Settings

In currencies, GBP, EUR – Sterling the major G10 outperformer in the aftermath of PM May’s confidence vote victory last night, with some support also provided by the a draft document including the possibility that the EU are to look into giving more backstop assurances. As such cable remains firmly above 1.2600, albeit off highs of 1.2685 with large options around 1.2650-60 (1.2bln) perhaps hampering further attempts towards 1.2700. Meanwhile, the EUR also feels some benefit from the softer dollar, but is lagging vs. the Pound as EUR/GBP slips below 0.9000 ahead of the ECB policy decision. Note: please refer to the research suite for a full preview.

  • NOK, CHF – Staying with the Central Bank theme, two out of the four end of year meetings have already passed and the Norwegian Crown strengthened in light of the Norges Bank’s current assessment reaffirming that rates will “most likely” be raised in March 2019. This, alongside upgrades to core CPI pulled EUR/NOK to lows of 9.7071 (vs. high of 9.7531).  Conversely, the CHF was largely docile in wake of the SNB keeping its key rate and corridor unchanged, as expected. The Swiss Central Bank also maintained that the Franc is “highly valued” alongside reiterating its preparedness to intervene if required and utilise the balance sheet to react in the event of shocks. Note, SNB Head Jordan stressed the risk of major and sudden exchange rate movements which would significantly alter monetary conditions. As such EUR/CHF remains within a the bottom of a 1.1301-1.1281 range.
  • AUD, NZD – The high-beta currencies continue to prosper in the more positive US-China trade environment, with the with AUD/USD building on gains above 0.7200 to just shy of 0.7250 at one stage, but also wary of big option interest at 0.7200 (1.3bln). Meanwhile NZD/USD remains sub-0.6900, albeit near the top of a 0.6880-42 range despite the downward revisions in the New Zealand HY economic and fiscal updates.
  • JPY – Rangebound trade for the Yen ahead of tonight’s Tankan Survey release with USD/JPY hovering sub-113.50 (with resistance around the figure). In terms of technical, a key fib level sits at 113.61, with 750mln between 113.60-65. In terms of noteworthy option expiries to the downside, 113.00-10 (1.1bln) and 113.30-40 (1bln)
  • TRY – Back to Central Banks, CBRT left its key one-week repo on hold as widely expected and maintained a tightened bias until the inflation outlook displays a significant improvement, though the Bank did acknowledge the recent sub-forecast CPI release, along with import prices and domestic demand condition. As such USD/TRY fell to lows just shy of 5.3000 vs. highs of 5.3837

In commodities, Brent (-0.3%) and WTI (-0.4%) are down on the session in a continuation of yesterday's price action. In terms of recent newsflow, the latest IEA’s monthly report saw the agency cut non-OPEC oil supply growth forecasts by 415,000 BPD to 1.5mln BPD vs. 2.4mln BPD in 2018. The IEA also left global oil demand growth unchanged at 1.3mln BPD and 1.4mln BPD for 2018 and 2019 respectively. This follows yesterday’s monthly OPEC report where demand estimates were left unchanged. Whereas, non-OPEC oil supply in 2018 is forecast to grow by 2.5mln BPD, which was an upward revision of 190k BPD; with this in mind, some suggest that OPEC will need to make further cuts over the second half of 2019. Gold is trading flat within a slim USD 2/oz range, as the dollar steadies with the DXY unchanged on the day. Base metals continue to see support after yesterday's news that China are preparing to increase access for overseas companies with sentiment also bolstered this morning after the Chinese Commerce Ministry stated that they would welcome a US trade delegation visit. Copper prices have hit a 1-week high on these trade developments. Separately, steel prices have risen on a potential boost to demand arising from expectations that China are to launch more infrastructure products next year.

US Event Calendar

  • 8:30am: Import Price Index MoM, est. -1.0%, prior 0.5%; YoY, est. 1.3%, prior 3.5%
  • 8:30am: Export Price Index MoM, est. -0.3%, prior 0.4%; YoY, prior 3.1%
  • 8:30am: Initial Jobless Claims, est. 226,495, prior 231,000; Continuing Claims, est. 1.65m, prior 1.63m
  • 9:45am: Bloomberg Consumer Comfort, prior 60.3
  • 2pm: Monthly Budget Statement, est. $199.0b deficit, prior $100.5b deficit

DB's Jim Reid concludes the overnight wrap

There were high emotions last night as UK PM May now has to write 117 fewer Xmas cards after winning her leadership battle by a vote of 200-117. That result is enough to insulate May from another leadership challenge within the next 12 months from within her party. However, more than a third of her party and likely more than half of her backbenchers voted against her and the result was less supportive than most thought beforehand.

The pound had already gained as much as +1.47% to above $1.265 in advance of the vote, as it became clearer that May would  have sufficient support to win the confidence vote. However, with the actual margin less than expected the currency surrendered around a third of its gains at one stage before closing up +1.14% on the day after the vote. Overnight, it held that advance and is trading around $1.262 as we go to print.

So after all the noise, we’re left where we started. As before, the eventual outcome and the implications for UK assets will depend on May’s approach. Will she allow for modifications to her deal, or press ahead as-is? In her brief speech after the result she acknowledged the opposition in the leadership results and to the deal but didn’t immediately appear inclined to change tact. Her tactic at the moment still seems to get concessions out of Europe. Problem is, it seems quite clear that her European partners will not offer any of note. Basically, it all boils down to the backstop on the Irish situation. On this it’s worth noting that EU leaders are due to meet later today to discuss their position. Let’s see if a rabbit is pulled out of a hat. Seems unlikely. Where this ends is still highly uncertain. If a solution to the backstop can’t be found, we will probably have to pivot to a totally different tactic. Either a much softer Brexit (EEA type arrangement) or maybe a second referendum.

Aside from the Sterling move, this morning in Asia markets are off to a solid start with the Nikkei (+1.08%), Hang Seng (+1.22%), Shanghai Comp (+1.47%) and Kospi (+0.76%) all up. More signs of diffusing trade tensions seem to be the driver. The US Soybean export council said late yesterday night that Chinese importers have purchased 1.5mn to 2mn tons of US soybeans over the last 24 hours thus providing further evidence that the talks are moving in the right direction. Meanwhile, yesterday’s story in the WSJ about China working on a replacement for its ‘Made in China 2025’ plan with one that plays down its bid to dominate manufacturing has also aided sentiment. The article is noteworthy as it is the first sign that we’ve seen on a compromise on issues between the US and China that go beyond the bilateral deficit and focus on specifics. Futures on S&P 500 are also up +0.35% overnight while the CNY is +0.20% stronger.

Those moves overnight come after an impressive first half to the session on Wall Street yesterday but one that saw intra-day gains fade yet again. US markets still rallied +0.5 to +1% but gains of over +1.8% to +3% were seen earlier depending on the indices. Before this we saw another strong day for risk in Europe. Indeed, it felt like you could take your pick from a number of riskfriendly catalysts yesterday. Hopes that Brexit can have a softer bias with a May win, further signs of softening on the budget in Italy, a steady as she goes US CPI print, the WSJ story about China above, and talk of President Trump intervening on the Huawei case to push through a trade deal with China, all played a part. In the end, the S&P 500 (+0.54%), DOW (+0.64%) and NASDAQ (+0.95%) stayed higher after the blip while in Europe the STOXX 600 closed +1.69% to clock up its best two-day run  since July 2016. European banks also bounced +2.99%. Treasuries were well offered with 10y yields climbing +3.1bps, while the 2s10s curve finished +2.2bps steeper. Elsewhere, the FTSE 100 (+1.08%) lagged a bit, which was understandable with the Sterling move, however, the more domestic focused FTSE 250 did rise +1.90%, while the FTSE MIB climbed +1.91% and CAC +2.15% – the latter seemingly still reacting to the budget measures announced by Macron. HY cash spreads in the US and Europe were also -8bps and -11bps tighter respectively.

The more notable moves in Italy yesterday were for Italian Banks, which rallied +3.0% while 2y and 10y BTP yields fell -7.7bps and -11.9bps, respectively. The latter closed back under 3% (at 2.996% to be exact) for the first time since September with the catalyst being the reports about Italian Premier Conte potentially proposing a 2% deficit target for next year. After Europe closed it was confirmed by Conte that the revised budget would be 2.04% of GDP. The euro also gained +0.46% on the day on the news while other bond markets in Europe were more mixed, however 10y Bunds did climb back up +4.6bps to 0.276%. Elsewhere, as noted above, yesterday’s US CPI print didn’t do much to move the dial with the unrounded core reading of 0.2093% for November  more or less bang on expectations. That did, however, confirm a move higher in the year-on-year rate to +2.21%, which puts it at the highest since July. Both the three-month and six-month annualised rates also ticked higher to +2.1% and +2.0%, respectively.

That should alleviate concerns over the slight recent slowdown in core inflation, which had seen the 3m annualized rate dip to 1.6% last month. As markets continue to debate the fallout from last night’s confidence vote, there is at least the distraction of an ECB meeting to look forward to today. As a reminder, our economists expect the ECB to confirm that net asset purchases will cease at year-end. However, they also expect the ECB and Draghi to argue that the policy stance is not tightening. Indeed, they expect a classic ‘dovish tightening’ bias to the event. The team expects Draghi to say that “the market understands the guidance”, meaning the delayed pricing of the first hike is broadly appropriate. They also expect Draghi to hint that the TLTRO2 liquidity will be replaced in 2019. Overall, the risks today are balanced to a more dovish outcome. It is not just that the ECB staff forecasts are likely to be downgraded, the balance of risks could also shift to the downside. At the softer end of options, the ECB could make a dovish revision to the forward guidance on the timing of reinvestment tapering and among the stronger responses are a twist of the asset portfolio. This could come within the details of the reinvestment programme, which are due. We’ll know for certain later with the decision due at 12.45pm BST and Draghi’s press conference shortly after.

Back to yesterday, where, not to be outdone, emerging markets were also back in vogue following the headlines that hit in the morning quoting Turkey President Erdogan as saying that Turkey will “start an operation in Syria within days”. The Turkish Lira immediately sold off as much as -0.54% on the news, but the move appeared to be more kneejerk in reaction than anything else as it ultimately closed slightly stronger, up +0.37% on the day. EM FX more broadly was +0.58% while the MSCI EM equity index ended +1.46%. This came despite another slip in oil prices, with WTI down -0.97% as data showed that US oil inventories fell only -1.2 million barrels last week compared to the expected -3.5 million barrels. That’s the 12th time the inventories data has shown a smaller drawdown than expected over the last three months, the longest such stretch since April 2015.

As for the other economic data that was out yesterday, in the US, mortgage applications data showed a +1.6% week-on-week increase. That’s the third consecutive monthly increase, the best streak since March, and maybe a sign that recent housing sector weakness may be bottoming out. In Europe, October’s industrial production ended up being a bit of a wash with the stronger than expected October reading (+0.2% mom vs. +0.1% expected) offset by a downward revision to September to a sharper -0.6% mom decline (versus -0.3% previously). In Italy, the unemployment rate dipped to 10.2%, a new cycle low and the best print since Q1 2012.

In terms of the day ahead, a combination of the follow through from last night’s confidence vote on UK PM May and the aforementioned ECB meeting later today will no doubt be front and centre. Aside from that we’ve also got the final November CPI revisions due in Germany and France this morning while this afternoon in the US we get the November import price index print and latest weekly initial jobless claims reading. The latter is well worth keeping an eye on in light of the recent uptick in claims. Indeed, the four-week moving average has risen from a multi-decade low of 206k in the middle of September to 228k as of December 1st. Away from all that, EU leaders are also due to meet today in Brussels to discuss the EU budget and Brexit amongst other topics.

Published:12/13/2018 6:26:43 AM
[Markets] [$$] US slowdown or Amazon effect? Investors divided over index fall The Dow Jones Transportation Average, the less well-known sibling of the Dow Jones Industrial Average, includes railroad operators, airlines and shipping companies whose fortunes are tied closely to economic activity. The transport index has fallen more than 9 per cent since the start of December compared with between 3 and 4 per cent for other equity market benchmarks. “I do not think we are heading for a recession, but we are seeing a global economic slowdown and the Transports are reflecting that,” said Michael Underhill, chief investor officer at Capital Innovations. Published:12/13/2018 5:26:55 AM
[Markets] Australian stocks open flat despite recovery in US shares The ASX 200 index was about 0.06 percent higher than yesterday's 5,653.5 points at the open. In the U.S., the Dow Jones Industrial Average rose 157.03 points, the S&P 500 climbed 0.6 percent, and the Nasdaq Composite jumped 1 percent to 7,098.31. Published:12/12/2018 6:24:01 PM
[Markets] Stocks - Dow Posts Triple-Digital Gain on Signs of Trade Progress - The Dow rallied, but closed well below its session highs Wednesday, even as positive news on U.S. and China trade raised hopes that both nations may be able to find a way to resolve their bitter dispute. Published:12/12/2018 5:52:48 PM
[Markets] Dow industrials finish up over 150 points on trade-deal optimism Dow industrials finish up over 150 points on trade-deal optimism Published:12/12/2018 3:22:07 PM
[Markets] Dow up 200 points after intrasession gain is halved Dow up 200 points after intrasession gain is halved Published:12/12/2018 2:21:36 PM
[Markets] Stocks - Wall Street Rises on Trade Optimism The S&P 500 rose 32 points, or 1.2%, as of 9:35 AM ET (14:35 GMT), while the Dow increased 289 points, or 1.2%, and the tech-heavy Nasdaq Composite jumped 89 points, or 1.3%. Published:12/12/2018 10:52:38 AM
[Markets] Apple target cut at Macquarie on expectations for services slowdown Macquarie analyst Benjamin Schachter lowered his price target on Apple Inc. shares to $188 from $222 on Wednesday, taking a more muted stance on the company's services trajectory. "Unfortunately, right as investors are becoming more interested in services as a meaningful part of the story, we think it is now about to slow," he wrote. Schachter sees slowdowns for licensing, the App Store, and AppleCare, which he said represent the three biggest drivers of category growth over the past three years. He wrote that smaller businesses including Apple Music, iCloud, and Apple Pay are not big enough to counter and pick up the slack to maintain current growth rates. Schachter's analysis doesn't take into account changes in App Store commission rates, though a general move toward subscriptions may negatively impact those rates. He maintained an outperform rating on the shares, which are up 1.2% in morning trading. Also on Wednesday, Bloomberg reported that Apple suppliers were considering moving iPhone production out of China if tariff rates move to 25%. Apple's stock has gained 0.8% so far this year, while the Dow Jones Industrial Average is little changed. Published:12/12/2018 10:22:18 AM
[Markets] Kass: Top 10 Reasons Why We May Be Entering A Bear Market


It’s okay to be wrong; it’s unforgivable to stay wrong.” – Marty Zweig, (October 16, 1987 Wall Street Week – at six minute and 40 second mark!)

As observed on Wall Street Week 31 years ago by Lou Rukeyser, the Dow Jones Industrial Average “crashed” by more than 230 points in the week ending October 16, 1987 – knocking out all previous records. In the aforementioned video (above) Lou cited a tumbling in Treasury bonds, jitters in the Persian Gulf, an discouraging political situation, scary layoffs on Wall Street and, of course, the mindless computer based (“portfolio insurance”)selling. (Full disclosure I managed some of the family’s wealth while a General Partner at Glickenhaus and Co.)

Sound familiar? It is (as last week’s market dive was also conspicuous in it’s character)!

But the worst was yet to come on the following Monday (October 19, 1987) , when the DJIA dropped by 22% on the day.

As I have often noted history rhymes – though history doesn’t necessarily repeat itself. And (as Benjamin Disraeli reminded us), what we have learned about history is that we have not learned about history.

Beginning early this year I argued that the market was in the process of making an important top. I described a market top and bottom as resembling an ice cream cone – that tops are processes and bottoms are events.

With the benefit of hindsight it is clear that the market’s nine year uptrend and Bull Market have likely been broken.

The question is whether we are entering a full fledged Bear Market.

While I believe we may get some seasonal respite over the next two weeks, I would conclude (with the normal caveats) that we have not only broken the Bull Market uptrend but that the odds are rising that we may be approaching a Bear Market.

At 103 months, we are currently into the second longest Bull Market in modern investment history. (The 1990-2000 Bull Market lasted 110 months). On average, those seven Bull Markets have lasted 76 months. And, on average, the mean decline from the peak of the last six longest Bull Markets has been -51%.

Here are the top ten reasons why we may be entering a Bear Market:

1. Markets Generally Move in Anticipation of a Change in the Rate of Economic and Corporate Profit Growth – That Path and Trajectory Are Deteriorating: Since 1860 there has been at least one recession in each decade – representing 47 recessions since the Articles of Confederation was approved in 1781. We have not yet had a recession in the current decade but, my view is that this decade will not be spared and that we will likely be in a recession in the second half of next year. (See my 15 Surprises for 2019).

2. President Trump is Making Economic Uncertainty and Market Volatility Great Again (#MUVGA). Trump’s more frequent and incendiary twitter utterances and behavior reflects badly on him, his office and our country. His conduct and policy (often seemingly written ad hoc on the back of a napkin) are arguably beginning to adversely impact our markets as his Administration’s dysfunction and policy (conflated with politics), and have begun to reduce business and consumer confidence and is starting to negatively influence the real economy.

We are in a unprecedented politically toxic and divisive backdrop – which was underscored during Wednesday’s funeral for President George H.W. Bush. As my good pal Mike Lewitt (‘The Credit Strategist’) wrote over the weekend,

The saddest thing is not that Bush passed – it was his time – but that his generation is succeeded by a bunch of greedy, narcissistic empty suits.”

This is happening at a point in history where the world has grown more complex, interrelated, networked and flat. With these conditions in place, there are more dominoes today than yesterday and more yesterday than the day before. Again, from Mike,

“The next crisis is approaching and not only is it self-imposed but we are ill-equipped to manage it precisely bc there are few men like George H.W. Bush to lead us.”

a. The United States is leaning more and more “purple” – moving to the Left at a time that the Right is feeling terribly insecure after 10 years of The Screwflation of the Middle Class (something I initially discussed in an editorial I wrote for Barron’s in 2011). The schism between the “haves and have nots” has not been addressed by policy (and has been worsened by the trickling up from the tax bill, which was intended to trickle down and by such provisions as real estate tax and mortgage interest limitations which have served to dent the residential real estate market).Further neglecting or failing to narrow this split will likely have grave social, economic and market ramifications down the road (or sooner).

b. It is becoming increasingly clear that the 2016 election was materially a vote against Hilary Clinton. Trump’s road to nomination in 2020 is growing more precarious and the odds, after barely winning the first time, are not favorable that he wins reelection (given the Wisconsin voting results as well as the outcomes in Michigan and Pennsylvania). It is hard to see markets prospering with Washington D.C. in such a mess – preventing anything from getting done on deficits, debt, taxes, spending and infrastructure.

c. “The Orange Swan” has grown increasingly untethered in the face of divisive and extremely partisan midterm elections (that brought the House under Democratic control), the implicit threats of the Mueller investigation, the hostility of the Kavanaugh hearings, the controversy surrounding the Khashoggi killing, etc. The White House’s dysfunction and repeated personnel changes would be laughable if they weren’t so sad. Most recently, a hardline approach on trade (with China) seems to have tipped over the markets in recent days. Increasingly, short term solutions are being advanced in the face of long term problems. (A classic example is our burgeoning deficit, endorsed by both parties, that is unchecked and is running wild this year).

d. As we are move further from the midterm elections. my core expectation is that the President will likely be impeached by the House. Though there may be far less reasons for Senate Republicans to tie their political futures to such an individual – especially with a plethora of qualified Republican presidential hopefuls – the Senate vote on impeachment could be closer than many expect.

3. A Pivot in Monetary Policy: For years a zero interest rate policy in the U.S. has served to repair the domestic economy as it came out of the Great Recession in 2007-09. Unfortunately it has had second order consequences like pulling forward economic growth – already seen in Peak Housing and Peak Autos. Artificially low rates have served to protect many corporations who have been temporarily resuscitated. Some of those should not have been permitted to survive – and they won’t in the next recession. This served with liberal loan terms (“covenant lite”) could produce a surprisingly steep economic downturn compared to consensus expectations.

4. Economic Growth and Profit Estimates Are Substantially Too High: With U.S. Real GDP forecast to fall back into the +1% to +2% range in 2019’s first half and turning negative in the second half, the contraction in valuations (so apparent thus far in 2018) may continue in 2019. (See my 15 Surprises for 2019). Over there, matters are worse. England has never been more divided (Brexit), Italy (one of the largest economies in the EU) is on the economic deathbed, Deutsche Bank (DB) (and its monstrous derivative book, poor loan quality and systemic money laundering) is the most dangerous financial institution in the world and two of Europe’s most important leaders (Merkel and Macron) are so unpopular that both may be on the way out. 

5. The Chinese Challenge to U.S. Hegemony Is a Battle For the Next Century – It Will Likely Be Long Lasting, Disruptive to Current Supply Chains and Costly to Profits: We have likely started a lengthy ‘Cold War in Trade’ with China – a time frame measured in years not (three) months.

6. The Apple Complex (its suppliers) Have Been Upended by a Maturing High-End Smart Phone and Weakening iPhone Market and The Social Media Space is Under Increased and Costly Regulatory Scrutiny: These factors have a broad impact on the market leading technology stocks and for the market as a whole. Moreover, over the last decade technological progress has outpaced regulatory supervision – but this is now being reversed as the social media companies now face the existential threat of rising regulations. The costly imposition of regulatory oversight is something I have been writing about for over a year.

7. An Avalanche of Debt: The private and public sector are levered more than any time in history as, rather than addressing the flaws in our system, we tried to solve the last debt crisis with trillions of dollars of more debt. It is the existence of this mountain of debt that has delivered a fragile economic recovery despite a 2 1/4% Federal Funds rate. Given this, a rate hike of only 25 basis points today has about the same impact of 75 basis points a decade ago. As such that accumulated debt loads are vulnerable to a weakening economy and/or rising interest rates (there have been eight rate hikes since the 2016 election.

8. The Market’s Structure Has Made Equities More Vulnerable Than At Any Time Since October, 1987 (see the Wall Street Week interview from October 16, 1987, above): Passive products and strategies (which are generally agnostic to fundamentals) are the dominant factors in market trading. Like “Portfolio Insurance” 31 years ago, they “buy high and sell low.”

9. With Short Term Interest Rates Now Meaningfully Above the Dividend Yield on the S&P 500 Index – There Is Now an Alternative to Stocks: The dividend yield on the S&P is about 1.8% compared to a one month Treasury note rate of 2.35%, a six month note yield of 2.54% and a one year note yield of 2.68%. Goodbye T.I.N.A. (‘there is no alternative’) to C.I.T.A. (‘cash is the alternative’). In terms of valuations, too many look at Non GAAP earnings (15-16x forward EPS) and ignore the record difference between Non GAAP and GAAP which would move the price earnings ratio to close to 20x. As well price to book, price to sales, market capitalization to GDP and Shiller cyclically adjusted P/E ratio speak (graphic) volumes about the degree of overvaluation today.

10. Technical Damage: Uptrends in place for nearly a decade have been reversed.

More Marty

On a more upbeat note, here is some more wisdom from the legendary Marty Zweig:

  • Patience is one of the most valuable attributes in investing.

  • Big money is made in the stock market by being on the right side of the major moves. The idea is to get in harmony with the market. It’s suicidal to fight trends. They have a higher probability of continuing than not.

  • Success means making profits and avoiding losses.

  • Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major decision.

  • The trend is your friend.

  • The problem with most people who play the market is that they are not flexible.

  • Near the top of the market, investors are extraordinarily optimistic because they’ve seen mostly higher prices for a year or two. The sell-offs witnessed during that span were usually brief. Even when they were severe, the market bounced back quickly and always rose to loftier levels. At the top, optimism is king, speculation is running wild, stocks carry high price/earnings ratios and liquidity has evaporated. A small rise in interest rates can easily be the catalyst for triggering a bear market at that point.

  • I measure what’s going on and I adapt to it. I try to get my ego out of the way. The market is smarter than I am so I bend.

  • To me, the “tape” is the final arbiter of any investment decision. I have a cardinal rule: Never fight the tape!

  • The idea is to buy when the probability is greatest that the market is going to advance.

Bottom Line

“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.” – Woody Allen

Slowing economic growth, lower than expected profit growth, an untethered President, a dangerous change in market structure (impacting the trading transmission) and the other conditions listed in my Top 10 (above) provide robust headwinds to the U.S. stock market in 2019.

A hugely underappreciated fact is that because of the large accumulated debt loads in the private and public sectors over the last decade, a 25 basis point rate hike today is equivalent to almost a 75 basis point rate hike in 2008. So the eight hikes since the 2016 election is equivalent to almost 24 hikes of the past!

As is often the case in a maturing economic recovery and an extended Bull Market we are now finding out who is swimming naked. That tide is moving out further than at any time since the Generational Low in March, 2009.

Volatility, inversely related to liqudity, has entered a new regime – not seen since the early 2000s – providing a further challenge to investors’ confidence as they have grown unaccustomed to large daily market swings.

The Bull Market uptrend, in place for almost a decade, is now being threatened – investors are underpricing and under appreciating risk.

I am sticking to my baseline expectation that the market has been making an important top since late January, 2018, and that a Bear Market may be imminent.

Indeed, the four decade benign backdrop for financial assets may now be over.

I remain in the 2550-2775 S&P trading range camp over the next month (the Index closed at 2633 on Friday) – implying a slightly positive reward v. risk ratio skew:


There were some positive divergences (e.g., number of NYSE new highs v. new lows) on Friday as well as some other near term positives including the positive RSI and MACD divergences which resemble the 2015 and 2016 lows and show the potential for double bottoms.

While my view is that we might get some seasonal strength in the next few weeks, the upside will likely be limited and could set the stage in 2019 for a far more challenging year than in 2018.

Heed Marty Zweig’s pearls of wisdom (above).

I am.

Published:12/12/2018 10:22:17 AM
[Markets] Dow up 250 points early Wednesday as Nasdaq runs up 100-point gain Dow up 250 points early Wednesday as Nasdaq runs up 100-point gain Published:12/12/2018 9:50:19 AM
[Markets] US STOCKS SNAPSHOT-Wall Street opens sharply higher on trade optimism U.S. stocks jumped at open on Wednesday as the Wall Street Journal report about China's plans to increase access for foreign firms added to earlier optimism on trade from Trump's upbeat comments. The Dow ... Published:12/12/2018 8:50:12 AM
[Markets] 5 Bargain Dividend Stocks to Buy Now 'Tis the season to go bargain hunting for stocks. It might not feel like it, what with the Dow Jones Industrial Average having kicked off December by shedding nearly 1,200 points, but now is the time to do some holiday shopping in the market, especially in dividend stocks. After all, as Warren Buffett likes to say, "Be greedy when others are fearful." And the way the market has been behaving lately, it's pretty clear that fear abounds. The general retreat in share prices means valuations are down and yields are up. (Dividend yields and stock prices move in opposite directions.) That has made several large-cap, high-quality dividend stocks look mighty tempting. The Standard & Poor's 500-stock index currently trades at 15 times expected earnings, according to Yardeni Research. To find bargains, we scoured the broad-market index for large companies that trade for less than 15 times projected earnings. At the same time, we limited our search to dependable dividend payers with yields of at least 3%. After taking long-term earnings growth forecasts and analysts' opinions into account, the following five names stood out as bargain dividend stocks to buy now. SEE ALSO: 19 Best Stocks to Buy for 2019 Published:12/12/2018 8:24:18 AM
[Markets] Dow futures up more than 200 points as trade-talk optimism reboots Dow futures point to a higher open for Wall Street later as the crisis involving a jailed Huawei executive takes a positive turn, and Trump says he’d intervene if needed. Published:12/12/2018 7:19:50 AM
[Markets] Dow Gains 164 Points Because Progress Is Progress 6:47 a.m. Positive comments from President Donald Trump have the Dow Jones Industrial Average set for a higher open Wednesday. S&P 500 futures have risen 0.7%, while Dow Jones Industrial Average futures have advanced 164 points, or 0.7%. Nasdaq Composite futures have gained 1%. Published:12/12/2018 6:21:18 AM
[Markets] Dow futures up over 200 points as trade-talk optimism reboots Dow futures point to a higher open for Wall Street later as optimism over the crisis involving a jailed Huawei executive takes a more positive turn, and Trump says he’d intervene if needed. Published:12/12/2018 5:19:02 AM
[Markets] Market Snapshot: Dow futures up over 200 points as trade-talk optimism reboots Dow futures point to a higher open for Wall Street later as optimism over the crisis involving a jailed Huawei executive takes a more positive turn, and Trump says he’d intervene if needed.
Published:12/12/2018 4:49:54 AM
[Markets] Dow futures jump more than 200 points, cheered by Trump's trade talk At around 5:00 a.m. ET, Dow Jones Industrial Average futures rose 204 points, indicating a positive open of more than 239 points. Futures on the S&P 500 and Nasdaq Composite were also seen relatively upbeat on Wednesday morning. The moves in pre-market trade come after Trump said talks between Washington and Beijing were ongoing and confirmed he would not raise tariffs on Chinese imports until he was sure about a comprehensive trade agreement. Published:12/12/2018 4:22:45 AM
[Markets] U.S. stocks sought higher ground. Then Trump detoured ‘to crazy town.’ The Dow swung to losses during a dramatic Oval Office meeting in which President Trump threatened to shut down the government if he doesn’t get $5 billion for a border wall. Published:12/11/2018 4:16:42 PM
[Markets] US STOCKS-S&P 500, Dow edge lower as U.S. shutdown threat, China trade in focus The S&P 500 and the Dow closed marginally lower after volatile trading on Tuesday as investors swiveled their focus between China-U.S. trade talks, President Donald Trump's threat to shut down the U.S. government and political uncertainty in Britain. Wall Street saw strong gains early in the day on news U.S. and Chinese officials had discussed a road map for trade talks, which Trump called "very productive." But late in the afternoon two U.S. lawmakers proposed a bill to ban the sale of U.S. products to Chinese companies that violate U.S. export or sanctions laws. Published:12/11/2018 4:16:41 PM
[Markets] Dow, S&P 500 end choppy session down slightly NEW YORK (Reuters) - The S&P 500 and Dow ended a volatile session down slightly on Tuesday as investor optimism over China-U.S. trade talks was offset by U.S. President Donald Trump's threat to shut down ... Published:12/11/2018 3:45:33 PM
[Markets] 'Rumble In The Oval' Sparks Shutdown Fears, Market Mayhem

Don, Chuck, & Nancy (oh, and Mike) battled it out in the Oval Office and sent stocks reeling... they both came out claiming victory though clearly both (and the markets) suffered a fleshwound...

China stocks were majestically bid into the close last night and sparked the overnight strength in US futures...(but China remains red on the week)


European stocks were buoyed by China early on but as Italy and France began to heat-up, risk rolled over and the US open added to selling...


As French credit risk has started to crack...


Overnight excitement after positive comments from Mnuchin and then from Trump on a big china announcement were quickly stymied by the apparent end of the trade truce (as WaPo reports Washington about to sanction China over cyberspying) and Trump's Oval Office debacle with Chuck and Nancy sparked selling into and beyond the European close...


On the cash side, it's clear that selling was instant at the open and accelerated after the Oval Office Deathmatch


Dow futures really show the chaos - a 400pt ramp, a 600pt plunge and 350 pt surged before dropping almost 200 into the close...


NOTE that at around 215pmET, AAPL shares were suddenly bid (cough...buybacks...cough) and that lifted the broad markets


And VIX was monkeyhammered to get Stocks green...


As @vader7x noted, ES bounced exactly at last weeks low 2621.25. There are no humans helping steer this ship. Just bots and pain.


Banks stocks opened gap up but quickly plunged into and beyond the European close...down for 5 days in a row


And GE puked to $6.66 March 2009 closing lows...


Early Cyclical stock strength was crushed from the open and then panic-bid as the last hour began...


And we note that the broad market bottomed to the tick when GE hit $6.66...



Once again the Treasury complex was selling across the curve dominated by the short-end as the long-end actually saw yields lower...

NOTE - once again as Europe closed, bonds started to sell off again


This sent the yield curve tumbling back to one-week lows...

The short-end of the curve remains inverted from 2s to 5s and 2s10s broke back to a 10 handle intraday...


The Dollar Index surged again intraday, but rolled over shortly after the European close - NOTE it has now made 2 Lower Highs since the peak in November


Cable was clubbed like a baby seal to fresh 18-month lows... (cable briefly broke below 1.25 intraday)


Offshore Yuan ended the day stringer (thanks to some overnight strength on trade hopes)


Cryptos continued to be sold with all the majors now in the red for the week...


Crude and Copper got a lift overnight but faded during the US day...

Gold in Yuan faded back towards its apparent 8500 peg


Finally, The T-Bill market is starting to worry about a government shutdown...

Who can blame them...

Published:12/11/2018 3:16:59 PM
[Markets] Dow ends lower in volatile session amid talk of government shutdown Dow ends lower in volatile session amid talk of government shutdown Published:12/11/2018 3:16:59 PM
[Markets] Stocks End Mixed as China Trade Progress Offsets D.C. Dysfunction The Dow Jones Industrial Average fell after Donald Trump and top Democratic leaders clashed over border security. tumbled 20.9% on Tuesday after its client growth disappointed Wall Street. jumped 8% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 3:16:59 PM
[Markets] Stocks Seesaw As Turmoil in Washington Weighs Against Trade War Progress The Dow Jones Industrial Average was falling after Donald Trump and top Democratic leaders clashing over border security. tumbled 27.7% on Tuesday after its client growth disappointed Wall Street. jumped 11.3% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 2:23:41 PM
[Markets] Stock Selloff Worsens as Trump, Democratic Leaders Fight Over Border Security The Dow Jones Industrial Average was falling after Donald Trump and top Democratic leaders clashed over border security. tumbled 27.7% on Tuesday after its client growth disappointed Wall Street. jumped 11.3% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 1:45:08 PM
[Markets] Dow Trades Lower as Trump, Democratic Leaders Fight Over Border Security The Dow Jones Industrial Average was falling after Donald Trump and top Democratic leaders clashed over border security. tumbled 27.7% on Tuesday after its client growth disappointed Wall Street. jumped 11.3% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 12:48:28 PM
[Markets] Dow Turns Negative as Trump, Democratic Leaders Fight Over Border Security The Dow Jones Industrial Average was falling after Donald Trump and top Democratic leaders clashed over border security. tumbled 27.7% on Tuesday after its client growth disappointed Wall Street. jumped 11.3% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 12:17:31 PM
[Markets] "Aaand, It's Gone" - Dow Dumps Into Red As Europe Closes

Everything was looking so good... follow-through from yesterday's short-squeeze, some positive headlines, what could go wrong?

But the sellers sold the rip...

Removing all the morning's gains for The Dow...

Blame AAPL!

Published:12/11/2018 10:45:08 AM
[Markets] Dow Rises as Wall Street Likes Progress in U.S.-China Trade Talks The Dow Jones Industrial Average was rising for a second day amid progress in trade discussions between the U.S. and China. tumbled 25.1% on Tuesday after its client growth disappointed Wall Street. jumped 7.1% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 10:15:08 AM
[Markets] Dow Rallies as Wall Street Likes Progress in U.S.-China Trade Talks The Dow Jones Industrial Average was rising for a second day and moved back into positive territory for the year. tumbled 25.1% on Tuesday after its client growth disappointed Wall Street. jumped 7.1% after the shoe retailer posted fiscal third-quarter earnings that topped forecasts and the company lifted full-year guidance. Published:12/11/2018 9:46:58 AM
[Markets] Dow industrials up more than 300 points early Tuesday Dow industrials up more than 300 points early Tuesday Published:12/11/2018 8:44:58 AM
[Markets] US STOCKS SNAPSHOT-Wall Street opens sharply higher on trade optimism U.S. stocks jumped at the open on Tuesday in broad-based gains led by industrial and technology stocks amid signs of progress in trade talks between the United States and China. The Dow Jones Industrial ... Published:12/11/2018 8:44:58 AM
[Markets] Beware A "Crushing Move Higher" As Funds Are Trapped In Massive Short Squeeze

Yesterday, when the Dow was more than 400 points and traders were shaken by what appeared to be a market that could not bounce no matter the newsflow, Nomura's Charlie McElligott - who had correctly foreseen last week's market slide - made a contrarian forecast: due to dismal positioning by CTAs and fund, he warned the next move was likely an explosive "blast to the upside."

Less than 24 hours later, and 700 Dow points higher, this prediction has come true, and much more may be coming according to McElligott's latest note.

First, a snapshot of where we currently stand.

As already covered earlier, futures are "smocking" higher this morning following overnight news of a call between Chinese Vice Premier Liu He and US Treasury Sec Mnuchin and Trade Rep Lighthizer to discuss timetables and “road map” on trade talks, followed by a report that China is set to "move on US car tariffs", both of which ramped risk assets and sent spoos above yesterday's higher, triggering stop-losses from dynamic hedgers with and more than 80 handles higher from yesterday's lows.

Adding to the suddenly euphoric mood is the drop in the dollar, which is boosting commodities, emerging markets and inflation expectations, while higher Treasury yields are also forcing a modest rotation into risk, with the Eurodollar curve steepening, a "further indication that the worst of the Rates “stop-outs” are behind us."

Fundamentals are also in the bulls' favor: i) the Fed’s dovish pivot further eases “forward-guidance” while also removing the “policy-error” left-tail scenario as well, ii) US financial conditions have actually EASED via the curve’s recent / power bull-flattening; iii) financial conditions are likely to “ease” even more going-forward with increasingly limited US Dollar upside into 2019 and beyond; iv) the weaker dollar drives a “virtuous” feedback loop of firming Commodities (with US Ags as further catalyst on Chinese resumption of buying as trade-war “olive branch”), in turn boosting the S&P’s largest positive macro factor sensitivity being US (higher) inflation expectations.

But while the newsflow and fundamentals are surely setting up the market for a nice move higher - absent any more executive arrests of course - it is positioning that remains the big wildcard and the key catalyst for a potential move higher.

As McElligott explains, continuing the correct argument he first laid out yesterday, "the tactical positioning dynamics are now even more acute, as both Systematic Trends have (as documented here yesterday) again pivoted “max short” Fri / Mon across most global Equities index futures, while Fundamental funds have been in “net-down” mode by selling longs and “grossing-up” shorts in single name / ETF and index futures—in turn, creating the kindling for a massive short-squeeze over the next month via both this implicit- and explicit- “negative gamma.”

And just in case it was unclear - especially for various other Wall Street "quants" who have taken offense at McElligott's predictive success - he repeats that "the largest near-term catalyst for a crushing Equities move higher remains fund positioning, which is creating an enhanced-risk of positioning squeeze, as it builds “fodder” for a violent bear-market rally which nobody owns—ESPECIALLY into the final weeks of a horrible 2018 performance backdrop with zero appetite for further drawdowns—thus, negligible net length."

Here are the details on why virtually all funds are now caught offside by what is now an almost 100 point swing higher in the S&P in less than 24 hours.

  • Fundamental strategies increasing their “net-down” in recent days via slashing longs while “pressing” / grossing-UP their shorts (US Equities 1Y Momentum Shorts -8.8% in the past 5d), while CFTC data (through last Tuesday’s trade) shows that leveraged funds added to shorts in S&P Futures last week by a notional +$5.8B to grow the net short to -$15.1B
  • The Nomura QIS Systematic CTA Trend model shows nearly consensual “Max Shorts” across global Equities now (SPX, Russell, Estoxx, Nikkei, DAX, FTSE 100, CAC, Hang Seng CH, ASX, KOSPI) which is at risk of seeing forced-cover / deleveraging with “buy triggers” now in reach on this gap move higher from yesterday’s lows
  • Specifically with global risk bellwether S&P, trigger levels to flip from short to covering and turning outright long again are easily within reach, as the current “Max -100% Short” would pivot to “+26% Long” at the 2666 level (as the longer-term 1Y model horizons turns from “short => neutral => long ”)

And with futures easily levitating above 2,666 following today's stronger than expected core PPI data, it appears that the next leg of the market's violent whiplash is upon us, as active traders scramble to reposition from being max short to as long as they possibly can... at least until the next flashing red headline unleashes the next panic selling round.

Published:12/11/2018 8:18:01 AM
[Markets] Verizon says voluntary layoffs, Oath impairment to hit fourth-quarter results Verizon Communications Inc. said Tuesday that it expected its fourth-quarter results to be impacted by a "voluntary separation" program that will result in 10,400 employees leaving the company, as well as an impairment charge related to the company's Oath digital-advertising business. The company expects a severance charge of $1.8 billion to $2.1 billion in the fourth quarter, according to a Tuesday filing with the Securities and Exchange Commission. Verizon also said that it expected to record a goodwill impairment charge of about $4.6 billion related to the Oath unit, following a review of Oath's business prospects that led to "unfavorable adjustments to Oath's financial projections." Shares are off 0.2% in premarket trading, though they're up 10% so far this year. The Dow Jones Industrial Average has dropped 1.2% in that time. Published:12/11/2018 7:46:42 AM
[Markets] Global Stocks, S&P Futures Surge On Fresh Trade War De-escalation Hopes

After several days of precipitous market drops, and following yesterday's dramatic Apple-led intraday rebound, the biggest since February, S&P futures and European stock markets are sharply higher even as Asian shares slipped, as investor sentiment was boosted by fresh prospects of a thaw in the trade war following overnight news that Chinese Vice Premier Liu He discussed a timetable for trade talks with Treasury Secretary Steven Mnuchin, coupled with a report this morning from Bloomberg that China is moving toward cutting its trade-war tariffs on imported U.S.-made cars, a step which had previously been brandished by President Donald Trump as a concession won during trade talks in Argentina.

The big news overnight was a report according to China's Mofcom which said Vice Premier Liu He spoke by phone with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which both sides exchanged views on implementing consensus reached by their leaders, while they also exchanged views on pushing forward timetable and road map for next stage of trade discussions.  The news - taken as a positive sign for trade war de-escalation - sent S&P futures as much as 20 points higher, shrugging off losses in the Asian benchmark and a drop in Japanese equities...

... while Europe's Stoxx 600 was trading at session highs, up over 1.5% as a result of a late catch up with yesterday's S&P rebound, led by THE construction, basic resources, builders and telecom sectors even with today's rebound it was still heading for its worst year since 2008.

European automakers also surged following the Bloomberg report that China is said to be moving on the US auto tariffs reduction that US President Trump has previously tweeted on. The proposal has been submitted for review, however, the decision has not been finalised and still could change.

Yet investors also have an eye on the continuing flap over Canada’s arrest of the chief financial officer of Huawei Technologies Co. And among a plethora of political risks, the U.K. is seeking reassurances from European partners over Brexit and fears linger over the possibility a French protest movement could escalate further.

After crashing on Monday to a 21 month low as Theresa May postponed a key Brexit vote in parliament, the pound staged a rally, trimming some of Monday's tumble as the UK Prime Minister tried to convince EU leaders to renegotiate the current Brexit deal.

The broader risk-on sentiment weakened the dollar weakened while Treasuries and European sovereign bonds fell.

With market having been gripped by a growing sense of panic, some - like Nomura's Charlie McElligott - have warned that the next move could be a furious rally higher as hedge funds scramble to recover some of their YTD losses in the last few days of 2018.

“Markets are highly volatile,” said hedge-fund pioneer Paul Tudor Jones at a conference in New York. “I can easily see a situation in 2019 where all the deleveraging that we’ve experienced in the last month and a half -- really, the last four or five months -- all that deleveraging gets reinvested back into the market.”

Meanwhile in India’s assets saw a choppy session, with stocks initially roiled by a surprise resignation of the central bank governor on Monday, before posting a recovery as traders mulled the implications for Prime Minister Narendra Modi of regional election results. Emerging-market currencies and shares edged higher. Oil climbed with most metals.

The dollar dropped versus most of its G-10 peers as concerns over a possible deterioration in U.S.-China trade talks persisted, while short-term positioning and U.K. wage data helped lift the pound from a 20-month low. The pound headed for its first gain in three days versus the dollar, having tumbled Monday to its lowest level since April 2017 after the U.K. Prime Minister opted to delay a key vote on her Brexit deal. The yen climbed against major global currencies as U.K. Prime Minister Theresa May’s Brexit vote deferral and weakness in equity markets deterred risk-taking

Brent (+0.9%) and WTI (+1.0%) prices rebounded, despite drifting lower at the start of the session following comments from Russian Energy Minister Novak that Russia plans to cut oil output by 50k-60k BPD in January which is significantly below the 228,000 BPD figure targeted as part of the latest OPEC deal. Novak adds that they will gradually reduce oil output. Separately, high level internal reports are to cut output by 139k BPD following the OPEC deal. Looking ahead today sees the API weekly data release, which saw a crude stocks build of 5.6mln last week. Gold has strengthened on a softer dollar, although the yellow metal is still off of the 5-month high of USD 1250.55/oz reached in the previous session. Separately, exploration by Rio Tinto in Australia has yet to find any economically viable copper ore veins; the site had been touted as being potentially rich in copper.

Expected data include PPIs and small-business optimism index. American Eagle and Pivotal Software are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.7% to 2,662.00
  • MXAP down 0.3% to 147.99
  • MXAPJ up 0.1% to 477.40
  • Nikkei down 0.3% to 21,148.02
  • Topix down 0.9% to 1,575.31
  • Hang Seng Index up 0.07% to 25,771.67
  • Shanghai Composite up 0.4% to 2,594.09
  • Sensex up 0.2% to 35,044.71
  • Australia S&P/ASX 200 up 0.4% to 5,575.88
  • Kospi down 0.04% to 2,052.97
  • STOXX Europe 600 up 1.4% to 343.77
  • German 10Y yield rose 2.6 bps to 0.272%
  • Euro up 0.2% to $1.1383
  • Italian 10Y yield fell 2.6 bps to 2.74%
  • Spanish 10Y yield rose 1.7 bps to 1.46%
  • Brent futures up 0.5% to $60.45/bbl
  • Gold spot up 0.3% to $1,248.54
  • U.S. Dollar Index down 0.3% to 96.97

Top Overnight News from Bloomberg

  • Top Chinese and American trade officials spoke by phone, signaling that dialog between the two nations on trade issues is at least continuing despite a diplomatic row over the arrest of a senior Chinese businesswoman
  • Faced with a Brexit vote she can’t win, Theresa May appears to be gambling that running down the clock to a no-deal departure might change the arithmetic in Parliament
  • The European Union won’t allow U.K. Prime Minister Theresa May to reopen negotiations over the Brexit divorce deal -- but it could offer some of the reassurances she says she wants, officials said.
  • In India, Urjit Patel’s shock exit as governor of the central bank roiled financial markets already nervous about early election results showing Prime Minister Narendra Modi’s ruling party losing support in key states.
  • OPEC’s surprise output reduction has wrong-footed short-sellers. Hedge funds increased wagers against rising Brent crude prices for a 10th straight week in the period that ended last Tuesday and cut bullish bets on West Texas Intermediate oil to the lowest in almost six years
  • Allies of Republican Representative Mark Meadows are pressing for him to be Donald Trump’s new chief of staff as the White House weighed other serious contenders, including U.S. Trade Representative Robert Lighthizer, for the vital leadership post
  • Jerome Powell is ramping up Federal Reserve communication to build public trust and help insulate it from political attack
  • Indian assets swung as investors weighed Modi’s performance in the polls in states which are key to his reelection bid in 2019

Asian equity markets were mixed as sentiment in the region only found mild solace from the tech-led recovery on Wall St. ASX 200 (+0.4%) was firmer at the open in which outperformance in the tech sector helped the index pick itself up from around 2-year lows although this later stalled amid weakness in energy and financials, while Nikkei 225 (-0.3%) swung between gains and losses due to a lack of fresh drivers and an indecisive currency. Shanghai Comp. (+0.4) and Hang Seng (unch.) were also choppy on trade uncertainty amid lingering concerns the Huawei situation could spill-over to US-China trade talks, although there were reports that Vice Premier Liu spoke with US Treasury Secretary Mnuchin and US Trade Representative Lighthizer in which they exchanged views on pushing forward the timetable and road map for the next stages of trade discussions. Meanwhile, India markets were initially pressured following the shock resignation by RBI Governor Patel which many viewed to be in protest for government meddling, while the state assembly elections added to the woes for the government with the ruling BJP party on track to lose some states to the main opposition ahead of next year’s general election. Finally, 10yr JGBs were uneventful amid the indecisive risk tone and with participants following mixed results at the 30yr JGB auction.

Top Asian News

  • Macau Casino Stocks Jump as Analysts Flag December Revenue Hopes
  • Tencent Music Guides Pricing Around Midpoint in $1.2 Billion IPO
  • HNA Is Said to Tap Credit Suisse to Revive Sale of Pactera Unit
  • Goldman Sachs Buys Minority Stake in Turkey’s Hurriyet Emlak
  • India Rupee, Stocks, Bonds Drop as RBI Chief’s Exit Roils Market

Major European Indices are in the green [Euro Stoxx 50 +1.6%], with some outperformance seen in the SMI (+1.6%) bolstered by strong performance in index heavyweight Novartis (+1.6%) after the FDA approved Pear Therapeutics mobile application, which their Sandoz unit will be rolling out in the US. The SMI is also bolstered by LafargeHolcim (+3.6%), which is benefitting from outperformance in the materials sector seen today on the back of US and Chinese representatives planning the next steps in trade discussions. FTSE 100 (+1.3%) is lagging its peers, amidst currency effects from ongoing Brexit developments. Other notable equity movers are WPP (+6.5%) after an update to guidance, and Ashtead Group (+4.2%) after they announced full year expected results to be ahead of expectations.

Top European News

  • Amsterdam Brothels to Get a Review by City’s First Female Mayor
  • Danske to Sell Swedish Pension Assets to Polaris, Acathia
  • Vivendi Urges Telecom Italia to Hold Shareholders Meeting
  • Future of ‘Macronomics’ Tested by Violence on French Streets
  • Casino Debt Swaps Rise to Record as French Protests Add Pressure

In FX, the GBP is ahead of the pack in terms of broad G10 currency advances vs the Greenback as the DXY ducks back under the 97.000 level. Cable has bounced further from yesterday’s new 2018 low circa 1.2507, through the pre-official cancellation of the Brexit vote base around a big figure higher and just shy of 1.2640, mainly on short covering and consolidation, but also with the aid of strong UK average earnings. Meanwhile, Eur/Gbp has retreated towards 0.9000 having cleared 0.9050 and topped out not too far from 0.9100.

  • EUR/CHF/SEK/NOK - The next best majors, with the single currency maintaining its recovery momentum off 1.1350 lows vs the Usd, but capped ahead of 1.1400 and perhaps conscious of hefty option interest between 1.1390 and the bog figure (2 bn). The Franc remains relatively firm within a 0.9905-0.9865 range and above 1.1250 vs the Eur, while the Scandi crowns have clawed back recent losses amidst an improvement in risk sentiment, and with the Sek awaiting Swedish inflation data on Wednesday after significantly stronger than forecast Norwegian CPI metrics yesterday. Eur/Nok is around 9.7000 and Eur/Sek back below 10.3000.
  • JPY - Also trying to pare losses vs the Dollar after extending its downturn from 112.25 to 113.35 and extremely close to a Fib level, but unable to rebound through 113.00 where heavy supply is touted and a 1.5 bn option expiry resides.
  • AUD/CAD/NZD - Mixed fortunes once again as the Aud reclaims 0.7200+ status vs its US counterpart, albeit just, on more promising vibes regarding US-China trade, which have also nudged the Aud/Nzd cross back up towards 1.0500, as the Kiwi losses sight of 0.6900 vs the Usd. Meanwhile, the Loonie is back on the 1.3400 handle and regaining some composure alongside crude prices.
  • EM - The Try continues to underperform on bearish technical rather than fresh fundamental impulses, but did glean support from another upbeat snapshot of Turkey’s current account to trade back near 5.3500 vs the Dollar from 5.4000+ at one stage.

In commodities, Brent (+0.9%) and WTI (+1.0%) prices have strengthened, despite drifting lower at the start of the session following comments from Russian Energy Minister Novak that Russia plans to cut oil output by 50k-60k BPD in January; which is significantly below the 228,000 BPD figure targeted as part of the latest OPEC deal. Novak adds that they will gradually reduce oil output. Separately, high level internal reports are to cut output by 139k BPD following the OPEC deal. Looking ahead today sees the API weekly data release, which saw a crude stocks build of 5.6mln last week. Gold has strengthened on a softer dollar, although the yellow metal is still off of the 5-month high of USD 1250.55/oz reached in the previous session. Separately, exploration by Rio Tinto in Australia has yet to find any economically viable copper ore veins; the site had been touted as being potentially rich in copper.

US Event Calendar

  • 8:30am: PPI Final Demand MoM, est. 0.0%, prior 0.6%; PPI Ex Food and Energy MoM, est. 0.1%, prior 0.5%
  • 8:30am: PPI Final Demand YoY, est. 2.5%, prior 2.9%; PPI Ex Food and Energy YoY, est. 2.5%, prior 2.6%

DB's Jim Reid concludes the overnight wrap

What I learnt about yesterday was that it seems easier to leave the solar system than the EU. Yes Voyager 2, which left the earth in 1977, has now waved goodbye to our solar system and entered interstellar space some 18 billion miles away. Ironically, at around the same time this was announced we discovered that the UK, which joined the EEC in 1973, is still struggling to pull away from the EU. With today’s long anticipated vote now postponed, it takes an intergalactic sized mind to work out the end game from here. Feel free to tell me if you have one.

To be fair, space debris was being flung at markets from all angles yesterday until the Starship US recovered from a difficult take-off and rallied to find a higher orbit to settle in. The S&P 500 closed +0.18%, while the DOW and NASDAQ gained +0.14% and +0.74% respectively. These three were down -1.89%, -2.08%, and -1.30% at the lows for the session. Brent crude oil fell -2.89% to $59.89 per barrel, just about erasing Friday’s post-Opec rally. There wasn’t a clear catalyst, though the softer Chinese import data we highlighted yesterday might have been a factor weighing on demand expectations. This also helped the dollar to gain +0.72% for its best session in a month. The energy sector led S&P 500 losses, trading down -1.62%, while the aerospace sector paced gains (+1.98%) as media outlets reported that President Trump will seek $750 billion in defence spending for next year’s budget, notably above the expected $700bn.  Credit wasn’t immune with US HY credit spreads another +7bps wider while 10yr Treasuries finished +1.3bps higher. The 2s10s yield curve flattened by another -0.8bps, and back within one bp of its cyclical  closing low. The recent moves continue to weigh on financials (-1.40%), which took the four-day move to -8.81% and the biggest since August 2015. The banks sub-index dropped -2.33% and is also now down -21.6% from the January highs and therefore has entered the definition of a bear market.

To be fair, all this really played second fiddle headlines wise to a dizzying day of merry-go-round and quite remarkable Brexit developments. Early yesterday morning we finally got confirmation just before 11.30am BST that the Parliament vote was being postponed with the PM telling Cabinet Tories that she would suffer a ‘notable’ loss should they go ahead with the vote on the current deal. This set the stage for PM May’s statement in the House of Commons. The PM confirmed that the vote had been deferred indefinitely, and said she would go back to Brussels to ask EU leaders for more assurances including some kind of power over the Irish backstop. It’s hard to see this as anything but stalling for time, given that the PM didn’t really offer any new information. Ultimately, the PM seems to be insisting on her own deal without offering an alternative. European Council President Tusk tweeted that “we will not renegotiate the deal, including the backstop,” so it’s quite difficult to see how this circle can be squared in the immediate term. Things got worse for the PM when House of Commons speaker Bercow suggested that the PM’s decision to delay the vote is “discourteous” and that the vote could still go ahead. Quite incredible scenes, and the odds of a no-confidence vote have certainly risen substantially. There will be an emergency debate in the House on Brexit today but with May travelling to the continent to see Merkel and Rutte, this will likely be a point scoring one rather than a gathering of much substance.

Sterling looked helplessly on as the PM spoke and ultimately ended up falling -1.30% and to the lowest since April 2017. Though overshadowed by the drama in Parliament, it’s worth noting that earlier in the day the ECJ confirmed that the UK can unilaterally reverse the Brexit process if it so chooses. Gilts rallied with that move for Sterling with 10-year and 30-year yields dropping  -6.6bps and -12.3bps respectively. The FTSE 100 (-0.83%) outperformed other European markets (STOXX 600 -1.87%) thanks to the Sterling move while other bond markets in Europe were slightly stronger, with bund yields -0.4bps lower. Meanwhile IG and HY cash credit spreads in Europe finished +1.0bps and +8bps wider respectively.

This morning in Asia markets are trading mixed with the Nikkei (-0.41%) and the Hang Seng (-0.08%) trading lower while the Kospi (+0.07%) and Shanghai Comp (+0.28%) are up. However, the markets are off their lows as sentiment seems to have been aided to an extent by the overnight statement from China’s Ministry of Commerce that China’s Vice Premier Liu He, US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer spoke overnight on the phone exchanging views on the timetable  and road map of future trade talks. No further details were provided. However, this should be slightly reassuring for markets as it shows that the US-China trade talks haven't fallen apart in the aftermath of the Huawei CFO’s arrest. Meanwhile, it’s worth adding that the Indian equity market is down c. -1% this morning following the resignation yesterday of Central Bank governor Urjit Patel. There was some talk a few weeks ago about Patel potentially resigning, however this appeared to die down with the RBI board  meeting last month and a shift in stance to a slightly more dovish leaning last week. The news yesterday therefore was a bit of a  surprise. The Indian Rupee is down -1.2% this morning and the benchmark 10y sovereign bond yield is up by c. +10bps. However, sentiment in Indian markets also seems to be impacted by the election results in key states where the ruling party is seeing losses ahead of next year’s national elections. Elsewhere, futures on S&P 500 are down -0.28%.

As we go to print we have our usual daily Italian headlines. Repubblica are reporting that PM Conte is aiming for a 2.1% deficit and the EU is demanding 1.95%. However, Messaggero is reporting that Salvini and Di Maio are refusing to go below 2.2%. It seems like there is still work to be done here ahead of the planned EU council meeting on 13-14 December, where Italy is expected to table its fresh budget.

After the European close yesterday our European economists published their 2019 outlook yesterday (available here ). They downgraded their growth and inflation forecasts by 0.3pp and 0.2pp to 1.4% and 1.3%, respectively. The moves reflect weaker external and domestic conditions, though the real key will be the big risks around Brexit, Italy, and the trade war. If any of these events resolve negatively, they could weigh further on growth, though they also have the scope to provide upside to the forecast if they end up reaching positive conclusions. Politics will remain a focus, with European Parliament elections, and possibly also elections in Germany, Spain, and perhaps even Italy. As a result of all this, they now expect the first ECB policy rate hike to be delayed to the first quarter of 2020.

Staying with Europe, also after the close yesterday, French President Macron gave a public address to placate the “yellow vest” groups who have protested his policies in recent weeks. He announced a tax exemption to incentivise employers to give year-end bonuses, ended taxes on overtime and small pensions, and raised the minimum wage to be financed with public funds.

The measures represent an acceleration of plans already scheduled to be implemented over the next few years, though it presents downside risks to the country’s 2.8% deficit target for next year. Our economists already thought the target would slip, so these measures ratify their view. The wave of populism continues to roil economic policies, resulting in looser fiscal policies, and the trend looks set to continue.

Coming back to the UK, while the Pound didn’t immediately react a great deal to it, yesterday’s data releases in the UK did little to improve the mood. That was particularly the case with the October industrial production (-0.6% mom vs. +0.1% expected) and manufacturing (-0.9% mom vs. 0.0% expected) production prints. There was better news at least with the October monthly GDP reading, which rose +0.1% mom as expected, putting the 3M/3M monthly GDP change at +0.4%.

As for the other data that was out yesterday, the Sentix investor confidence for the Euro Area declined 9.1pts and far more than expected to -0.3 (vs. +8.3 expected). That’s actually the lowest reading since December 2014 and the fourth consecutive monthly decline. In the US, the only data release yesterday was the October JOLTS report, which showed job openings rising slightly to 7.079m and more or less in line with the consensus.

In terms of the day ahead, data releases in Europe this morning include Q3 payrolls in France, October and November employment stats in the UK (average weekly earnings and the unemployment rate expected to hold steady at +3.0% yoy and +4.1% respectively) and the December ZEW survey in Germany. In the US we’ve got the November NFIB small business optimism reading followed by the November PPI report (headline PPI expected to be flat mom and ex food and energy rise +0.1% mom). Away from that the ECB’s Guindos is due to speak this morning in Frankfurt before Italian Finance Minister Tria speaks at a conference in Rome. Worth flagging also are election results in India for five states which will likely be seen as an important test for PM Modi ahead of next year’s election. Also of note is Google CEO Pichai testifying before the US House Judiciary Committee. It’s expected that election meddling and privacy issues will be top of the agenda.

Published:12/11/2018 6:45:34 AM
[Markets] Global Stocks Gain as U.S.-China Trade Talks Commence Global stocks climbed Tuesday, as investors awaited developments in trade talks between Washington and Beijing that kicked off with a phone call involving key negotiators. U.S. futures put both the S&P 500 and the Dow Jones Industrial Average on course to gain 0.6% at the New York open. Published:12/11/2018 6:45:34 AM
[Markets] Futures, Yuan Slide As Asia Opens

So much for that bounce...

The S&P and Dow have erased their intraday gains and Nasdaq is sliding as China opens and Yuan weakens.

It seems the intraday algo pumpathon tagged the overnight highs and ran out of ammunition for the squeeze...


Yuan has almost erased all of the post-Taper gains...

Published:12/10/2018 7:40:41 PM
[Markets] [$$] Banner Days No Longer Come Easy for Stocks One trend is that stock-market advances have been smaller and more gradual, while declines have been swifter and more severe. Meanwhile, the Dow Jones Industrial Average has posted four slumps of 3% or more this year without a rise of that size—on track to make history with that streak. The trend paints a picture of the market struggling to climb higher while slipping more easily into one-day plunges, indicating investor sentiment is deteriorating. Published:12/10/2018 6:42:25 PM
[Markets] Australian stocks higher following volatile session on Wall Street Wall Street had a volatile session overnight which saw the Dow recover from a 507-point drop. Meanwhile, U.K. Prime Minister Theresa May delayed a Brexit vote that was set to take place on Tuesday in the U.K. parliament. Also on Monday, the Reserve Bank of India's chief, Urjit Patel, resigned abruptly, stoking concerns over the independence of the central bank. Published:12/10/2018 6:10:13 PM
[Markets] Stocks - Dow Rebounds as Rampant Tech Lifts Sentiment - The Dow clawed back losses to close higher Monday as Apple rebounded to lead tech higher. Published:12/10/2018 5:40:50 PM
[Markets] Breakevening Bad: Stocks Dump-n-Pump As Crude Crashes, Pound Plunges

"Sell the Asia open, Buy the European close" appears to be the theme as AAPL buying-panic saved stocks from new 2018 lows...


Weak start to the week for Chinese stocks...

European markets wobbled too - thanks to France and UK chaos... and no help from Italy.


US Futures show the opening weakness, slow drift higher and ramp into the open, then dump at open not helped by AAPL headlines (which were rescued later in the day)...


On the cash side, once again the European close marked the lows intraday...

But breadth remains solidly negative with 63% of Nasdaq Composite stocks lower and 66% of S&P 500 stocks falling in mid-afternoon trading.

The Dow was ugly early - down over 500 points - before AAPL rescued the world,,,


S&P And Dow broke below October lows...and bounced...


US Stocks dumped as Brexit headlines accelerated and rebounded as Europe closed...


The European close marked the start of the short-squeeze...


Note that Nasdaq was rescued as it went red for 2018...


Russell 2000 tumbled to its worst level since Sept 2017...

Bank stocks are down for the 4th day in a row to their lowest since Sept 2017...


Meanwhile, Tesla stock continues to squeeze higher as bonds disappoint...


Bonds and Stocks were bid in the last hour...


Most of the Treasury complex was very marginally higher on the day, but the long-end outperformed...


10Y traded in a small range and ended practically unch...


The yield curve flattened notably...


Even as rate-hike odds collapsed...


Inflation Breakevens collapsed further along with crude...


The Dollar surged back to last Thursday's highs - blasting through payrolls dovish dump...


Yuan slid further, erasing more of its post-Truce gains...


Cable was crushed as May abandoned her Brexit vote...

To its lowest since April 2017


Cryptos have fallen since yesterday's morning session... with Bitcoin dipping back in the red...


Commodities all drifted lower as the dollar surged but oil was worst hit...


WTI had another bad day, tumbling 3.5% back to a $50 handle...


Gold (in USD) was modestly lower - back below $1250...

But Gold in Yuan was higher.

Finally, as a little reminder, last Thursday, equities staged a tech-led recovery on poor breadth and then were walloped on Friday.

But longer-term, the SMART money continues to flood out - new lows...

And as Gluskin Sheff's David Rosenberg notes...

And why are the world's most systemically important banks crashing?

Published:12/10/2018 3:09:18 PM
[Markets] Dow erases 500-point decline as stocks rebound to end higher Dow erases 500-point decline as stocks rebound to end higher Published:12/10/2018 3:09:18 PM
[Markets] Stocks mount late-day reversal, erasing Dow's 500 point decline U.S. stocks staged a late-day comeback Monday to push equity benchmarks into positive territory, as semiconductor shares drove the tech-heavy Nasdaq higher. The S&P 500 rose by 0.2% to end around 2,637, based on preliminary numbers. The Dow Jones Industrial Average advanced 33 points, or 0.1%, to around 24,422. The Nasdaq Composite rose 0.7% to around 7,021. But equities have struggled to notch a streak of positive sessions as softening global growth and simmering U.S.-China trade tensions have weighed on investor sentiment, even as economic data remains robust. In company news, Qualcomm shares rose after a Chinese court ordered Apple Inc. to stop selling older iPhone models in China for infringing two patents held by the chip manufacturer. Still, Apple shares ended slightly higher. Published:12/10/2018 3:09:18 PM
[Markets] Dow turns positive after slipping below 24,000 for first time since May Dow turns positive after slipping below 24,000 for first time since May Published:12/10/2018 2:09:17 PM
[Markets] Why Are Oil and Equity Indexes Diverging? On November 30–December 7, US equity indexes ended in the red. Last week, the S&P Mid-Cap 400 (IVOO), the S&P 500 (SPY), and the Dow Jones Industrial Average (DIA) fell 5.2%, 4.6%, and 4.5%, respectively. Energy stocks form ~5.1%, 5.9%, and 5.2%, respectively, of these equity indexes. Published:12/10/2018 1:41:29 PM
[Markets] Stocks - Dow Tumbles Again Amid Bank, Energy Selloff - The market selloff continued in midday trading on Monday as the Dow dropped almost 500 points amid concerns over global growth and trade tensions between the U.S. and China.The S&P 500 lost 47 points, or 1.8%, as of 11:24 AM ET (16:24 GMT), while the Dow decreased 482 points, or 2%, and the tech-heavy Nasdaq Composite fell 87 points, or 1.2%.Ongoing trade tensions increased after Chinese officials summoned the U.S. ambassador to Beijing on Sunday to protest the arrest of the chief financial officer of Chinese electronics giant Huawei, Meng Wanzhou, in Canada. ... Published:12/10/2018 12:38:17 PM
[Markets] Dow slices losses in half, now down 230 points; focus still growth and trade concerns U.S. stocks traded largely down midday Monday, though off their session lows, as investors looked past evidence of a still-strong U.S. economy to worry about proliferating signs of a global economic slowdown and the effects of a U.S.-China trade dispute. The Dow Jones Industrial Average (DJIA) fell 234 points or 1%, 23,3919, while the S&P 500 (SPX) is down 18 points, or 0.7% to 2,615. The Nasdaq Composite Index (COMP) rose less than a point to 6,970. Published:12/10/2018 12:09:35 PM
[Markets] Dow industrials have halved Monday's decline Dow industrials have halved Monday's decline Published:12/10/2018 12:09:35 PM
[Markets] US STOCKS-S&P drops to 8-month low on global growth worries The S&P 500 fell to an eight-month low on Monday as Apple Inc, as well as financial and healthcare sectors led losses on mounting worries over global growth, the U.S.-China trade war and uncertainty over Britain's exit from the European Union. The S&P and the Dow Industrials, already in the red for the year after shedding more than 4.5 percent last week, fell over 1 percent. Published:12/10/2018 11:38:19 AM
[Markets] Hess Corp. to spend about $2.9 billion in capex in 2019, from $2.1 billion in 2018 Hess Corp. on Monday unveiled its capital budget for 2019, saying it plans on spending $2.9 billion next year and allocate about three-quarters of that money in assets it called "high-return growth" in the U.S.'s Bakken formation and in Guyana. There will be more rigs and more well drilling in the Bakken, which is mostly located in North Dakota; in Guyana, 2019 will be "peak spending" for the first stages of developing the Liza field, with the first barrels expected to flow by 2020, Hess said. Hess has scheduled an investor day in New York City on Wednesday. The company earlier this year set a 2018 capital budget of $2.1 billion, the same as 2017, allocating about two-thirds to Bakken and Guyana fields. Shares of Hess fell nearly 3% on Monday alongside other energy stocks, and have gained 8% this year, versus losses around 2.6% each for the S&P 500 index and the Dow Jones Industrial Average. Published:12/10/2018 11:08:26 AM
[Markets] Dow industrials down 440 points after sharp acceleration of Monday decline Dow industrials down 440 points after sharp acceleration of Monday decline Published:12/10/2018 10:37:51 AM
[Markets] Dow Drops 333 Points—and the S&P 500’s Support May Be About to Break 10:53 a.m. The S&P 500 is falling—again—an this time its targeting a level that has proven to be support for much of 2018. The S&P 500 is getting close to that level today—it is off 1.1% at 2,602.94, while the Dow Jones Industrial Average has dropped 333.47 points, or 1.4%, to 24,055.48, while the Nasdaq Composite has declined 0.6% to 6,930.59—and might very well break it. If it does, the S&P 500’s closing low near 2580 and its trading low near 2530 would be the next support levels. Published:12/10/2018 10:07:32 AM
[Markets] Nasdaq Plunges Into Red For 2018 - Worst Year In A Decade

All the major US equity indices are now underwater for the year as Nasdaq finally joined the S&P, Dow, Small Caps, and Trannies...

Overnight saw early derisking on a multitude of factors, but the machines gently levitated futures into the open, before flushing at the open (not helped by AAPL)...

And that has driven Nasdaq into the red for 2018...

This is the worst performance for this time of year since 2008...

Who could have seen that coming?


Published:12/10/2018 10:07:32 AM
[Markets] US STOCKS-Dow, S&P dogged by growth worries; techs help Nasdaq bounce Wall Street dropped on Monday, led by Apple Inc, financials and healthcare stocks, falling further after its biggest slide since March last week on worries over global growth, the China-U.S. trade war and uncertainty over the Brexit deal. The benchmark S&P 500 and the blue-chip Dow Jones Industrial Average, already in the red for the year after last week's slide of more than 4.5 percent, fell another 0.5-0.6 percent, while the Nasdaq moved marginally higher. Apple fell 1.7 percent after Qualcomm Inc said it had won a preliminary order from a Chinese court banning the import and sale of several iPhone models in China due to patent violations. Published:12/10/2018 9:34:25 AM
[Markets] US STOCKS-Futures slide further as global growth fears mount U.S. equity futures fell about 0.4 percent to six-week lows on Monday, as a global selloff continued on signs of cooling growth and worries that escalating tensions between the United States and China could scuttle their fragile trade truce. The three main indexes slid 4.5 percent or more last week in their biggest weekly tumble since March, pushing the benchmark S&P 500 and the blue-chip Dow Jones Industrial Average into the red for the year. Washington has set a March 1 "hard deadline" to successfully wrap up talks with Beijing over their trade spat, failing which a higher tariff rate will kick in, U.S. Trade Representative Robert Lighthizer said on Sunday. Published:12/10/2018 7:07:07 AM
[Markets] Dow futures down over 200 points following volatile week Dow futures down over 200 points following volatile week Published:12/9/2018 7:03:45 PM
[Markets] Dow futures drop nearly 200 points as sell-off looks set to continue in new week U.S. stock futures fell on Sunday night as traders feared an intensifying trade war between the United States and China. Dow Jones Industrial Average futures dropped 177 points, implying a decline of 153.95 points at Monday's open. The losses would add to a steep decline from last week. Published:12/9/2018 5:34:57 PM
[Markets] Stuck In The Middle (Of The Range) With You

Authored by Lance Roberts via,

Stuck In The Middle (Range) With You

On Tuesday, I asked the question as to whether the “bull is back” or “is it a bull trap?” This question was triggered by the outsized advance on Monday on hopes the “trade war” had been at least temporarily resolved at the G-20 summit:

“The good news is that on Monday the market cleared the 50- and 200-day moving averages. This was an important level of overhead resistance the market needed to clear to get back onto more bullish footing. However, in order for that break to be validated, it must hold through the end of the trading week.”

Unfortunately, the bulls quickly lost that foothold on Tuesday as the markets tumbled wiping out not only all of Trump’s “trade truce” gain, but “Powell’s Put” gain as well. Then on Thursday, news the CFO of Huawei had been arrested sent shock waves through the market which sent the Dow plunging nearly 800 points. The only saving grace was when a Fed official was trotted out to suggest the Fed was likely going to pause rate hikes. But, on Friday, weaker employment, confidence, and wage growth numbers sent the markets back to their lows once again.

Also, while it is has been widely suggested to dismiss the negative crossover of the 50- and 200-dma moving averages (red circle), what it represents is mounting downward pressure on stock prices currently.

However, for all of the volatility, the market has not made any real progress since October as the “bulls” and “bears”continue to fight it out in a broad trading range as shown below. While the lower support is currently holding at 2632ish, a failure of the that low will quickly lead to a retest of lows from March and April of this year.

So far, the consolidation of the market has continued to give supports to bulls case as sentiment has gotten very negative during this time. However, as I noted on Tuesday for our RIA PRO subscribers:

“Most importantly, the most recent failure at key resistance levels has set the market up to complete the formation of a ‘head and shoulder’ process. This is a topping pattern that would suggest substantially lower asset prices going into 2019 ‘IF,’ and this is a key point, ‘IF’ it completes by breaking the lower ‘neckline.’” 

Chart updated through Friday

John Murphy via confirmed the risk to prices as well on Friday:


The daily bars in the chart shows the S&P 500 retesting previous lows formed in late October and late November. And it’s trying to hold there. The shape of the pattern over the past two months, however, isn’t very encouraging. Not only is the SPX trading well below its 200-day average. The two red trendlines containing that recent sideways pattern have the look of a triangular formation (marked by two converging trendlines). Triangles are usually continuation patterns. If that interpretation is correct, technical odds favor recent lows being broken.

If that happens, that would set up a more significant test of the lows formed earlier in the year. Other analysts on this site (besides myself) have also been writing about that possibility. That would lead to a major test of the viability of the market’s long-term uptrend.”

Also, note that the lower MACD is close to registering a “sell signal” which would likely coincide with further weakness in asset prices.

Is there any hope a bigger decline can be averted? Absolutely.

The recent market turmoil, which threatens both consumer confidence and the household wealth effect, has shaken the Fed from their “hawkish” position. In the next few days, the market will be analyzing Jerome Powell’s latest message as the Fed hikes rates 0.25% in December. If the language of the announcement becomes substantially more “dovish,” and signals no more hikes into 2019, the markets will initially rally sharply on the news. However, given that a Fed pause at 2.5% would signal much slower economic growth, it will likely only be a temporary boost until weaker earnings are realized from slower economic growth.

The other potential opportunity is for the current Administration to drop the “trade war” rhetoric. Given that Trump created the “trade problem” to begin with, even small gestures of trade improvement between the U.S. and China would be counted as a “Trumpian victory.” However, a reversal or reduction of the tariffs would be a boost to corporate earnings and provide a boost of confidence to corporations.

Again, as with the Fed funds rates, the reduction of tariffs would most likely only provide a short-term boost to asset prices. Eventually, the focus of the markets will turn back to earnings and economic growth which are going to slow as previous boosts from natural disasters and tax cuts fade. 

However, that is in the future.

For now, we have to deal with what “IS,” and the weakness of the market is very concerning.

After having reduced equity risk a couple of weeks ago, we are looking for opportunities as they present themselves. However, for the most part, our bond positions have continued to carry the bulk of the load as of late as rates continue to drop.

As I noted on Friday, don’t dismiss the yield curve too quickly. But like our technical indicators below, we are looking for confirmation of several curves to go negative simultaneously which has historically provided the clearest signal of a recessionary onset.

Daily View

Last week I stated:

“The rally over the past few days has virtually exhausted a bulk of the ‘oversold’ condition which previously existed. While such doesn’t mean the market can’t move higher, it simply suggests that most of the ‘fuel’ available for a rally has been utilized. With the markets still on a “sell signal” currently, and below major points of resistance, remaining a bit cautious until the underlying technical backdrop improves seems prudent.”

That turned out to be very good advice as the market retested lows once again. With the market back to “oversold”conditions (what a difference a week can make) all the market needs is any bit of “good news” to bounce. However, as noted above, with the markets sitting on major support, a rally this coming week is critical. We suggest using the rally to sell into currently to rebalance risk in portfolios.

Action: After reducing exposure in portfolios previously, and portfolios much heavier in cash currently, we are giving the market time to figure out what it wants to do. Given the consolidation range over the last couple of months, it is too risky to be either overly short or aggressively long currently. Cash is the best hedge currently. 

Weekly View

On a weekly basis, the story remains much the same. With a sell signal registered for only the 7th time in the past two decades, we will just allow the markets to figure out what they want to do before getting more aggressive. The recent violations of long-term moving averages suggest a change in market conditions that should not be dismissed. However, should the market improve, and ultimately reverse the relative “sell signals,” we will gladly increase exposure back to target weights.

Action: Hold higher levels of cash and rebalance risk as necessary on this rally.

Monthly View

Like the daily and weekly analysis above, the market has confirmed a “sell signal” on a monthly basis as well. The good news here is that the long-term moving average, which is a critical level of bullish trend support, has NOT been violated as of yet. This suggests the longer-term bullish trend remains intact and we should not get overly conservative just yet.

Nonetheless, the deterioration in the markets is extremely concerning, and while the official “bull market” is not dead as of yet, there are more than enough warnings which suggest erring to the side of caution, for now, is warranted.

Action: Use any rally to reduce risk and rebalance portfolios accordingly. 

Published:12/9/2018 5:04:43 PM
[Markets] A bruised stock market looks to the Fed for relief With three weeks left until the end of 2018, both the Dow and the S&P 500 are mired in the red. And it will essentially be up to the Federal Reserve to determine whether the stock market will extend its winning streak for a third year or take a breather. Published:12/9/2018 10:08:23 AM
[Markets] Market Snapshot: A bruised stock market looks to the Fed for relief With three weeks left until the end of 2018, both the Dow and the S&P 500 are mired in the red. And it will essentially be up to the Federal Reserve to determine whether the stock market will extend its winning streak for a third year or take a breather.
Published:12/9/2018 10:08:22 AM
[Markets] Paper Lanterns & How Not To MAGA

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

Mud Volcanoes

There are numerous explanations for just what in the heck is going on with the economy.  Some are good.  Many are bad.  Today we’ll do our part to bring clarity to disorder…

Two data series it is worth paying attention to at the moment: the unemployment rate (U3) and initial claims. As the chart at the top shows, when the former makes a low it is time to worry about the economy. Low points in the U3 UE rate slightly lead the beginning of recessions. Claims on the other hand are near coincident indicators of the stock market, this is to say, lows in initial claims tend to happen within a time period of four to six weeks surrounding major stock market peaks (in most cases they lead slightly, but small lags have occasionally occurred as well). Note: neither indicator confirms an imminent turning point as of yet – initial claims would e.g. have to rise to around 300k in order to do so. The same is true of other major recession indicators, their most recent readings do not yet confirm that the business cycle is about to turn down. However, there is a lot of circumstantial evidence that indicates such a downturn may soon be confirmed, including recent market moves (i.e., deteriorating stock prices and rising credit spreads). [PT]

Several backward looking economic fundamentals show all is well. Third quarter gross domestic product increased at an annual rate of 3.5 percent. And the unemployment rate, if you exclude something called discouraged workers, is just 3.7 percent – a near 50 year low.  By these metrics, the economy’s never been better.

Still, it doesn’t take much snooping around to uncover what’s really going on. Cracks in the economy’s foundation are transforming from minor hairline fissures to full blown surface fractures at about double the rate that Imperial Valley mud volcanoes are consuming Union Pacific Railroad tracks.  These full blown surface fractures will further multiply as the planet approaches the next financial crisis.

Gaia’s pustules… the mud volcanoes of Gobustan, a mysterious moving mud volcano near the Salton Sea and  a cold mud pot in Glenblair, California. [PT]

At the moment, for example, the auto manufacturing and housing sectors are breaking down.  Last week, General Motors announced they plan to cut 14,000 jobs and close five factories.  What in the world is going on?

We suspect that General Motors’ present failings have something to do with the fact that they aren’t very good at making cars.  Do you own a General Motors car?  Do you know anyone who owns a General Motors car?  We don’t either.

An early GM reputation destroyer – the 1971-1977 Chevi Vega. According to Popular Mechanics: “Legend has it that when Chevrolet Division Manager John DeLorean went to the GM Proving Grounds to get his first look at a prototype of the new 1971 Chevrolet Vega, the front of the car literally fell off onto the ground. But that bad omen didn’t keep DeLorean from putting the Vega on the market”. [PT]

The housing market also appears to be cracking up.  Existing and new home sales are on the decline.  Similarly, the pace of home price appreciation has declined for six straight months.  Soon enough, actual home prices will be in decline too.

Auto manufacturing and housing are both canaries in a poorly ventilated coal mine.  In particular, these two sectors are very sensitive to credit costs. A moderate rise in interest rates and they keel over.  No doubt, there are many debt encumbered corporations that are one or two quarterly earnings reports from also slumping over.

How Not to MAGA

After being subjected to nearly a decade of the Fed’s low interest rate fabrications, something remarkable has happened.  The economy has reconfigured itself in an abnormal way.  Hence, the Fed’s efforts to normalize interest rates without triggering a massive cascade of debt defaults is proving impossible.

Of course, further rate hikes, which would purge the rottenness from the system, would ultimately put the economy on a sounder footing.  Yet this is politically impossible.  President Trump’s made it loud and clear to Fed Char Jay Powell that he wants low interest rates and high asset prices.  Not the reverse.

Decades of extreme Fed intervention into credit markets are what created today’s instabilities and vast wealth disparities.  Does Trump understand that low interest rates and high asset prices are at odds with his promise to MAGA?

What’s more, the Fed’s massive credit creation scheme bears the primary responsibility for accelerating globalization and China’s rise over the last several decades.  Where did American consumers get the endless supply of credit to consume all the made in China goods?

Recognition of the extent and magnitude to which the Fed’s cheap credit distorted the global economy would require honest thought and contemplation.  Renouncing, as opposed to demanding, further credit expansions would require sacrifice.  These are not Trump’s strong suits.

Instead, he wants simple answers to complex problems.  And he has hacks like Peter Navarro yapping in his ear about the marvels of trade tariffs.  That, somehow, the act of cutting off one’s head to cure a headache, would solve America’s embarrassing trade deficit with China.

The trade deficit with China keeps growing, which is a big “so what”? The balance of trade does not say anything about a nation’s prosperity. After all, it is balanced by an offsetting capital account surplus.  [PT]

Trade tariffs are precisely how not to MAGA.  Maybe Trump knows this.  And maybe Trump knows what he’s doing.  Without question, table pounding and chest beating have served him well throughout his career.  So has making outlandish and grandiose claims.

But where all this current bluster will lead is to a place that’s utterly foreign to Trump…

Paper Lanterns

President Trump and his cohorts recently met with the Group of 20 nations in Buenos Aires, Argentina.  This included a Saturday night dinner with the President of China, Xi Jinping.  The supposed discourse at hand was the escalating trade war between the two countries.

Unfortunately, a joint statement wasn’t issued following dessert. This subsequently led to an enormous hubbub.  First, there was word of a 90-day truce on the imposition of new trade tariffs.  Then Trump tweeted something about China agreeing to buy lots of American made stuff.  Thus, stocks went on a fabulous binge on Monday; the Dow Jones Industrial Average gobbled up over 287 points.

Xi and Trump gaze at each other across the salad in Buenos Aires. [PT]

Then China, if we remember correctly, contradicted the supposed 90-day truce.  Hence, on Tuesday, the Dow Jones Industrial Average purged 799 points.  After that we lost track of the latest rumors of what was actually discussed, as none of it made much sense.

For all we know, the dinner’s discussion was a friendly exchange of tips and tricks for using big data to assign social credit scores to citizens… and how to reprimand and restrict people for behavior deemed uncouth.  Perhaps, following the main course, the conversation devolved to a braggadocio give-and-take of locker room talk.

What we do know is that no real progress was made towards a trade agreement.  What we also know is that no real trade agreement, other than window dressing, will ever be reached between China and the United States.  Here’s why…

Negotiating with China is completely different than negotiating with New York contractors or the mayor’s office.  No middle ground can be reached because no middle ground exists.  What Trump is up against is outside the realm of the art of the deal.

For example, paper lanterns have been used in China since the early days of the Han Dynasty… roughly a century and a half before Jesus of Nazareth turned water into wine.  Yet no one really knows the history or origin of paper lanterns.

Shanghai Lantern Festival – in China they like to be properly lanterned up, but it is not quite clear why. The lantern makers are all for it, that much is certain. [PT]

What is their purpose?  What do they represent?  Are they aesthetically pleasing?

No one knows.  And no one cares.  But day after day, millennia after millennia, the people hang their paper lanterns all the same.  Paper lanterns, in essence, are draped across outdoor markets and alleyways for no apparent reason.

Such vagaries have been interwoven into the fabric of Chinese culture for several millennia or more.  These vagaries are implicit to negotiating with Xi Jinping.

Hence, the only thing Trump’s trade negotiations will achieve is paper lanterns.  A little window dressing that the stock market can feel good about for a day or two… before a technology cold war – or worse – stands the global market place on its collective head.

Long paper lanterns.  Short everything else.

Published:12/8/2018 2:56:42 PM
[Markets] Dow closes more than 500 points down after jobs report disappoints The Dow Jones industrial average and other indexes slid after the monthly jobs report seemed to cement worries that an economic slowdown is down the road. Published:12/7/2018 8:56:21 PM
[Markets] Historic Debt Is At The Core Of Our Decline

Authored by Brandon Smith via,

This article was originally published at Birch Gold Group

As I predicted just after the 2016 presidential election, a sordid theater of blame has exploded over the state of the U.S. economy, with fingers pointing everywhere except (in most cases) at the true culprits behind the crash. Some people point to the current administration and its pursuit of a trade war. Others point to the Federal Reserve, with its adverse interest rate hikes into economic weakness and its balance sheet cuts.

Some blame the Democrats for doubling the national debt under the Obama Administration and creating massive trade and budget deficits. And others look towards Republicans for not yet stemming the continually increasing national debt and deficits.

In today’s economic landscape, the debt issue is absolutely critical. While it is often brought up in regards to our fiscal uncertainty, it is rarely explored deeply enough.

I believe that economic crisis events are engineered deliberately by the financial elite in order to create advantageous conditions for themselves. To understand why, it is important to know the root of their power.

Without extreme debt conditions, economic downturns cannot be created (or at least sustained for long periods of time). According to the amount of debt weighing down a system, banking institutions can predict the outcomes of certain actions and also influence certain end results. For example, if the Fed was interested in conjuring a debt based bubble, a classic strategy would be to set interest rates artificially low for far too long. Conversely, raising interest rates into economic weakness is a strategy that can be employed in order to collapse a bubble. This is what launched the Great Depression, it is what ignited the crash of 2008, and it is what’s going on today.

The massive debt burden makes recovery difficult, if not impossible, and thus the system becomes increasingly dependent on the banking elites to resolve the problem.

Debt is the fuel that keeps the centralization machine running. I am not talking about standard lending, though this can be a factor. What I'm talking about is debt created through policy; debt that’s created in an instant through the use of subversive and arbitrary measures, like central bank balance sheet initiatives or interest rates. And, debt that’s created through collusion between central banks, international banks, ratings agencies, and government using the removal of regulations, or the implementation of unfair regulatory standards.

Debt is a drug. The banks have known this for quite some time and have exploited the opiate of easy money to leverage entire nations and cultures into servitude or self-destruction. To illustrate this point, let’s look at the debt numbers today.

The national debt is closing in on $22 trillion, with over $1 trillion a year currently being added for the American taxpayer.

Corporate debt is at historic highs not seen since 2008, with S&P Global reporting over $6.3 trillion in total debts and the largest companies holding only $2.1 trillion in cash as a hedge.

U.S. household debt currently stands at around $13.3 trillion, which is $618 billion higher than the last peak back in 2008, during the credit crisis.

U.S. credit card debt surpassed $1 trillion for the first time in 2018, the highest single year amount since 2007 (once again, we see that debt levels are spiking beyond the lines crossed just before the crash of 2008).

So how can this debt be exploited to engineer an economic crisis?

Let’s start with household and consumer debt.

One would think that with so much lending and creation of consumer debt, we would see a massive expansion in home and auto markets. And for a time, we did. The problem was that most home purchases were being undertaken by major corporations like Blackrock, as they devoured distressed mortgages by the thousands and then turned those homes into rentals. In the auto market, there was a large spike in buying driven by lending, but this lending was accomplished through ARM-style car loans, the same kind of loans with lax standards that helped cause the mortgage crisis in 2008.

Today, both in the housing market and the auto market, a crash is indeed taking place as the Fed raises interest rates and makes holding these loans ever more expensive.

Pending home sales have tumbled to a four-year low, as one in four homes on the market is now forced to lower prices. Debt is becoming expensive, and therefore demand is slumping.

Overall U.S. auto sales began a precipitous decline this September, which has continued through November, mostly due to higher interest rates.

It is clear that an economic crash, which some are merely calling a bear market, is indicated in the swift decline in housing and autos, two of the most vital consumer sectors.

But what about corporate debt? Let’s use GE, GM and Ford as litmus tests.

GE is currently in the red for over $115 billion. And this doesn’t include its pension promises to employees, which amount to over $100 billion. Given that only $71 billion has been earmarked to cover the payments, any rate hikes from the Fed constitute a millstone on the necks of GE. The likely result will be continued layoffs. Last December, GE announced 12,000 jobs to be cut through 2018, and it is likely cuts will continue into 2019.

GM, with long term debt of $102 billion (as of September) and cash holdings of around $35 billion, is now cutting over 14,000 jobs and shutting down multiple factories in the U.S. This is due, in part, to a combination of interest rate hikes and tariffs. However, the true point of fracture is because of the expansive debt that GM is responsible for. Without such debt, neither rate hikes nor Trump’s tariffs would have as intense an effect on these corporations.

Ford, not to be outdone by GM, is set to announce up to 25,000 job cuts, though the bulk of them may be implemented in Europe. Ford has called this report by Morgan Stanley "premature", but we saw many similar "non-denial-denials" of these kinds of info leaks during the crash of 2008, and most of them ended up being true.  Ford saw its debt rating downgraded by Moody’s earlier this year to one step above junk. With current liabilities of around $100 billion and only $25 billion in cash holdings, Ford is yet another company of the verge of crumbling due to huge liabilities it cannot afford to pay more interest on.

We can see the stress that the Fed is able to place on corporations by looking at their stock buyback expenditures over the past few years. Until recently, it was the Fed’s low interest rates, overnight loans, and balance sheet purchases that allowed companies to buy back their own stocks and thereby artificially prop up the markets. In fact, one could argue that without stock buybacks, the bull rally that started in 2009 would have died out a long time ago and we would have returned to crash conditions much sooner.

Well, this is exactly what is happening today.  Stock buybacks in the last half of 2018 are dwindling as the Fed tightens policy and interest rates draw ever closer to the designated "neutral rate" of inflation.  All it took as a measly 2% increase in interest to create a crisis, but with the level of debt choking the system, this should not be surprising to anyone.

By lowering interest rates to near zero, what the Fed did was create a culture of irresponsible risk, and I believe they did this knowingly. Even Donald Trump has tied himself to the performance of the stock market and embraced the debt addiction, arguing for the Fed to stop or reduce interest rate hikes to keep the debt party going.  Though, with Trump's White House crawling with international banking agents and think-tank ghouls there might be far more than meets the eye as Trump anchors himself to the performance of the Dow.

The Fed is not going to stop. Why would they? They have created the perfect bubble. A bubble that encompasses not only corporate debt, consumer debt, and stock markets, but also bond markets and the U.S. dollar itself. If the goal is a move to centralize power, then the banking elites have the perfect crisis weapon in their hands, and they barely need to lift a finger (or raise rates) to trigger the event.

As noted earlier, it is not only stock investors that are dependent on Fed interest rates, but also the U.S. government, as treasury debt becomes less desirable for foreign buyers.  The higher the potential interest barrier for the US, the higher the cost, and the less faith foreign buyers have in our ability cover our liabilities while the Fed is still tightening.

Both China and Japan have been quietly reducing treasury holdings and purchases. Failing bond auctions have been cited as a trigger for spikes in Treasury yields since the beginning of 2018. Again, even U.S. debt and the dollar are embroiled in the “everything bubble”.

Debt in itself is not necessarily just a tool to gain more wealth; it is also a tool to change and mold societies through financial leverage and disaster.  To understand who is creating any fiscal downturn, and to understand who benefits from economic crisis, one only needs to consider who controls the debt.

*  *  *

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Published:12/7/2018 6:52:37 PM
[Markets] Stocks - Dow Erases Gains for Year on Tech, Trade Turmoil - The Dow erased its gains for the year after plunging Friday on a weak jobs report and concerns over U.S.-China trade tensions. Published:12/7/2018 6:23:02 PM
[Markets] The Dow Plunges 559 Points Because No Good News Is Bad News It’s the worst start to a December in a decade. The Dow Jones Industrial Average tumbled 2.2% to 24,388.95. The S&P 500 fell 2.3% to 2633.08, and the Nasdaq Composite plunged 3.1% to 6969.25. Published:12/7/2018 4:20:02 PM
[Markets] Goldilocks Is Dead: Stocks Slammed Despite Trade-Truce, OPEC Deal, & Jobs Gains

In a week in which we got a trade-truce, the market all but pricing out any Fed hawkishness, and Alberta cutting crude production and an OPEC deal; stocks in Europe and US collapsed...

Let's hope for The Santa Claus Rally... any day now...

China ended the week marginally higher (having erased almost all of the post-Truce gains)...


European markets were a bloodbath however, led by Germany... (down over 6% from its Monday exuberant highs to its lowest in 2 years)


Deutsche Bank ended the week below $8...


Before we start, everyone seemed to crow about the jobs print this morning as a 'Goldilocks' number - well they were half right - Gold is the only asset green...

Futures how the real chaos this week...

Bloomberg's Cameron Crise notes that yesterday's crazy dump and pump was only the 13th time since 1980 that the S&P rallied more than 2.8% but still closed lower from the previous day. Six such episodes occurred during the 2001 and 2008 recessions. The last time it happened was in May 2010 amid the European debt crisis, as my colleague Luke Kawa noted.

On the cash side it was an ugly week... with Trannies down 8%!!! (worst week since 2011), Small Caps worst week since Jan 2016

This happened despite utter desperation from Fed's Bullard and Brainard suggesting uber-dovishness.

The Dow and S&P back into the red for 2018 and Nasdaq up less than 1% (and Trannies and Small Caps are ugly)


All the major US equity indices plunged back below key technical support levels...


The S&P 500 'Death Crossed' today...(the last time it death crossed was Jan 2016 as the S&P dropped 13%)


"Most Shorted" Stocks were squeeze Monday morning and Thursday afternoon, but ended the week lower...


Financials were FUBAR this week - plunging most since March to the lowest since Sept 2017


Regional Banks were crushed... (notably the Monday surge tagged the 50DMA which seemed to trigger stops)


And the big banks bloodbathing...


Global Systemically Important Banks are down 33% from the highs and have erased all post-Trump gains...


FANGs are down 24% from their highs...


With NFLX leading the collapse... (down 11% from Monday highs)


AAPL tumbled below $170 to six-month lows...down 27% from its highs and in the red for 2018

And Alphabet ended the week red for 2018...


Credit markets continued their collapse...

HY and IG closed at cycle wides...


And LevLoans crashed...

On record outflows...


Bonds were right after all... Stocks enjoyed 24 hours of excitement on Sunday/Monday before catching down to reality...


Treasury yields tumbled all week led by the long-end...


10Y Yield dropped to key support...


With dramatic flattening... 2s5s are down for 8 of the last 9 weeks...


And inverted...


Inflation breakevens soared early on as WTI spiked on the OPEC deal, but lost contact as the day wore on...


The Dollar ended the week marginally lower - but had a very wild ride...


Interestingly, while stocks all tumbled, erasing trade gains, offshore yuan ended the week notably higher - the best week for Yuan since January!


Cryptos crashed again...


PMs rallied on the week, copper tumbled...


On the heels of the OPEC 'deal', WTI jumped over 5% - its best week since June...BUT it seems like $54 is the limit for WTI for now...


Amid all the chaos, gold jumped almost 2%, the best week for the precious metal since March...


Additionally, despite Yuan's best week in 11 months, gold outperformed to its strongest since October...


Silver broke back above its 50DMA...


Finally a chart that fascinates us - the price of a barrel of oil in ounces of silver - it seems 5 ounces is just too rich for demand...


Don't forget - last week was the best week for stocks in 8 years... followed by this week's worst drop since the March tech wreck.

Finally, a little context for this post-trade-truce week - China is higher, Europe has collapsed, and US stocks have tumbled...Xi wins?

And this plunge has happened as the eurodollar market has priced in massive dovishness...

And if cyclical stocks are right, bond bears face a serious bloodbath right ahead...

If the US economy/market cannot handle positive real interest rates, what is with this "world's greatest economy" narrative?

Macro data suggests Goldilocks is dead...

Published:12/7/2018 3:19:50 PM
[Markets] Dow Falls For Third Day, Loses 4.4% in Week on Jobs Report, Trade Fears The Dow Jones Industrial Average fell sharply Friday following a U.S. jobs report that was weaker than expected. Oil prices jumped Friday after OPEC member states and their allies agreed to cut production for at least six months. rose 0.58% Friday after the chipmaker posted fiscal fourth-quarter earnings that topped estimates and it issued a forecast higher than analysts' expectations. Published:12/7/2018 3:19:49 PM
[Markets] Selling pressure again intensifies: Dow down 650 points; Nasdaq, 240 Selling pressure again intensifies: Dow down 650 points; Nasdaq, 240 Published:12/7/2018 2:19:46 PM
[Markets] All 30 Dow industrials stocks and the 20 Dow transport stocks are falling As the Dow Jones Industrial Average tumbles 659 points, or 2.6%, in afternoon trade, all 30 of its components are losing ground. Of the biggest decliners, shares of Microsoft Corp. dropped 4.4%, Caterpillar Inc. shed 4.3% and Intel Corp. declined 4.3%. The most active Dow stock was Apple Inc. , which shed 3.5% toward the lowest close since April 30. Elsewhere, the Dow Jones Transportation Average lost 4.2%, with all 20 components falling. Meanwhile, the defensive Dow Jones Utility Average rose 0.5%, with 14 of 15 components gaining ground. Published:12/7/2018 2:19:46 PM
[Markets] Dow industrials down 530 points as Friday stock-market decline accelerates Dow industrials down 530 points as Friday stock-market decline accelerates Published:12/7/2018 1:19:46 PM
[Markets] Dow's 580-point midday drop puts the blue-chip gauge on the brink of re-entering correction A fresh tumble for the Dow Jones Industrial Average on Friday was putting the blue-chip benchmark on the verge of shedding 10% from its recent peak in October, which put the index back in correction. The Dow was most recently off 580 points, or 2.3%, at 24,381, with that decline placing it about 9.4% short of a dropping 10% from its Oct. 3 all-time high at 26,828.49, according to FactSet data. The decline comes amid fresh worries about trade relations between China and the U.S., with the S&P 500 index and the Nasdaq Composite Index also trading sharply lower on the day, even after a cooler-than-expected jobs report, showing that 155,000 jobs were created in November, offered some suggestion that the Federal Reserve may be more deliberate in raising borrowing costs in coming months. If the Dow were to tumble back into correction, it would join the S&P 500 and the Nasdaq. Published:12/7/2018 1:19:46 PM
[Markets] Aurora Cannabis's stock soars after getting access to Mexico market with Farmacias supply deal Shares of Aurora Cannabis Inc. shot up 10.8% in afternoon trade Friday, after the Canada-based marijuana company said it was expanding into Mexico with the establishment of an exclusive supply deal with Farmacias Magistrales S.A. The company said Farmacias, a pharmaceutical manufacturer and distributor that reaches 80,000 retail points and 500 pharmacies and hospitals, recently received the first import license graded from the Mexico's Federal Commission for Protection Against Health Risks, which allows the company to import medical cannabis containing THC. "This new exclusive partnership further expands Aurora's early mover advantage in Latin America, allowing us to become a leading player in the development of the medical cannabis system in Mexico, a legal market of 130 million people," said Aurora Chief Executive Terry Booth. The stock has lost 5.2% over the past three months, while the ETFMG Alternative Harvest ETF has shed 15.7% and the Dow Jones Industrial Average has lost 5.5%. Published:12/7/2018 12:52:32 PM
[Markets] Dow Falls Sharply as Rally Following Weaker-Than-Forecast Jobs Report Stalls The Dow Jones Industrial Average fell sharply Friday following a U.S. jobs report that was weaker than expected. Oil prices jumped Friday after OPEC member states and their allies agreed to cut production for at least six months. rose 0.5% Friday after the chipmaker posted fiscal fourth-quarter earnings that topped estimates and it issued a forecast higher than analysts' expectations. Published:12/7/2018 12:20:43 PM
[Markets] The Dow has dropped nearly 9% since hitting all-time high Oct. 3 The Dow has dropped nearly 9% since hitting all-time high Oct. 3 Published:12/7/2018 12:20:43 PM
[Markets] Dow down 300 points as Friday session takes sharp turn for worse Dow down 300 points as Friday session takes sharp turn for worse Published:12/7/2018 10:48:30 AM
[Markets] Dow falls by about 400 points as stock market takes a fresh leg lower late-morning Friday The Dow Jones Industrial Average was trading near session lows late-morning Friday, with investors focusing on nagging worries on trade relations between the U.S. and China. The Dow most recently was down 391 points, or 1.6%, at 24,549, the S&P 500 index traded 1.5% lower at 2,656, while the Nasdaq Composite Index retreated 1.9% at 7,052. The moves follow a jobs report that showed that 155,000 jobs were created in November, while the unemployment rate remained at the 3.7%, the lowest since 1969. For the week, the Dow is set to drop 3.9%, the S&P 500 is on track for a 3.8% decline, while the Nasdaq is poised for a weekly drop of 3.7%. Published:12/7/2018 10:48:30 AM
[Markets] Dow Falls as Rally Following Weaker-Than-Forecast Jobs Report Stalls The Dow Jones Industrial Average fell Friday following a U.S. jobs report that was weaker than expected. Oil prices jumped Friday on reports OPEC was close to a deal to cut production. rose 1.4% Friday after the chipmaker posted fiscal fourth-quarter earnings that topped estimates and it issued a forecast higher than analysts' expectations. Published:12/7/2018 10:18:25 AM
[Markets] Peter Schiff: "Nobody Wants To Deal With The Truth...That This Economy Is Going Into Recession"

Authored by Mac Slavo vioa,

Renowned market analyst Peter Schiff said in his recent podcast that Americans just don’t want the truth. Schiff says that it is very likely that we are already in a recession and no one wants to accept that or even deal with it.

“Nobody wants to deal with the truth; because you know how grim the reality is? Because if you have to accept the fact that this economy is going into recession, then you have to accept a lot of unpleasant things that nobody wants to admit,” Schiff was quoted during his podcast, according to Schiff Gold.

The stock market got a nice bump on Monday with the news that there was a “truce” in the trade war. That lasted all of one day. The markets tanked on Tuesday as investors realized the “truce” really didn’t mean anything. The Dow Jones plunged 799 points, a 3.1% drop. The S&P 500 declined 3.2%, while the Nasdaq was down 3.8%. As one news outlet put it, “investors are quickly realizing that the US-China trade war is not over. The tariffs already put in place remain. And new tariffs could be implemented if the two sides fail to make progress.” –Schiff Gold

“The market is saying it thinks sometime two or three years from now, the Fed is going to be cutting rates because the economy is going to be in a recession,” said Schiff. “And so people think yields will be lower three years from now then they are today because they think the economy will be into a recession at some point in the future.”

Schiff added that there is a good possibility that we are actually in a recession right now.

In fact, we may even be in a recession now. We don’t know yet. We won’t know yet until the government goes back and revises all the numbers. But that is what they will do because if you look at what is going on beneath all the headlines, the real economic data is weak. I don’t care that the unemployment rate is still low. The unemployment rate can spike higher very quickly.”

Schiff says most people are still in denial about the economy and the downturn too.

“What has happened in the last week is very, very bullish for the price of gold, and the price of gold is not catching much of a bid. I think again, the main reason for this is because nobody gets it. People still think this is a bull market. They’re not worried about the decline. They think it’s just a buying opportunity. It’s just a correction. They still think the economy is good. Even though the bond market doesn’t, even though the yield curve is inverting in the front end of the curve, people are dismissing that. 

They’re dismissing the housing data; they’re dismissing the build in the crude inventories. They’re not looking at any of the real data because nobody wants to believe it. Everybody still wants to believe all the hype — that this economy is great, that this economy is booming. Nobody wants to deal with the truth; because you know how grim the reality is? Because if you have to accept the fact that this economy is going into recession, then you have to accept a lot of unpleasant things that nobody wants to admit.” –Peter Schiff

Published:12/7/2018 8:47:47 AM
[Markets] S&P Futures Slide, Europe Jumps As Traders Beg For End To Turbulent Week

There is a sense of almost detached resignation amid trading desks as we enter the last trading day of a chaotic, volatile week that has whipsawed and stopped out virtually everyone after the Nasdaq saw the biggest intraday reversal since Thursday and pattern and momentum trading has become impossible amid one headline tape-bomb after another.

After yesterday furious tumble and sharp, last hour rebound, US equity futures are once again lower expecting fresh developments in the Huawei CFO arrest and trade war saga while today's payroll report may redirect the Fed's tightening focus in wage growth comes in hotter than the 3.1% expected; at the same time European stocks have rebounded from their worst day in more than two years while Asian shares posted modest gains as investors sought to end a bruising week on a more upbeat note. While stock trading was far calmer than Thursday, signs of stress remained just below the surface as the dollar jumped, Treasuries rose and oil whipsawed amid fears Iran could scuttle today's OPEC deal.

The MSCI All-Country World Index, which tracks shares in 47 countries, was up 0.3% on the day, on track to end the week down 2%.

After Europe's Stoxx 600 Index sharp drop on Thursday, which tumbled the most since the U.K. voted to leave the EU in 2016, Friday saw Europe's broadest index jump 1.2% as every sector rallied following the cautious trade in the Asia-Pac session and the rebound seen on Wall Street where the Dow clawed back nearly 700 points from intraday lows. European sectors are experiencing broad-based gains with marginal outperformance in the tech sector as IT names bounce back from yesterday’s Huawei-driven slump.

Technology stocks lead gains on Stoxx 600 Index, with the SX8P Index up as much as 2.3%, outperforming the 1.1% gain in the wider index; Nokia topped the sector index with a 5.9% advance in Helsinki after Thursday’s public holiday, having missed out on initial gains from rival Huawei’s troubles that earlier boosted Ericsson. Inderes said the arrest of Huawei CFO over potential violations of American sanctions on Iran will benefit Nokia and Ericsson, who are the main rivals of Huawei and ZTE. Similarly, Jefferies wrote in a note on Chinese networks that China may have to offer significant concessions to buy Huawei an “out of jail” card and reach a trade deal, with China’s tech subsidies and “buy local” policies potentially under attack. "For example, why would Nokia and Ericsson have only 20% share in China’s 4G market," analysts wrote.

Meanwhile, energy names were volatile as the complex awaits further hints from the key OPEC+ meeting today. In terms of individual movers, Fresenius SE (-15.0%) fell to the foot of the Stoxx 600 after the company cut medium-term guidance, citing lower profit expectations at its clinics unit Helios and medical arm Fresenius Medical Care (-7.8%). The news sent Fresenius BBB- rated bonds tumbling, renewing fears of a deluge of "fallen angels."  On the flip side, Bpost (+7.5%) and Tesco (+4.8%) are hovering near the top of the pan-Europe index amid broker upgrades.

Earlier in the session, Japanese equities outperformed as most Asian gauges nudged higher. MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.2%, though that followed a 1.8 percent drubbing on Thursday. Japan’s Nikkei added 0.8 percent. Chinese shares, which were up earlier in the day, slipped into negative territory with the blue chips off 0.1 percent.


E-Mini futures for the S&P 500 also started firmer but were last down 0.4 percent. Markets face a test from U.S. payrolls data later in the session amid speculation that the U.S. economy is heading for a tough patch after years of solid growth.

Will the last employment report released this year (the December report comes out in early January) help markets to continue to form a base? The consensus for nonfarm payrolls today is for a 198k print, following the stronger-thanexpected 250k reading last month. Average hourly earnings are expected to rise +0.3% mom which should be enough to keep the annual reading at +3.1% yoy while the unemployment rate is expected to hold steady at 3.7%. DB's economists are more or less in line with the consensus with a 200k forecast and also expect earnings to climb +0.3% mom, however that would be consistent with a small tick up in the annual rate to +3.17% and the fastest pace since April 2009. They also expect the current pace of job growth to push the unemployment rate down to 3.6% which would be the lowest since December 1969.

Meanwhile, Fed Chairman Jerome Powell confused traders when late on Thursday, he emphasized the strength of the labor market, throwing a wrench into trader expectations the Fed is poised to pause tightening - arguably the catalyst for Thursday's market-closing ramp following a WSJ article which reported Fed officials were considering whether to signal a new wait-and-see mentality after a likely rate increase at their meeting in December.

While Friday's market has stabilized, for many the recent gyrations are just too much. For Dennis Debusschere, head of portfolio strategy at Evercore ISI, there’s still far too much risk to wade back into a market this riven by volatility. “Overall still untradeable in our opinion, until we get more clarity on trade and we think it will pay to wait this out,” he wrote in a note to clients Thursday. “That being said, our desk is open for business if you’re feeling up to trading this backdrop.”

Meanwhile, the big question is what happens next year: “The big question mark still is what’s going to happen in 2019” with the Fed, Omar Aguilar, CIO of equities and multi-asset strategies at Charles Schwab, told Bloomberg TV. “The jobs report could easily be the catalyst that will tell us a little more about what the path may be.”

Expecting that a big slowdown is coming, interest rate futures rallied hard in massive volumes with the market now pricing in less than half a hike next year, compared to just a month ago when they had been betting on more than two increases.  Treasuries extended their blistering rally, driving 10-year yields down to a three-month trough at 2.8260 percent, before last trading at 2.8863 percent. Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.75 percent. Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically presaged economic slowdowns and even recessions.

The seismic shock spread far and wide. Yields on 10-year paper sank to the lowest in six months in Germany, almost 12 months in Canada and 16 months in Australia. Italian debt climbed as European bonds largely drifted.

The greenback advanced against most of its Group-of-10 peers ahead of U.S. jobs data that are expected to show hiring slowed last month. The pound fell as U.K. Prime Minister Theresa May was said to be weighing a plan to postpone the vote on her Brexit deal.

In commodity markets, gold firmed to near a five-month peak as the dollar eased and the threat of higher interest rates waned. Spot gold stood 0.1 percent higher at $1,239.49 per ounce. Oil was less favored, however, falling further as OPEC delayed a decision on output cuts while awaiting support from non-OPEC heavyweight Russia. Brent futures fell 0.5 percent to $59.77 a barrel, while U.S. crude also lost half a percent to $51.19. Cryptocurrencies continued their collapse with fresh losses after U.S. regulators dashed hopes that a Bitcoin exchange-traded fund would appear before the end of this year.

Market Snapshot

  • S&P 500 futures down 0.4% to 2,680.00
  • STOXX Europe 600 up 1.3% to 347.69
  • MXAP up 0.2% to 151.21
  • MXAPJ up 0.2% to 485.67
  • Nikkei up 0.8% to 21,678.68
  • Topix up 0.6% to 1,620.45
  • Hang Seng Index down 0.4% to 26,063.76
  • Shanghai Composite up 0.03% to 2,605.89
  • Sensex up 0.9% to 35,631.53
  • Australia S&P/ASX 200 up 0.4% to 5,681.49
  • Kospi up 0.3% to 2,075.76
  • German 10Y yield rose 0.8 bps to 0.244%
  • Euro down 0.05% to $1.1368
  • Italian 10Y yield rose 13.9 bps to 2.835%
  • Spanish 10Y yield unchanged at 1.46%
  • Brent futures up 0.2% to $60.16/bbl
  • Gold spot up 0.2% to $1,239.70
  • U.S. Dollar Index little changed at 96.88

Top Overnight News from Bloomberg

  • The arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou in Canada over potential violations of American sanctions on Iran has triggered a debate in China over whether to carry on with trade talks with the U.S. or link the two issues and retaliate; Meng will have a bail hearing Friday to determine whether she is a flight risk and should remain in detention during proceedings on extradition to the U.S.
  • Oil extended losses near $51 a barrel after OPEC entered a second day of talks in an attempt to draw up a deal to cut output. Iran sees no possibility of agreeing to reduce its output, Oil Minister Bijan Zanganeh said Friday
  • Theresa May met with her top ministers in London on Thursday to discuss options of delaying the Dec. 11 Parliamentary vote on her Brexit deal to avoid a landslide defeat that would risk a major U.K. political crisis, according to a person familiar with the matter
  • EU leaders are poised to turn their next summit into a Brexit crisis meeting, but so far, it doesn’t look like they’re willing to offer her anything that could help to break the deadlock in the U.K. Parliament
  • Angela Merkel’s long exit from politics begins Friday when her party gathers in Hamburg to decide whether to appoint her chosen successor as its new leader or break with the legacy of her 13 years in charge of Germany
  • Italian Finance Minister Giovanni Tria has complained that he is the victim of one ambush after another as his future is called into question amid tensions with populist leaders over a spending spree to fund election policies, according to newspaper Il Giornale

Asian stocks saw cautious gains with the region getting an early tailwind after the sharp rebound on Wall St, where most majors inished lower albeit off worse levels as tech recovered and the DJIA clawed back nearly 700 points from intraday lows. ASX 200 (+0.4%) and Nikkei 225 (+0.8%) were both higher at the open but gradually pared some of the gains as the risk tone began to turn cautious heading into today’s key-risk NFP jobs data. Hang Seng (-0.3%) and Shanghai Comp (U/C) were indecisive amid further PBoC inaction in which it remained net neutral for a 5th consecutive week and with the upcoming Chinese trade data over the weekend adding to tentativeness, while pharmaceuticals were the worst hit due to concerns of price declines from the government’s centralized procurement program. Finally, 10yr JGBs were flat amid a similar picture in T-note futures and although early selling pressure was seen in Japanese bonds alongside the strong open in stocks, prices later recovered as the risk appetite somewhat dissipated.

Top Asian News

  • China’s FX Reserves Rose Despite Intervention, Outflow Signs
  • Hong Kong May Slip Into Recession in 2019, Deutsche Bank Warns
  • SoftBank Seeks to Assuage Investors on Pre-IPO Mobile Outage
  • Southeast Asia Reserves Recover a Bit in November as Rout Eases

European equities extended on gains from the cash open (Eurostoxx 50 +1.2%) following the cautious trade in the Asia-Pac session and the rebound seen on Wall St where the Dow clawed back nearly 700 points from intraday lows. European sectors are experiencing broad-based gains with marginal outperformance in the tech sector as IT names bounce back from yesterday’s Huawei-driven slump. Meanwhile, energy names are volatile (currently marginally underperforming) as the complex awaits further hints from the key OPEC+ meeting today. In terms of individual movers, Fresenius SE (-15.0%) fell to the foot of the Stoxx 600 after the company cut medium-term guidance, citing lower profit expectations at its clinics unit Helios and medical arm Fresenius Medical Care (-7.8%). On the flip side, Bpost (+7.5%) and Tesco (+4.8%) are hovering near the top of the pan-Europe index amid broker upgrades.

Top European News

  • LandSec, Undeterred by Brexit, Makes New Bet on London Offices
  • Danske Says It’s Looking Into Selling Its Swedish Pension Assets
  • Chinese Group Agrees to Buy Amer Sports in $5.2 Billion Deal
  • Bad Air Warnings in London And Paris Peak With Fish And Chips


  • DXY - Typically rangebound trade in the run up to US labour data, and with markets also monitoring OPEC+ headlines as a decision on whether to cut output and if so by how much remains highly uncertain. The index is hovering just under the 97.000 handle within a 96.767-96.931 band, and well within nearest technical support and resistance levels at 96.300 and 97.311 respectively.
  • GBP - A marginal G10 underperformer as Cable retreats back below 1.2750 from just above 1.2800 at one stage, but this could be more flow-related rather than anything fundamental as Eur/Gbp rallied towards 0.8930 peaks from just under the big figure into the Frankfurt fixing before drifting back again. However, Halifax house prices were much weaker than expected and latest Brexit news is hardly Sterling supportive given more speculation about delaying the meaningful vote to try and avoid a resounding rejection, even though the Government appears to be resolute and standing firm on December 11.
  • NZD/AUD - The Kiwi is at the opposite end of a relatively narrow Usd/Major spectrum, and like the Pound also impacted by indirect factors to a degree, if not in the main. Indeed, Nzd/Usd remains capped ahead of 0.6900, but Aud/Nzd is pivoting 1.0500 as the Aussie unit continues to feel the adverse effects of recent bearish impulses, namely softer than forecast Q3 GDP and a more dovish RBA via Debelle. Hence, Aud/Usd is softer between 0.7210-40 parameters and bound to be wary of huge option expiries from 0.7250-60 in 6.6 bn that form a formidable barrier ahead of circa 1.2 bn up at 0.7300.
  • EUR/JPY - In the pre-NFP ‘hiatus’ and awaiting anything further on the Italian budget front, option expiries may also exert directional impetus on Eur/Usd and Usd/Jpy, as the former faces 2+ bn at the 1.1400 strike and latter is flanked by 1+ bn at 112.50 and 113.00.
  • CAD - The Loonie has pared a bit more lost ground from recent lows, albeit partly due to a broad Usd retracement, eyeing OPEC and also Canada’s jobs report given latest BoC guidance indicating even greater data dependency. Usd/Cad currently just shy of the 1.3400 mark vs 1.3440+ at one stage yesterday.

In commodities, WTI (+0.2%) and Brent (+0.9%) are choppy in what was a volatile session thus far as comments from energy ministers emerged ahead of the key OPEC+ meeting, after yesterday’s OPEC talks ended with no deal for the first time in almost five years. Brent rose after source reports noted that Moscow are ready to cut output by 200k BPD (below OPEC’s desire of 250k-300k but above Russia’s prior “maximum” of 150k) if OPEC are willing to curb production by over 1mln BPD. Prices then fell to session lows following a less constructive tone from Saudi Energy Minister who reiterated that he is not confident there will be a deal today, which came after delegates noted that OPEC talks are focused on a combined OPEC+ cut of 1mln BPD (650k from OPEC and 350k from Non-OPEC). Markets are awaiting the start of the OPEC+ meeting after delegates stated that talks are at deadlocked as Iran appears to be the main sticking point to an OPEC deal, though sources emerged stating that Iran, Venezuela and Libya are set to get exemptions from cuts, adding that OPEC and Russia are looking for a symbolic production commitment from Iran as fears arise that Iran may not be able to follow-through on curb pledges due to US sanctions. In terms of metals, gold hovers around session highs and is set for the best week since August with the USD trading in a tight range ahead of the key US jobs data later today, while London copper rose over a percent is underpinned by the positive risk tone.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 198,000, prior 250,000
    • Unemployment Rate, est. 3.7%, prior 3.7%; Underemployment Rate, prior 7.4%
    • Average Hourly Earnings MoM, est. 0.3%, prior 0.2%; YoY, est. 3.1%, prior 3.1%
  • 8:30am: Average Weekly Hours All Employees, est. 34.5, prior 34.5
  • 10am: Wholesale Inventories MoM, est. 0.7%, prior 0.7%; Wholesale Trade Sales MoM, prior 0.2%
  • 10am: U. of Mich. Sentiment, est. 97, prior 97.5; Current Conditions, prior 112.3; Expectations, prior 88.1
  • 3pm: Consumer Credit, est. $15.0b, prior $10.9b

DB's Jim Reid concludes the overnight wrap

The age of innocence has truly gone in financial markets after a turbulent 24 hours but one that saw a spectacular rally after Europe closed last night and one that has steadily carried on in Asia overnight (more on this below). Before we get to that I’m on an intense client marketing roadshow at the moment on the 2019 Credit outlook and there are a litany of worries out there from investors. Maybe I’m trying to be too cute here but I think the problems we’re seeing in credit at the moment are more of a “ghost of Xmas future” rather than a sign of an imminent disaster scenario. However my overall confidence that credit will blow up around the end of this cycle has only intensified in the last couple of weeks. Liquidity is awful in credit and it’s been a broken two way market for several years (probably as long as I’ve worked in it - 24 years). However this has got worse this cycle as the size of the market has grown rapidly but dealer balance sheets have reduced. As such you can buy massive size at new issue but your ability to sell in secondary is constrained to a small percentage of this. This didn’t matter much when inflows dominated - as they mostly did in this cycle pre-2018 - but in a year of outflows across the board the lack of a proper two way  market is increasingly being felt. As discussed I don’t think this is the start of the crisis yet but be warned that when this economic cycle does roll over or even starts to operate at stall speed the credit market will be very messy and will influence other markets again.

On the positive side and despite a very steep mid-session selloff, US markets ultimately closed well off the lows. The DOW, S&P 500 and NASDAQ finished -0.32%, -0.15% and +0.42% respectively, though they traded as low as -3.14%, -2.91%, and -2.43% respectively, around noon in New York. At its lows, the S&P 500 was on course for its worst two-session stretch since February, and before that you’d have to go back to August 2015 or 2011 to find the last episode with as steep a two-day drop. The DOW and S&P 500 dipped into negative territory for the year again, but clawed back and are now +0.92% and +0.84% YTD (+3.16% and +2.69% on a total return basis). The NASDAQ has clung to its outperformance, as it is now up +4.13% this year, or +5.20% on a total return basis, though of course the difference is narrower in the low-dividend paying, high-growth tech index.

Unsurprisingly, the moves yesterday coincided with higher volatility with the VIX climbing as much as +5.2pts to 25.94 and pretty much back to the October highs, though it too rallied alongside the equity market to end close to flat at 21.15. Meanwhile, the price action was even uglier in Europe as the US lows were around the close. The STOXX 600 plunged -3.09% and is down -4.22% in two days – the most in two days since June 2016. Nowhere was safe. The DAX (-3.48%), CAC (-3.32%), FTSE MIB (-3.54%) and IBEX (-2.75%) all saw huge moves lower. The DAX has now joined the Italy’s FSTEMIB in bear market territory, as it is now -20.49% off its highs earlier this year. The FTSEMIB is down -24.04% from its highs. European Banks – which were already down nearly -27% YTD going into yesterday – tumbled -4.29% for the biggest daily fall since May and the third biggest since immediately after Brexit. The index is now at the lowest since October 2016 and within 17% of the June 2016 lows all of a sudden. US Banks fell -1.87%, though they had dipped -4.3% at their troughs to touch the lowest level since September 2017.

As for credit, HY cash spreads in Europe and the US were +8.5bps and +14.8bps wider respectively. For context, US spreads are now at the widest since December 2016 and this is the best performing broad credit market over the last couple of years. In bond markets, 10y Treasuries rallied-2.4bps but was as much as 9bps lower intra-day. Thanks to an outperformance at the front end (two-year fell -3.7bps), the 2s10s curve actually ended a shade steeper at 13.0bps (+1.3bps on the day). However that move for the 10y now puts it at the lowest since September at 2.89%, and only +48.6bps above where we started the year. The spread on the Dec 19 to Dec 18 eurodollar contract – indicative for what is priced into Fed hikes for next year - is down to just 16bps. It was at 60bps in October. This certainly appears to be too low, though a Wall Street Journal article yesterday seemed to signal a willingness by the Fed to moderate its pace of rate hikes. Finally, in Europe, Bunds closed -4.1bps lower at 0.236%.

Quite amazing moves with Bunds continuing to defy all fundamental logic and trading instead as a risk-off lightning rod. There was some talk that the sharp moves lower at the open yesterday were exaggerated by the unexpected midweek close for markets in the US which resulted in futures systems failing to be programmed to adjust and orders backing up. However the combination of a -2.25% drop for WTI (-5.2% at the lows) post the OPEC meeting (more below) and the Huawei story that we mentioned yesterday certainly aided to the initial malaise. There was some talk that both the Chinese and US authorities would have been aware of the arrest before last weekend’s talks and as such this story shouldn’t be necessarily a threat to the truce, though Reuters reported last night that President Trump did not know about the planned arrest. The implications of this are unclear, since it could mean that Trump has less direct control over the arresting agency, but it could also indicate that the move is not part of trade policy. Either way, how this development will be key for the market moving forward, especially any response from Chinese officials.

This morning in Asia markets are largely trading higher with the Nikkei (+0.60%), Hang Seng (+0.21%), Shanghai Comp (+0.08%) and Kospi (+0.51%) all up. Elsewhere, futures on the S&P 500 (-0.11%) are pointing towards a flattish start. Meantime crude oil (WTI -0.39% and Brent -0.60%) prices are continuing to trade lower this morning. It wouldn’t be an EMR worth it’s place in the daily schedule without an Italy and Brexit update. As we go to print Italian daily La Stampa has reported that the Italian Premier Conte and Deputy Premier Di Maio are in favour of the resignation of Finance Minister Tria while Deputy Premier Salvini is against his resignation. So signs of tension. In the U.K. a few press articles (like Bloomberg) are suggesting that PM May is considering postponing Tuesday’s big vote. There doesn’t seem to be a lot of substance to the story at the moment but it mentions going back to the EU for concessions on the Irish backstop as one possibility. How the EU will feel would be the obvious question.

As mentioned earlier, oil had a difficult session yesterday, falling back to its recent lows with WTI touching a $50 handle and Brent trading back below $60 per barrel. The first day of the OPEC summit did not appear promising for the odds of a new production deal, as the ministers apparently discussed a 1 million barrel per day cut, below the 1.5 million needed to balance the market.The Libyan oil minister abruptly left before the day’s meetings concluded, and the organization canceled their scheduled press conference. The Russian delegation will join the OPEC contingent today in an effort to finalize a deal, but Saudi Energy Minister al-Falih said that “Russia is not ready for a substantial cut.” Watch this space today.

Overnight, the Fed Chair Powell delivered an upbeat message on the US economy and the Job market ahead of today’s payrolls release. He said, “our economy is currently performing very well overall, with strong job creation and gradually rising wages,’’ while adding, “in fact, by many national-level measures, our labour market is very strong.’’ Elsewhere, the Fed’s John Williams said yesterday that the biggest challenge which the policy makers are facing is achieving a soft landing. He said, “we have a pretty strong economy -- unemployment pretty low, inflation near our goal -- it’s just managing a soft landing, keeping this expansion going for the next few years.”

So will the last employment report released this year (the December report comes out in early January) help markets to continue to form a base? The consensus for nonfarm payrolls today is for a 198k print, following the stronger-thanexpected 250k reading last month. Average hourly earnings are expected to rise +0.3% mom which should be enough to keep the annual reading at +3.1% yoy while the unemployment rate is expected to hold steady at 3.7%. Our US economists are more or less in line with the consensus with a 200k forecast and also expect earnings to climb +0.3% mom, however that would be consistent with a small tick up in the annual rate to +3.17% and the fastest pace since April 2009. They also expect the current pace of job growth to push the unemployment rate down to 3.6% which would be the lowest since December 1969.

Going into that, yesterday’s ADP employment change report for November was a tad disappointing at 179k (vs. 195k expected) while more interestingly the recent tick up in initial jobless claims held with the print coming in at 231k. The four-week moving average is now 228k and the highest since April having gotten as low as 206k in September. So the climb, while not yet at  concerning levels, is certainly notable and worth watching now on a week to week basis. As for the other interesting data points yesterday, the October trade deficit was confirmed as reaching a new cyclical wide. The ISM non-manufacturing print for November was a relative positive after coming in at 60.7, up 0.4pts from October and ahead of expectations for a decline to 59.0. Worth noting is that the three-month moving average of non-manufacturing ISM is now the highest on record which is a fairly reliable lead indicator for private nonfarm payrolls. US durable goods orders for October were revised slightly higher to -4.3% mom  from -4.4%, though the core measures stayed at 0.0% mom. Factory orders declined -2.1% mom, though both were nevertheless higher year-on-year.

As for the day ahead, the aforementioned November employment in the US will no doubt be front and centre, however, prior to that, we’ve October industrial production prints in Germany and France, along with Q3 labour costs in the former, and the final Q3 GDP revisions for the Euro Area (no change from +0.2% qoq second reading expected). We’ll also get the monthly inflation reporting for November in the UK. Also due out in the US is October wholesale inventories and trade sales, the preliminary December University of Michigan survey and October consumer credit. November foreign reserves data in China is also expected out at some point. Away from that the OPEC/OPEC+ meeting moves into the final day while the ECB’s Coeure and Fed’s Brainard are scheduled to speak. Today is also the day that Germany’s ruling CDU party elects a new chair to succeed Merkel. Our FX strategists noted yesterday that according to polls, the result should be a close call between general secretary Annegret Kramp-Karranbauer (AKK) and Friedrich Merz. Broadly speaking, AKK stands for a continuation of the Merkel-era strategy of positioning the CDU at the centre of the political spectrum, whereas Merz stands for a sharpening of the party's traditional profile as a centre-right party. Last night our German economics team put out a piece explaining the event and suggesting that Merz would be good for the DAX and AKK good for the Euro.

Published:12/7/2018 6:48:44 AM
[Markets] [$$] In Dow he trusts: Trump’s reassuring faith in stocks Like most Americans over 70, Mr Trump’s preferred index is the tried, tested (and inherently flawed) Dow Jones Industrial Average. After his inauguration, barely a week went by without a tweet celebrating — and taking credit for — the strong Dow. Published:12/6/2018 11:17:51 PM
[Markets] Here’s what the Dow coming close to a ‘death cross’ really means for stocks Think the “Death Cross” is the kiss of death for the stock market? The Death Cross is a technical market pattern that occurs whenever the Dow Jones Industrial Average’s 50-day moving average drops below the 200-day moving average. Except over the past five decades, the Dow (DJIA) in the wake of Death Crosses has held up quite well on average. Published:12/6/2018 9:46:01 PM
[Markets] Stocks just staged a stunning reversal, is the worst over... The Dow comes back from an 800-point drop. Is the worst over? With CNBC's Scott Wapner and the Fast Money traders, Pete Najarian, Tim Seymour, Karen Finerman and Dan Nathan. Published:12/6/2018 6:14:19 PM
[World] Market Extra: The Dow just slashed a 785-point plunge, marking its most stunning reversal since March Think of it as a turnaround Thursday. The Dow Jones Industrial Average staged an epic late-session rally that erased 705 points to end a turbulent session virtually flat.
Published:12/6/2018 5:46:53 PM
[Markets] Stocks - Tech Stops Wreck on Wall Street as Fed Reportedly Mulls Rate-Hike Pause - The Dow closed well above its lows Thursday, paring most of its losses after The Wall Street Journal reported the Fed could put the brakes on rate hikes, while a rebound in beaten-down tech stocks also lifted sentiment. Published:12/6/2018 5:44:41 PM
[Markets] The Dow just slashed a 785-point plunge, marking its most stunning reversal since March Think of it as a turnaround Thursday. The Dow Jones Industrial Average staged an epic late-session rally that erased 705 points to end a turbulent session virtually flat. Published:12/6/2018 4:43:50 PM
[Markets] Throwback Thursday: The Market Is the New Macbeth The Dow Jones Industrial Average was down by over 200 points for most of the day, dropping nearly 800 points at one point. The Dow fell 79 points, or 0.32%, to 24,948, the S&P 500 declined 0.15%, and the Nasdaq was gained 0.42%. The Dow and S&P closed the day holding on to slim year-to-date gains. Published:12/6/2018 4:13:54 PM
[Markets] Plunge Protection Team Saves Stocks But Credit, Crude, Cryptos Collapse

800 Dow points - !!!! Remain calm! No wonder The PPT was called in...

*  *  *

But, but, but... the US economy is extremely strong (ignore the 4.4% crash in durable goods orders and collapse in housing), this weakness in stocks (remember the stock market is not the economy - when the former goes down) is all exogenous - blame them!:

Blame China - Huawei exec arrested at a particularly inopportune time for the trade truce

Blame Russia - Not acquiescing to OPEC's or Trump's demands to cut crude production

Blame Britain - Just get it done Theresa!! Forget what the people want!

Blame Italy - Why don't the democratically-elected leaders just fold, slash their deficits, and maintain their nation's march into oblivion?

But definitely don't blame The Fed for tightening financial conditions into a slowdown (as they desperately tried to keep the delusional shell game of "well they wouldn't be hiking rates if everything wasn't awesome").


China stocks did not like US arrest of Huawei exec...


And while initially slow on the uptake, Offshore yuan tumbled too...


Europe was a bloodbath...

DAX tumbled back below 11,000 - its lowest in two years (erasing the post-Trump gains)...

And Italian bond yields surged...


US Equities crashed at the re-open (after the Bush funeral holiday) last night and saw no bid at the cash market open... but once Europe closed, algos went vertical... and reaccelerated into the close... (from Tuesday's cash close)


Stocks ended well "Off The Lows" thanks to a well-placed WSJ article suggesting The Fed could hold in December.

A 1600 points swing in Dow futures

Nasdaq was the only index which manage to get green however...

Did not hear many people screaming about the algos panic-buying stocks into the close?

S&P and Dow ramped back into the green for 2018...


And the moment Europe closed a short-squeeze was engineered..."Most Shorted" stocks surged...


Be careful getting to excited - relative volume slumped as stocks soared - not the kind of ramp to support follow-through.


FANG Stocks opened down large but were bid aggressively into the green...


S&P Financials plunged to its lowest since Sept 2017...


The S&P 500's Put/Call ratio has plunged to 2018 lows...


52 week lows are surging as it seems the Hindenburg Omen that hit in September was quite prophetic this time...


The VIX Term Structure inverted once again...


As equity protection (VIX) played catch up to credit protection (IG/HY CDX) IG spreads blow out to new cycle wides...


Stocks caught down to bonds reality once again...


Treasury yields tumbled once again - down around 4bps across the curve...


10Y Yield broke down to 2.82% intraday


Back to its lowest since August...


The yield curve remains inverted from 2s to 5s..


10Y Inflation Breakevens (following crude's collapse) fell to their lowest since Dec 2017...


The Dollar did its usual trend reversal intraday - this time from positive to negative...



Cryptos dumped further with Bitcoin Cash now crashing 33% on the week!!


PMs remain positive on the week but crude and copper have dumped...



WTI closed lower but oscillate around the $50/51 level all day as OPEC headlines jockeyed with inventory data...


Gold tagged $1250 intraday - highest since October 28th...


Notably Silver is back a key level of support relative to gold (85x ratio)...


Finally, during tonight's business channel infomercials... expect to hear this...

But maybe - in the back of your mind - remember this - The market has entirely given up on The Fed's rate-hike trajectory (half a hike in 2019, and a rate cut in 2020) suggesting serious economic trouble ahead...

So, to be clear, the market spikes higher on an engineered short-squeeze at the EU close and a well-timed WSJ report that the Fed is turning dovish BUT the market has already priced in less than 1 rate hike in 2019.

Published:12/6/2018 3:16:23 PM
[Markets] Dow, S&P 500 end off day's lows, Nasdaq gains in dramatic late-day reversal Dow, S&P 500 end off day's lows, Nasdaq gains in dramatic late-day reversal Published:12/6/2018 3:16:23 PM
[Markets] S&P, Dow lose 2018 gains as global growth fears grip Wall Street The arrest of Chinese smartphone maker Huawei Technologies Co Ltd's chief financial officer at the request of the United States cast fresh doubts over the prospect of Beijing and Washington striking a deal on trade tariffs in their 90-day truce period. The potential slowdown in global growth is also something the markets are pricing in," said Massud Ghaussy, senior analyst at Nasdaq IR Intelligence in New York. The Dow and the S&P were down more than 1.5 percent, tracking 0.4 percent losses for the year despite coming well off their session lows. Published:12/6/2018 1:14:04 PM
[Markets] US STOCKS-S&P, Dow lose 2018 gains as global growth fears grip Wall St The S&P 500 and the Dow Jones Industrial Average slipped back to losses for the year on Thursday, as U.S. stocks fell on mounting worries of slowing global growth after a fresh twist in China-U.S. tensions as well as lower oil prices and U.S. bond yields. The arrest of Chinese smartphone maker Huawei Technologies Co Ltd's chief financial officer at the request of the United States cast fresh doubts over the prospect of Beijing and Washington striking a deal on trade tariffs in their 90-day truce period. Published:12/6/2018 12:43:55 PM
[Markets] Dow Sells Off as Worries Grow Over the Uneasy U.S.-China Trade Truce The Dow Jones Industrial Average slumped sharply Thursday after the arrest of a high-level Chinese business executive threatened to unravel the U.S. and China trade truce. fell 1% following the release of documents by British lawmakers that questioned the social media giant's use of customer data. Meng Wanzhou, the chief financial officer of China's Huawei Technologies Co. and the daughter of the company's founder, was detained in Vancouver on Dec. 1, and faces extradition to the United States amid reported allegations that she assisted the world's second-largest smartphone maker in evading U.S. sanctions on Iran. Published:12/6/2018 11:12:30 AM
[Markets] All 30 S&P 500 sectors tumble by at least 1% in broad-based, stock-market tumble The S&P 500's main sectors were all trading sharply lower midday Thursday, highlighting the depth of a decline in equity markets. The 11 sectors of the S&P 500 were all down by as much as 1%, with financials and energy sectors down by at least 3.5%, leading the drop. The move comes as investors have been sensitive to signs of an economic slowdown that could upend a multiyear bullmarket and longstanding expansion in the U.S. Tumbling crude-oil prices also have been spotlighted as a sign of those worries, since oil prices tend to fall sharply when expectations for demand drop. The Dow Jones Industrial Average and the Nasdaq Composite Index also were trading sharply lower on the day. Both stock and bond markets were closed on Wednesday to mark a national day of mourning for George H.W. Bush, the U.S.'s 41st president, who died at 94. Published:12/6/2018 10:42:32 AM
[Markets] Just one of 30 Dow stocks is in the black as Thursday's loss exceeds 600 points Just one of 30 Dow stocks is in the black as Thursday's loss exceeds 600 points Published:12/6/2018 10:12:15 AM
[Markets] U.S. stocks resume Tuesday tumble after Wednesday trading pause; Dow down 410 U.S. stocks resume Tuesday tumble after Wednesday trading pause; Dow down 410 Published:12/6/2018 9:13:33 AM
[Markets] Dow falls nearly 500 points at low as U.S.-China trade developments and oil's tumble spooks Wall Street The Dow Jones Industrial Average on Thursday tumbled as the arrest of the CFO at China's Huawei Technologies sparked fresh concerns about the U.S. and China's ability to resolve longstanding differences on trade and intellectual-property rights. A decline in crude-oil futures as the Organization of the Petroleum Exporting Countries gathered at a key meeting in Vienna also stoked questions about the health of the global economy. The Dow fell 488 points, or 2% at 24,527, the S&P 500 index dropped 1.9% at 2,650, while the Nasdaq Composite Index declined 2.1% at 7,010. Markets were closed on Wednesday for a day of mourning for George H.W. Bush, the 41st president, who died at 94. Canada's authorities arrested Huawei Technologies Co.'s CFO, with China demanding her release. Market watchers fear that this development will make it harder for Washington and Beijing to come to resolution on trade, even after a moratorium was achieved between the world's largest economies on the sidelines of the G-20 summit in Argentina over the weekend. Meanwhile, yields of Treasury bonds were tumbling, as prices rose, with investors piling in to the perceived safety of government paper. The 10-year Treasury note was yielding 2.86% on Thursday after trading at 2.92% on Tuesday. The bond market also was closed on Wednesday. Published:12/6/2018 8:42:53 AM
[Markets] Global Markets, Futures Plunge As Traders Brace For China's Response

It is a sea of red out there as traders brace for China's response.

Shortly after S&P futures flash crashed at the start of the overnight session, with the CME triggering multiple Velocity Logic events causing 10-sec pauses to slow down trading...

... after US markets were shut to commemorate the death of George H.W. Bush on Wednesday, global stock markets tumbled for a third day on Thursday as the arrest of the CFO of Chinese telecom giant Huawei in Canada for extradition to the United States prompted fears of fresh tensions between the two economic superpowers, and sparked dread as to how China would respond.

S&P futures by as much as 1.9% during the Asian session in a sudden and unexpected move that sent world equity markets reeling, and was trading near session lows, just above 2,650 this morning.

That was just the start of it, and in the latest US-China trade war linked shockwave to slam global markets, these were some of the stand out moves:

  • Dow Jones futures were off more than 450 points; Nasdaq futs fell 2.4 percent as Apple suppliers plunged amid renewed production cuts
  • Europe's Stoxx 600 tumbled 2.2% to the lowest in almost two years
  • Germany's DAX tumbled below 11,000 for the first time in two years
  • WTI crashed below $51 after Saudi Energy Minister Khalid Al-Falih said OPEC hasn’t yet reached a deal on production cuts
  • Deutsche Bank plunged to a new record low, dropping as low as €7.71
  • The yuan dropped the most since October.
  • Treasuries jumped again, sending the 10Y yield to 2.89%
  • The Bloomberg dollar index spiked amid safe-haven flows, rising just shy of 2018 highs.
  • The MSCI Asia Pacific Index posted its worst day in six weeks
  • China’s 2nd largest telecom equipment maker ZTE Corp crashed 9% in Hong Kong

News of the arrest of Huawei’s CFO Meng Wanzhouof, the daughter of the firm’s founder, who was detained by Canadian police on the same day Trump and Xi held their dinner in Buenos Aires, triggered renewed fireworks coming just as Washington and Beijing prepare for crucial trade negotiations and threatened to reignite U.S.-China tensions. The yuan dropped the most since October.

Asian markets took a beating. Huawei is not listed but China’s second-largest telecom equipment maker ZTE Corp sank 9% in Hong Kong while most of the nearby national bourses lost at least 2 percent. Japan’s Nikkei shed 1.9%, closing at its lowest level since Oct. 30, with semi-conductor related shares leading the losses. MSCI’s ex-Japan Asia-Pacific index lost 2.0%; Hong Kong’s Hang Seng dropped 2.5% while Chinese bluechips lost 2.1% to take their 2018 slump to 20%.

Europe slumped too in early trading as 3 percent falls for the tech sector, miners and also carmakers kicked London, Frankfurt and Paris to two-year lows.

Needless to say, early market commentary was dire:

  • "We had this very ugly new turn and just the degree to which the market has reacted just suggests to me that they are vulnerable right now,” said Saxo Bank’s head of FX strategy John Hardy. “It think we should all be very careful, it is not looking good, especially if the S&P 500 goes to new lows.”
  • “There are so many forces weighing against markets right now, whether it’s the China slowdown, weak European data, Fed hikes, uncertainty around trade and now Brexit as well,” Bilal Hafeez, head of fixed-income research for EMEA at Nomura, told Bloomberg TV. “We really need to see some stabilization in any of those factors to see markets stabilize now.”
  • “This move against the Huawei CFO has just added another spanner in the works,” Eleanor Creagh, strategist at Saxo Capital Markets, told Bloomberg TV in Sydney. “It’s really illustrative of the fact that the trade truce we saw over the weekend between Trump and Xi doesn’t really do much to mend the underlying relationship between the U.S. and China that is still deteriorating.”

And while Hardy said that President Trump may try to send some reassuring tweets later, for now traders are not taking any chances with S&P 500 futures near session lows, down almost 2 percent, and over 5% in the past two trading days after Tuesday's 3.2% plunge. The losses would have been even steeper had CME Group’s Chicago Mercantile Exchange not implemented a series of 10-second trading halts in Asia that had limited the initial drop.

Not helping sentiment, overnight BOJ Governor Haruhiko Kuroda said economic risks from abroad could be severe, and the Federal Reserve’s Beige Book report showed fading optimism over growth prospects at U.S. firms citing growing instances of economic "slowdown".

The plunge persisted even though a Chinese government spokesman said that China and the U.S. have reached agreement in the sectors of agriculture, autos, and energy, and China will immediately start implementing that consensus. Still, there’s no official, confirmed statement of what China agreed as part of the deal.

"China will start from agricultural products, autos and energy to immediately implement specific items that China and the U.S. have agreed upon," Ministry of Commerce Spokesman Gao Feng told reporters in Beijing. "In the next 90 days we will work in accordance with the clear timetable and road map to negotiate in areas where both sides have an interest and there are mutual benefits, such as intellectual property rights protection, technology cooperation, market access, and the trade balance."

That reassurance however faded in light of the shocking arrest, and the yuan eased 0.3% to 6.8835 per dollar in offshore trade. China’s foreign ministry said neither Canada and the United States had clarified their reason for the move but a source had earlier told Reuters it was related to violations of U.S. sanctions on Iran.

The arrest again heightened the sense of a major collision between the world’s two largest economic powers not just over tariffs but also over technological hegemony. Britain’s BT Group said it was removing Huawei’s equipment from the core of its existing 3G and 4G mobile operations. Australia and New Zealand have also rejected Huawei’s products.

“The U.S. has been telling its allies not to use Huawei products for security reasons and is likely to continue to put pressure on its allies,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "So while there was a brief moment of optimism after the weekend U.S.-China talks but the reality is, it won’t be that easy."

Meanwhile, half way around the word, traders were also on pins and needles waiting to hear from the OPEC+ meeting in Vienna about what kind of cuts OPEC and other oil producers like Russia could make to their output. And in the latest price shock, WTI plunged almost 5% just above $50 a barrel as Saudi Arabia’s energy minister said going into the day long meeting that 1 million “would be enough”; with consensus among analysts for somewhere between 1-1.3 million barrels per day, this led to a quick waterfall in oil prices.

At the same time, and adding to worries about U.S. recession risks, the Treasury yield curve remained inverted between two- and five-year zones; the 10Y yield dropped as low as 2.87% overnight - a 3 month low - amid a flood to safety. Yields on German 10Y bunds held near six-month lows in risk off environment.

The Bloomberg Dollar Spot Index headed for a third day of gains as part of the global flight to safety. The yen led gains in G-10 as havens were supported. Elsewhere in FX, the euro barely budged at $1.1338 and the Canadian dollar languished near the 18-month low it had hit the previous day after cautious noises from the Bank of Canada. The pound drifted as U.K. Prime Minister Theresa May searched for a compromise to avoid a crushing defeat on her Brexit deal in a key vote in Parliament next week.

In the latest Brexit news, UK PM May was being pushed by cabinet members to postpone next week's Parliament vote on Brexit amid worries she is facing a loss so disastrous it could collapse the government. Instead, cabinet members believe that the PM should devote more time to selling the deal. Furthermore, reports have suggested that PM May has sent her Chief Whip to try find a way forward with the ERG by offering a potential Parliamentary ‘lock’ which would require lawmakers to give their consent before some of the more controversial parts of the UK’s exit from the EU came into effect.

U.S. jobs data is due on Friday. If the figures show any sign of serious weakness, markets are likely to react HSBC’s head of macro economic strategy, Shuji Shirota, said.

Expected data include trade balance and factory orders. Kroger, Broadcom, and Lululemon are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 1.7% to 2656.25
  • STOXX Europe 600 down 1.8% to 347.85
  • MXAP down 1.8% to 150.77
  • MXAPJ down 2% to 485.10
  • Nikkei down 1.9% to 21,501.62
  • Topix down 1.8% to 1,610.60
  • Hang Seng Index down 2.5% to 26,156.38
  • Shanghai Composite down 1.7% to 2,605.18
  • Sensex down 1.4% to 35,366.35
  • Australia S&P/ASX 200 down 0.2% to 5,657.65
  • Kospi down 1.6% to 2,068.69
  • German 10Y yield fell 1.9 bps to 0.258%
  • Euro unchanged at $1.1344
  • Italian 10Y yield fell 9.4 bps to 2.696%
  • Spanish 10Y yield fell 0.8 bps to 1.451%
  • Brent futures down 4% to $59.07/bbl
  • Gold spot little changed at $1,236.64
  • U.S. Dollar Index little changed at 97.12

Top Overnight Headlines

  • Huawei Technologies CFO was arrested in Canada over potential violations of U.S. sanctions on Iran, provoking outrage from China and complicating thorny trade negotiations just as they enter a critical juncture
  • Saudi Arabia proposed a moderate oil- production cut from OPEC and its allies that would gently rebalance the market, seeking to walk a fine line between preventing a surplus and appeasing U.S. President Donald Trump
  • German factory orders unexpectedly rose for a third month, underpinning growth momentum after Europe’s largest economy contracted in the third quarter
  • The EU’s highest court will say next week whether the U.K. should be allowed to reverse Brexit, in a landmark ruling that could offer hope to those who want the country to stay in the bloc
  • President Donald Trump has used tariffs as one of his most powerful tools for fighting his trade wars, but he’s also wielding leverage with another weapon: uncertainty
  • Federal Reserve Chairman Jerome Powell wants to avoid being tagged as the fool in the shower. And that’s why he’s likely to be especially cautious about marching interest rates higher in 2019

Asian stocks were lower across the board for a 3rd consecutive day with sentiment dampened after the US market closure and reports that Canada arrested Huawei’s CFO at the request of US authorities for alleged violations of sanctions against Iran. This prompted demands by China’s Embassy for an immediate release of the executive and led to concerns of the potential ramifications to trade discussions which weighed heavily on US equity futures. As such, Emini S&P declined by over 60 points and DJIA futures were down by more than 500 points shortly after the reopen which forced the CME to intervene to prevent a harder drop, while ASX 200 (-0.2%) and Nikkei 225 (-1.9%) were also weaker with the latter pressured by detrimental currency flows.  Hang Seng (-2.5%) and Shanghai Comp. (-1.6%) conformed to the negativity with the Hong Kong benchmark underperforming amid losses across all its components and as local money markets rates edged higher again, while the PBoC announcement of a 1-yr Medium-term Lending Facility failed to support China with the operation at a reduced amount of CNY 187.5bln vs. Prev. CNY 403.5bln. Finally, 10yr JGBs were higher amid a continuation of the declines across yields and with safe-haven demand also underpinned by the weakness across equities.

Top Asian News

  • SoftBank Is Said to Place All Shares for $23 Billion IPO
  • Takeda Downgrade Looms After Shareholders Approve Shire Deal
  • China’s Drugmakers Plunge Most Since 2009 on Price Concerns
  • Anta-Led Consortium Is Said to Near Deal to Acquire Amer Sports

European equities (Eurostoxx -2.0%) have taken the lead from US futures and Asia-Pac trade overnight with US-Chinese trade concerns reignited by news that Canada arrested Huawei’s CFO at the request of US authorities for alleged violations of sanctions against Iran. This prompted demands by China’s Embassy for an immediate release of the executive, which subsequently weighed heavily on US equity futures. Despite commentary from China ahead of the open stating that their ultimate goal in US-China negotiations is to remove all tariffs, overnight developments have weighed heavily on sentiment in Europe thus far. The follow-through of events overnight has placed weight on IT names with STMicroelectronics (a supplier to Huawei) lower by -4.8% with losses also observed in Dialog Semiconductor (-2.6%) and Infineon (-3.3%) among others . Elsewhere, energy names underperform amid initial comments from the OPEC ministers in Vienna, signalling a potential cut in the low end of the expected range. In turn, European Oil and Gas Index fell 3.4% in-fitting with price action in the oil complex (BP -4.3%, Total -2.5%).

Top European News

  • Italy’s Salvini Says He Opposes New Taxes for Auto Sector: Ansa
  • Populists Split as Conte Seeks Deficit Trim for Juncker Meeting
  • German Orders Rise for Third Month, Underpinning Recovery Hopes
  • VW Brand Speeds Up Profit Target Ahead of Electric-Car Push

In FX, JPY/USD/CHF - All beneficiaries of safe-haven positioning/demand, as the global stock rout continues and intensifies, but to varying degrees with Usd/Jpy retreating below 113.00 while Usd/Chf holds near parity and the DXY remains around 97.000 amidst heavy losses in certain G10 counterparts. However, some hefty and layered option expiries in Usd/Jpy could keep that pair in check, with 1.6 bn rolling off between 112.75-80 and a similar amount sitting at 112.95-113.00, ahead of more 1+ bn maturities above the figure up to 113.75.

  • AUD/CAD/NZD - The non-US Dollars have extended declines vs the Greenback and underperformance against other majors, as bearish independent impulses exacerbate the negative impact of broader risk aversion. Aud/Usd is now testing 0.7200 bids and psychological support following dovish commentary from RBA’s Debelle in wake of this week’s disappointing GDP data, with rate cuts back on the agenda if the economy slows further and the baseline scenario of the next policy move being a hike does not pan out. By the same token, and with the added pressure of collapsing crude prices amidst talk of no more than 1 mn output cuts from OPEC+, the Loonie has continued its post-BoC plunge to circa 1.3440, while the Kiwi has slipped below 0.6900 towards 0.6850, but is deriving underlying support from the greater demise in the Aud again, as the cross retreats through 1.0500 and to a fresh ytd low around 1.0480.
  • GBP/EUR - The Pound and single currency are both holding up reasonably well given the increasingly risk-off environment, not to mention ongoing Brexit and Italian budget tension, as Cable maintains 1.2700+ status and Eur/Usd stays above 1.1300. Note, mega option expiries in close proximity from 1.1295-1.1300, 113.50-60 to 1.1380 (1.65 bn, 1.7 bn and circa 1.4 bn respectively).

In commodities, Brent (-4.3%) and WTI (-4.2%) have continued to drift lower as the 175th OPEC meeting begins, with initial remarks from OPEC delegates suggesting that OPEC+ could only cut 1mln BPD if Russia agrees to cut 150k BPD, adding they would be willing to cut over 1.3mln BPD if Russia cuts 250k BPD. Sources thereafter went on to state that any cut is unlikely to be over 1.4mln BPD. Russia’s role in the agreement continues to remain a source of speculation with prices hampered by comments from the Russian Energy Minister Novak suggesting that it is difficult for Russia to cut output quickly in Winter. WTI and Brent crude futures were then dragged lower once again after the Saudi Energy Minister Al-Falih says there is no agreement yet to cut but all options are on the table, including a no deal. Al-Falih then added that a 1mln BPD cut will be enough for OPEC+, a comment which appeared to add to the downside in energy markets with the level touted not well received by the market, particularly after he then went on to state that the KSA are content with the current oil price. Furthermore, questions also remain over who might not participate in any output cut with NOC's Sanallah contradicting comments from the Oman oil minister overnight after stating that Libya is hoping for an exemption from the OPEC cuts. Additionally, Iran continues to hold a tough stance in negotiations by stating that they will not be a part of any deal to reduce output until sanctions are removed. Note, this week’s DoE report will be released today due to yesterday’s market closure. Gold is trading flat within a tight USD 5/oz range, with spot palladium trading at a premium to gold for the first time in 16 years; as prices hit record levels of USD 1246.50 in the previous session. Separately, China has reportedly asked steel mills in the province of Tangshan to being implementing winter curbs due to a reduction in air quality.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior 153.6%
  • 8:15am: ADP Employment Change, est. 195,000, prior 227,000
  • 8:30am: Trade Balance, est. $55.0b deficit, prior $54.0b deficit
  • 8:30am: Nonfarm Productivity, est. 2.3%, prior 2.2%; Unit Labor Costs, est. 1.0%, prior 1.2%
  • 8:30am: Initial Jobless Claims, est. 225,000, prior 234,000; Continuing Claims, est. 1.69m, prior 1.71m
  • 9:45am: Bloomberg Consumer Comfort, prior 60.6
  • 9:45am: Markit US Services PMI, est. 54.4, prior 54.4; Markit US Composite PMI, prior 54.4
  • 10am: ISM Non-Manufacturing Index, est. 59, prior 60.3
  • 10am: Factory Orders, est. -2.0%, prior 0.7%; Factory Orders Ex Trans, prior 0.4%
  • 10am: Durable Goods Orders, est. -2.38%, prior -4.4%; Durables Ex Transportation, est. 0.1%, prior 0.1%
  • 10am: Cap Goods Orders Nondef Ex Air, prior 0.0%; Cap Goods Ship Nondef Ex Air, prior 0.3%
  • 12pm: Household Change in Net Worth, prior $2.19t
  • 12:15pm: Fed’s Bostic Speaks on the U.S. Economic Outlook
  • 6:30pm: Fed’s Williams Holds Discussion With Mervyn King in NY
  • 6:45pm: Powell Gives Brief Welcome Remarks at Housing Conference
Published:12/6/2018 6:41:43 AM
[Markets] Market sell-off set to continue as Dow futures get hit U.S. stock futures opened lower Wednesday amid lingering anxiety about a possible economic slowdown and continued murkiness around trade relations with China. On Wednesday evening, futures initially indicated that the Dow Jones Industrial Average would open 400 points lower. Markets have since recovered and, as of 6:36 p.m., ET, indicated that the Dow would open more than 200 points lower on Thursday. Published:12/5/2018 5:40:03 PM
[e71da138-8a5e-563b-b15b-3a21e17b65c2] Despite stock market drop, economic outlook is bright thanks to Trump The wild gyrations of the stock market have spooked some investors into wondering what lies ahead. All major U.S. stock indexes fell more than 3 percent Tuesday – including a nearly 800-point drop in the Dow Jones Industrial Average – in the worst day for the market in nearly a month. Published:12/5/2018 5:15:15 PM
[Markets] Carnage Continues: US Futures Crash At Re-Open After Huawei CFO Arrest

Having taken a day off to watch Bush's funeral - drifting modestly higher before the early close - reports of the arrest of Huawei's CFO at the request of US authorities has sparked carnage at the re-open.

As we detailed earlier, mere hours after Chinese officials finally affirmed President Trump's description of Saturday's trade 'truce' - this after fears that the true nature of the agreement might have been "lost in translation" helped trigger the worst one-day market selloff since October - the DOJ has gone ahead and kicked the hornet's nest, seriously jeopardizing the prospects for a prolonged trade detente between the world's two biggest economies.

"Wanzhou Meng was arrested in Vancouver on December 1. She is sought for extradition by the United States, and a bail hearing has been set for Friday," Justice department Ian McLeod said in a statement to The Globe and Mail. "As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms. Meng.


Trade truce over?

Dow futures were down over 500 points as they opened...


The selling is across all the major US index futures...

For now there is no reaction in Yuan or Treasuries.

For now it appears that the trade truce is back to square one zero, leaving Trump with a choice: releasing Meng or watching the any last hopes of Christmas rally fade into the distance.

Published:12/5/2018 5:15:14 PM
[Markets] "2018 Is Starting To Look Historic": This Is The Worst Market Since Nixon's Presidency

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

After another abysmal day for stocks, in which stocks suddenly "waterfalled" due to coordinated CTA liquidations once the S&P500 breached its 200DMA, which saw both the S&P and the Dow turn to just positive for the year, the broader market suffered one of its worst, if relatively muted, sessions in the past three years.

As a result, market statisticians continue to fall over each other to describe the pain being felt across asset classes. And while it is customary to use the phrase "since Lehman" when in need of a blanket synonym for "dreadful", one analyst framed performance in 2018 differently: things haven’t been this bad since Richard Nixon’s presidency.

As Bloomberg notes, Ned Davis Research - which groups various asset classes into eight big buckets, from bonds to US and international stocks to commodities- finds that not a single one of them is on track to post a return this year of more than 5%, a phenomenon last observed in 1972, according to Ed Clissold, a strategist at the firm.

A similar analysis which we flagged two weeks ago, showed that the year-to-date return of the "best" performing asset between US and global equities, corporate bonds, Treasuries, gold and real cash, was barely in the green, and which showed that 2018 was shaping up as a disastrous year for cross-asset investors, in which not a single asset managed to generate positive returns!

This is how Bloomberg puts it:

Nothing’s working, not large or small-cap stocks in the U.S., not international or emerging equities, not Treasuries, investment-grade bonds, commodities or real estate. Most of them are down, and the ones that are up are doing so by percentages in the low single-digits.

The silver lining, as Bloomberg notes, is that in terms of losses investors have seen far worse. But what is shocking is the lack of gains, and if going by the breadth of assets failing to deliver upside, "2018 is starting to look historic."

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

Such a uniform underperformance by all assets is unique in history, because when "something falls, something else gains. Amid the financial catastrophe of 2008, Treasuries rallied. In 1974, commodities were a bright spot. In 2002, it was REITs." Yet, in 2018, there’s nowhere to run.

And while many are quick to point to tariffs, or trade, or even economic headwinds in 2019 and even "peak profits", Ned Davis' Clissold has isolated another culprit: the end of central bank stimulus

"Overhanging the markets have been concerns over how asset prices would handle the removal of ultra-easing monetary policies," said the chief U.S. strategist at Ned Davis Research in a note. The clue: during all previous instances of market turbulence, "there was a bull market somewhere." Not this time, and here's what despondent traders can blame:

Confirming that the shrinking global central bank balance sheet will present a continued overhang to risk assets is the market action observed just this week when optimism over a temporary trade-war truce between the U.S. and China proved short-lived as concerns from Brexit to a flattening yield curve to a global growth slowdown exploded on Tuesday when the S&P 500 posted its fifth drop of more than 3% this year.

The bottom line: with less than three full weeks of trading days left, the S&P 500 is up just 1% for the year and U.S. investment-grade debt has lost 1.6%, developing-nation stocks have dropped 12%, and the Bloomberg Barclays Long Term U.S. Treasury Total Return Index is down 6.4%.

Published:12/5/2018 12:06:40 PM
[Markets] Dow futures point to 100-point bounce Thursday after Tuesday's 800-point plunge Dow futures point to 100-point bounce Thursday after Tuesday's 800-point plunge Published:12/5/2018 11:08:00 AM
[Markets] Hawaiian Airlines cuts unit revenue outlook, as load factor decreased in November Hawaiian Holdings Inc. subsidiary Hawaiian Airlines cut its fourth-quarter unit revenue guidance range, citing lower-than-expected market pricing for North America routes and lower-than-anticipated demand within its Neighbor Island network, primarily to Hawai'i Island. The company said it now expects operating revenue per available seat mile (ASM) to be down 3.0% to down 5.0%, compared with its previous guidance of down 2.5% to up 0.5%. The company also lowered its outlook for cost per ASM, excluding aircraft fuel, to down 1.0% to down 3.0% from down 2.0% to up 1.0%, citing one-time offsets to maintenance costs and lower-than-expected benefits expense and administrative costs. Separately, the company said November load factor fell 1.8 percentage points to 84.1%, as 5.0% capacity growth outpaced a 2.8% rise in traffic. The stock has lost 7.6% over the past three months, while the NYSE Arca Airline Index has slipped 1.3%. In comparison, the Dow Jones Transportation Average has dropped 8.9% the past three months and the Dow Jones Industrial Average has declined 3.7%. Published:12/5/2018 8:36:43 AM
[Markets] US futures point to slight recovery after Tuesday's market rout Dow futures implied a 85.93 point gain for the index at its next open. Meanwhile, S&P 500 and Nasdaq futures also pointed to slight gains. U.S. stock markets are closed on Wednesday out of respect for former President George H.W. Bush's funeral. Published:12/4/2018 8:36:11 PM
[Markets] This chart may be a key reason the stock market is plunging U.S. stocks on Tuesday are in free fall, just a day after equity benchmarks mounted a rally that took the Dow Jones Industrial Average to its best close in a month. Published:12/4/2018 6:34:04 PM
[Markets] 800 Dow Points Isn’t What It Used to Be The Dow’s point drop was the fourth-largest in its history. Its 3.2% decline was just the 329th worst. Published:12/4/2018 6:02:45 PM
[World] Market Extra: This chart may be a key reason the stock market is plunging U.S. stocks on Tuesday are in free fall, just a day after equity benchmarks mounted a rally that took the Dow Jones Industrial Average to its best close in a month.
Published:12/4/2018 6:02:45 PM
[Markets] Renewed jitters over trade send stocks, bond yields lower Stocks tanked Tuesday as the goodwill generated by a truce between the U.S. and China over trade evaporated over confusion about what the two sides had actually agreed upon. The Dow Jones Industrial Average fell nearly 800 points. The yield on the benchmark 10-year Treasury note declined to its lowest level in three months, a signal that the bond market is worried about long-term economic growth. Published:12/4/2018 5:01:35 PM
[Markets] How major US stock indexes fared Tuesday Stocks tumbled Tuesday, sending the Dow Jones Industrial Average down almost 800 points, as investors worried that a U.S.-China trade truce reached over the weekend wasn't all it was cracked up to be. Published:12/4/2018 4:02:53 PM
[Markets] NewsWatch: This chart may be a key reason the stock market is plunging U.S. stocks on Tuesday are in free fall, just a day after equity benchmarks mounted a rally that took the Dow Jones Industrial Average to its best close in a month.
Published:12/4/2018 4:02:53 PM
[Markets] Dow ends down nearly 800 points; S&P 500, Nasdaq suffer worst day since Oct. 10 Dow ends down nearly 800 points; S&P 500, Nasdaq suffer worst day since Oct. 10 Published:12/4/2018 3:36:18 PM
[Markets] Panic takes hold as Dow tumbles nearly 800 points; Nasdaq plunges by about 4% in late-session trade Selling on the NYSE on Tuesday afternoon has reached panic-like proportions, as the exchange's Arms Index rose. The Arms is a volume-weighted breadth measure, that tends to rise when the broader market falls, as the intensity of the selling in declining stocks is usually greater than the intensity of buying in rising stocks. Values above 2.000 are considered panic-like activity. The NYSE ARMS index showed 2,507 decliners for 445 advancers and was at 2.497, according to FactSet data. So far, selling has been broad based, with the the Dow Jones Industrial Average trading 775 points, or 3%, lower, and threatening to notch its worst day since March 22. Meanwhile, the S&P 500 index was down 3.7% at 2,702, while the Nasdaq Composite Index was down 3.8% at 7,165. Published:12/4/2018 3:01:06 PM
[Markets] The Sky Is Falling: Let's Look at Caterpillar Stock for Guidance on the DJIA is a member of the group of 30 or what is commonly called the Dow Jones Industrial Average (DJIA). With the DJIA down short of 3% earlier this afternoon a closer look at CAT seems in order. In the daily bar chart of CAT, below, we can see that prices have been trading low since January in wide-channel-like pattern. Published:12/4/2018 2:06:01 PM
[Markets] White House's Hassett calls U.S. outlook 'very positive' and sees low recession risk Kevin Hassett, the chairman of the White House Council of Economic Advisers, on Tuesday said the outlook for the U.S. economy was "still very positive" and that the risk of a recession is "very, very low." Hassett said day-to-day movements in markets were hard to call when asked about why the Dow Jones Industrial Average had plunged as much as 800 points. Published:12/4/2018 1:31:43 PM
[Markets] Dow plummets 735 points, but, so far, no sign of stock-market panic Dow plummets 735 points, but, so far, no sign of stock-market panic Published:12/4/2018 1:00:43 PM
[Markets] Dow tumbles nearly 600 points at low as Tuesday losses gain steam; 10-year yield hits 2.91% The Dow Jones Industrial Average and the broader stock market on Tuesday skidded sharply lower, relinquishing all of Monday's post-G-20 rally--and then some. The Dow was down 601 points, or 2.3%, at 25,231, the S&P 500 index was off 2.4% at 2,724, while the Nasdaq Composite Index retreated 2.7% at 7,239. A day ago, the stock market climbed with risk appetite as President Donald Trump and China's leader Xi Jinping forged a momentary pause in trade hostilities at the sidelines of the Group of 20 summit in Argentina. However, investors have grown doubtful that a real deal in the long-run is possible. On top of that, the 10-year Treasury rate has extended a drop toward a three-month low at 2.91%, with that move also narrowing a closely watched spread between that benchmark government debt and the short-dated 2-year Treasury note . That spread is the tightest since 2007 at 10 basis points, with a tightening, or flattening, spread between the short-dated and longer-dated bonds, generally reflecting that bond investors harbor a downbeat economic outlook. Published:12/4/2018 12:30:47 PM
[Markets] Dow down nearly 600 points as Tuesday's retreat accelerates Dow down nearly 600 points as Tuesday's retreat accelerates Published:12/4/2018 12:00:21 PM
[Markets] Dow in retreat Tuesday as doubts emerge about Trump trade truce with China's Xi Dow in retreat Tuesday as doubts emerge about Trump trade truce with China's Xi Published:12/4/2018 9:31:18 AM
[Markets] Dow retreats as 10-year government bond yield sinks below 3%, U.S.-China trade doubts surface U.S. stocks on Tuesday retreated from yesterday's surge, as cracks in the bond market appeared to reflect growing doubts about the U.S.'s economic outlook. Fresh questions about a U.S.-China moratorium on trade also weighed on market sentiment. The Dow Jones Industrial Average was down 100 points, or 0.4%, at 25,732, the S&P 500 index declined 0.3% at 2,782, while the Nasdaq Composite Index was off 0.5% at 7,407. The yield on 10-year Treasury note , meanwhile, extended a fall toward three-month lows at 2.95%, which has narrowed a closely followed spread between the 2-year Treasury to the tightest level since 2007. A flattening spread between short-dated yields and their longer-dated counterparts is often viewed as a sign of a dimming outlook for the U.S. economy because investors usually demand higher rates for lending for longer periods. An inversion of the curve, where the short-dated debt rises above longer dates, in a so-called yield curve inversion, has been an accurate predictor of recessions. Meanwhile, investors continued to assess the details of an 90-day easing of trade tensions between China and the U.S. Published:12/4/2018 8:59:38 AM
[Markets] Dow futures drop 100 points, as doubts over U.S.-China trade deal emerge Dow futures traded solidly lower Tuesday, pointing to a downbeat session for the major benchmarks, as investors reassess a weekend detente in tariff tensions between the U.S. and China. Dow Jones Industrial Average futures (YMZ8) fell 113 points, or 0.4%, to 25,731, while S&P 500 futures (ESZ8)dropped 9.45 points, or 0.4%, to 2,781. Nasdaq-100 futures (NQZ8) fell 37 points, or 0.5%, to 7,021.50. Published:12/4/2018 8:00:49 AM
[Markets] Dow futures drop 100 points as doubt over U.S.-China trade deal bubbles up again Dow futures drop 100 points as doubt over U.S.-China trade deal bubbles up again Published:12/4/2018 7:30:17 AM
[Markets] AutoZone's stock set to rally after earnings, same-store sales beat expectations Shares of AutoZone Inc. were indicated up about 2% in premarket trade Tuesday, after the auto parts retailer beat earnings and same-store expectations. Net income for the quarter to Nov. 17 rose t $351.4 million, or $13.47 a share, from $281.0 million, or $10.00 a share, in the same period a year ago. The FactSet consensus for earnings per share was $12.21. Sales increased to $2.64 billion fro $2.59 billion, matching the FactSet consensus, while the 2.7% increase in domestic same-store sales beat expectations of a 2.0% rise. Inventory increased 2.0%. The stock has gained 5.3% over the past three months while the Dow Jones Industrial Average has slipped 0.5%. Published:12/4/2018 6:34:03 AM
[Markets] Can markets have a jolly festive season? It's December and time to deck the halls with boughs of holly, or in CNBC's case, the business channel with chatter of a potential Santa Claus rally and 2019 fortunes. Santa's performance for the Dow Jones Industrial Average has been fairly reliable over the past five years, with investors rewarded in every year except 2015. The Dow pattern in 2018 is also lower but with jagged highs and lows, leaving some nervousness about whether investors will be left empty-handed. Published:12/4/2018 12:57:31 AM
[Markets] U.S. Stock Futures Drop in Asia as G-20 Summit Euphoria Wanes December contracts on the S&P 500 Index declined as much as 0.6 percent as of 1:47 p.m. in Tokyo after the underlying gauge rose a second day on Monday. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average slid 0.6 percent and 0.5 percent, respectively. Sentiment in the region soured after President Donald Trump left his top advisers scrambling on Monday to explain a trade deal he claimed he’d struck with China to reduce tariffs on U.S. cars exported to the country. Published:12/3/2018 11:58:43 PM
[Markets] Stocks - Dow Soars as Tech Triumphs on Trade War Truce - The Dow rallied Monday after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day trade war truce, prompting a wave of buying on Wall Street. Published:12/3/2018 5:57:18 PM
[Markets] Kunstler: "It's Not Hard To See Why US Life Expectancy Is Going Down"

Authored by James Howard Kunstler via,

The Ghost Of Christmas Present

Apparently one additional world leader turned up in Buenos Aires without fanfare this weekend. The General Secretary of the North Pole, known popularly as Santa Claus, took his latest-model hypersonic sleigh to the G-20 Meeting, and made sure that the global financial elite would find their Christmas stockings stuffed with sugarplums one last time before the great reflation bull market dies of incredulity.

Something drastic was required as so many enterprises were skidding into a ditch last month, especially FAANGs, cars, house sales, and oil, while the Grand Old Man of the Dow Jones, General Electric, was singing its death song like an old Arikara chief in the prairie twilight. The US threat of 25 percent tariffs on Chinese exports was shunted ahead 90 days, giving the almighty algos and their human errand boys one last shot at looting the future.

How exactly will this change the basic equation of China sending its industrial output to WalMart in exchange for American IOUs, while the trade deficit mounts ever-higher and the last holdouts of the US middle class sink into debt, addiction, and hopelessness? It won’t, of course, because Americans have to find another reason to get up in the morning besides reporting to the national demolition derby. I don’t know about you, but it doesn’t warm my heart to hear about x-hundred thousand “housing starts” every month, knowing that it represents the destruction of x-thousand acres of meadow, field, and forest, and that what’s being laid down on the landscape out there is soul-crushing infrastructure with no future.

It’s not hard to see why US life expectancy is going down, driven by the two new leading causes of death: opiate drugs and suicide — the former often in the service of the latter. The citizens of this land have exchanged just about everything that makes life worth living for the paltry rewards of “bargain shopping” and happy motoring. But the worst sacrifice is the loss of any sense of community, of face-to-face human transactions with people you know, people who have duties and obligations to one another that can be successfully enacted and fulfilled. Instead, you get to do all your business with robots, even including the robots fronting for companies that seek to ruin you. “Your call is important to us,” says the telephone robot at the hospital billing office dunning you to fork over $7,000 for the three stitches Little Skippy got when his best friend flew the drone into his forehead. “Please hold for the next available representative.” Who wouldn’t want to shoot themselves?

Interestingly, it’s the people of France who are going apeshit at this moment in history and not the much more beaten-down Americans. For all the deformities of the EU, France still maintains a general quality-of-life so far above what is found in the US these days that we look like some left-behind evolutionary dead end here in this wilderness of strip-malls and muffler shops. They live in towns and cities that are designed to bring people together in public. They support small business in spite of the diktats of Brussels. They maintain an interest in doing things well for its own sake. The French are rioting these days not simply over the cost of diesel fuel but because they’ve had enough impingements on their traditional ways of life and seek to arrest the losses.

Americans, by contrast, seem to passively accept their new status as world-class losers. You can deprive them of whatever is meaningful, whatever makes life worth living, and sell them depressing simulacra to replace those things, and they never notice. Even the revolts ongoing in this land only seek to make relations between us worse, for instance the new super-Puritanism that wants to criminalize the most elementary mating ceremonies, like asking for date, or even paying attention to someone of the opposite sex. This is what the Democratic Party, formerly the party of the working people, has dedicated itself to all year. That’s your “Resistance.” They’ve managed to ruin one of the few consolations for being on this planet.

Maybe you’all have had enough of that foolishness. Maybe when Christmas is over something will turn in that old proverbial widening gyre, and the anarchy loosened by that turn will not be “mere.”

Published:12/3/2018 5:25:13 PM
[Markets] Dow ends up over 280 points on U.S.-China trade cease-fire Dow ends up over 280 points on U.S.-China trade cease-fire Published:12/3/2018 3:36:10 PM
[Markets] Kolanovic Qu(a)ntuples-Down On Bullish, Even As Another JPM Strategist Sees "Bad Omen" For Stocks

It's become like clockwork: any time the market gaps higher, JPM's quant "Gandalf" is out with a new note "reminding" JPMorgan clients that now is the time to buy stocks.

And he certainly has been persistent: having declared an all clear for stocks four times in a row (first on October 12, following the systematic puke, then one week later on Oct. 19, then again on Oct. 30 when stocks hit another recent lows, then once more after the midterm elections when he said that a split congress was the best outcome for markets just before stocks tumbled once more and wiped out the entire post midterm gain in one session) Kolanovic last said the "Pain trade is higher" back on November 16 when shortly after stock tumbled once more, hitting their second correction for 2018. Today, the JPM Quant is back again, quintupling - or is that quantupling - down on his bullish outlook, with his fifth note in just under two months urging clients of the largest US bank to buy stocks because - in his view - the G20 meeting "removes important obstacle for market upside."

In his latest note, Kolanovic largely repeats what he said two weeks ago, namely that "with both of our views largely confirmed (by Powell’s speech, Fed minutes, and what we see as significant progress at the G20), we think that the path for near-term market upside is largely clear" and that "the pain trade is on the upside."

Focusing on the outcome of the G-20 dinner between Trump and Xi, Kolanovic shares the market's (initial) euphoria, and concludes that for political reasons, Trump will be compelled to go beyond a mere truce and even make concessions so that the trade war ends during the pre-election year:

We think that the G20 meeting brought significant progress in the US-China relationship and should be positive for the market going into year-end. We stated previously that US-China trade dynamics are largely driven by the US political cycle and performance of the US equity market. We believe, simply speaking, that the administration cannot afford a falling market, large trade related layoffs, and fleeing donors in a pre-election year. The trade war did not yield the desired political results in the US mid-term elections. It did not rally the lower-income and rural base, it crippled middle-income 401(k)s a month before voting, and it alienated the business community and wealthy political donors. After losing the House, the trade war is less likely to be escalated given the inability to pass new fiscal measures to counter an economic slowdown (last year’s fiscal stimulus is wearing off). We often hear that trade is an important economic issue with bi-partisan support. We would like to note that over the past 20 years, global trade was responsible for significant gains in the US economy, stock market, income and wealth of the US population.

Kolanovic also lets some of his personal feeling seep through in the latest note, writing that "some of the issues around trade with China have prejudicial/racial undertones. For example, last week on national television we heard disgraceful statements how the Chinese are ‘not capable of innovating’ and hence have to steal IP, or how proponents of free trade are part of ‘globalist elites’ conspiring against white blue collar workers, etc."

The good news, to Kolanovic, is that the trade war is soon ending, based on something that Larry Kudlow himself said:

Our view is that despite likely additional volatility and more ups and downs, the ill-conceived trade war with China is ending. Ironically, this may have been summarized by Larry Kudlow’s interview last week when he said: “…at the end of that rainbow is a pot of gold. You open up that pot and you have prosperity for the rest of the world, but you’ve got to get through that long rainbow.” We all know that there is no pot of gold at the end of a rainbow, and that searching for one is a misguided effort. To summarize, we expect the easing of trade tensions will be a significant positive for equity markets.

As usual, the meticulously logical JPM quant assumes the same level of logical reasoning can be ascribed to the president, when a quick scroll through Trump's tweets over the past two years reveals that this is a very risky assumption, especially if Trump believes that he needs an external distraction to redirect attention from his domestic problems which, we are confident, even Kolanovic would agree are only set to emerge with the publication of the final Mueller report. As such any assumption that a "logical" Trump will pursue a quick resolution to the trade war that has defined much of his tenure is challenging at best, and for the opposing view look no further than Goldman Sachs which earlier today calculated that the odds of a "comprehensive deal" in 3 months are a paltry 20%.

Menawhile, looking at current investor positioning, Kolanovic correctly notes that it is rather light; in fact as Nomura's Charlie McElligott explained earlier, the beta of mutual funds to the market is a tiny 17-percentile, the lowest since 2014, and suggesting that any ramps are more painful to asset managers - as shorts rip far more than longs - than continued drift lower.

Sure enough, as the JPM quant confirms, "equity exposure (beta) of global hedge funds (HFRXGL) was higher than the current level 98% of the time historically, and trend followers (CTAs) are net short equities (beta of -0.25)." To Kolanovic, these trend followers "may need to buy given that signals are now turning positive." To justify his thesis, the strategist also notes that "the performance of defensive factors vs. cyclicals is in a bubble" and the Put/Call ratio is very low, "both of which point to near term market upside risk."

Of course, all of those arguments have been laid out before by Kolanovic, and virtually every single time, the initial strong rally has subsequently fizzled. Maybe this time will be different.

More interesting is Kolanovic's surprising defensive posture, noting that "many clients have asked us about the recent uptick in news stories with negative market sentiment" and why at least the quant group at JPM remains so stoically bullish. To this, Kolanovic responds that his "analyses suggest that most of the press (as well as many investors) are ‘trend following’ and fit the fundamental narrative to recent price action." He also blames narrative goalseeking, and "other biases – e.g. managers that are underweight or trailing the broad market are more likely to convey negative views. There are specialized websites that are consistently spreading misinformation on geopolitical, social, and market issues." Kolanovic also takes aim at the abovementioned Goldman report and a recent report by Morgan Stanley's bear Mike Wilson, saying that "a number of sell-side firms forecasted an escalation of the trade war at the G20 meeting or a looming bear market, and are now defending those views."

Here the bassoon-playing strategist thinks "that some of the prominent negative macroeconomic views are entirely inconsistent – for instance, a view that in 2019 we will have a combined economic slowdown, rapid hiking by the Fed, and significant escalation of the trade war. This view has a simple logical mistake: these 3 events are not independent (higher likelihood of one, reduces the likelihood of the others)."

Perhaps he is right (this time).

On the other hand, maybe Kolanovic should sit down with his colleague Nikolaos Panigirtzoglou, author of the Flows and Liquidity weekly newsletter, who on Friday first pointed out a very troubling "omen" for risk assets, namely the inversion of the forward curve between the 1-year and the 2-year forward points (this on Monday was subsequently followed by the Treasury cash curve itself inverting between the 3s and 5s for the first time since the financial crisis, with the 2s10s set to follow momentarily).

Such an inversion is rare to say the least and has happened only two times over the past two decades: in 2005, 2000: just ahead of major market peaks; these inversions also tend to signify the end of the Fed's tightening cycle. 

But most notably, Panigirtzoglou writes that such inversions in the forward curve, either for the 3Y-2Y forward spread, or the 2Y-1Y forward spread, are "bad omens for risky markets", which is the phrasing the "other" JPM strategist said back in April when the 1M OIS 3Y-2Y curve rate forward first inverted, with the ensuing 2y-1y inversion and shift forward in Fed policy rate reversal "worsening this bad omen."

Why? Because in even more bad news for the BTFD crew, the lesson from the previous US monetary policy cycles is that a sustained recovery in equity and risky markets has tended to occur only after the inversion disappears and the front end of the US curve, in particular the 2y-1y forward rate spread, resteepens.

So which is it: is the pain trade higher (according to JPM's Kolanovic), or is a "sustained recovery in equity and risky markets" now put on hold indefinitely until the forward curve resteepen, with this forward curve inversion a "bad omen" for stocks and getting "worse" (according to JPM's Panigirtzoglou). Because both can't be right yet the fact that one bank is pushing both views at the same time could lead some more cynically-inclined observers to conclude that one of the two views is intent on "spreading misinformation" about JPM's true "house view" and perhaps suckering clients to take the trade that JPM's own prop traders.

We look forward to the market's performance over the next few months to determine which of the two views falls within this definition.

(for those asking, Dennis Gartman will not be of any help as he both remains "still a bit net long" while going "very, very slightly short of the broad market." To wit: "to test the waters, we went very, very slightly short of the broad market, buying the short ETF, SH, when the Dow was up a bit more than 100 “points.” Compared to the position we had had in the short-side derivatives two weeks ago our short side now is perhaps 20% of what it was, and on balance, given our other positions we are still a bit net long of equities and we are so because the CNN Fear & Greed Index has only now risen above 20 after having fallen to the low single digits two weeks ago. When this Index makes its way back above 75 and turns lower… and it will do that and it will do that quickly… we’ll take a far more deliberate and far more bearish stance.)

Published:12/3/2018 3:36:10 PM
[Markets] Dow has forfeited more than 300 points of its early advance Dow has forfeited more than 300 points of its early advance Published:12/3/2018 11:59:52 AM
[Markets] Surging Boeing stock responsible for half of Dow's gain Monday Surging Boeing stock responsible for half of Dow's gain Monday Published:12/3/2018 11:24:18 AM
[Markets] Stocks - Wall Street Surges on U.S.-China Trade War Truce The S&P 500 rose 38 points, or 1.37%, to 2,799.40 as of 9:32 AM ET (14:32 GMT), while the Dow Jones Industrial Average increased 409 points, or 1.60%, to 25,948.15 and the tech-heavy Nasdaq Composite jumped 133 points, or 1.82%, to 7,464.67. Published:12/3/2018 10:54:29 AM
[Markets] US stocks sharply higher on US-China trade truce; oil surges U.S. stocks surged in early trading Monday after the U.S. and China agreed to a 90-day truce in their escalating trade dispute, sending the Dow Jones Industrial Average up 300 points. Published:12/3/2018 9:33:03 AM
[Markets] Dow jumps 400 points and Nasdaq more than 100 as investors react to trade truce Dow jumps 400 points and Nasdaq more than 100 as investors react to trade truce Published:12/3/2018 9:01:39 AM
[Markets] Dow futures up 450 points an hour before opening bell Dow futures up 450 points an hour before opening bell Published:12/3/2018 7:53:39 AM
[Markets] Stocks - U.S. Futures Rise After U.S. and China Agree to Trade Ceasefire - U.S. futures surged higher on Monday, with the Dow on track to rise more than 400 points at the open after the U.S. and China agreed to a 90-day ceasefire in their trade war.The S&P 500 futures rose 44 points or 1.61% to 2,802.75 as of 6:40 AM ET (11:40 GMT) while Dow futures gained 464 points, or 1.82%, to 26,004. Meanwhile tech heavy Nasdaq 100 futures increased 162 points, or 2.33%, to 7,111.25.U.S. President Donald Trump and Chinese President Xi Jinping agreed at the G20 summit on Sunday to hold off on increasing tariffs as the two continue trade talks. ... Published:12/3/2018 7:53:39 AM
[Politics] Dow Futures Surge After Trump-Xi Trade Truce Futures on the Dow Jones Industrial Average have surged more than 460 points after President Donald Trump and Chinese President Xi Jinping agreed to a 90-day halt to their trade war that has concerned world equity markets for most of the year, CNBC reported on Sunday.In... Published:12/2/2018 7:19:31 PM
[Markets] U.S. stock market futures surge; Dow futures up more than 400 points U.S. stock market futures surge; Dow futures up more than 400 points Published:12/2/2018 6:51:29 PM
[Markets] US Equity & WTI Crude Futures Surge At The Open, Yuan Fades

After the best week for the S&P 500 since 2011, US equity futures are opening up notably (Dow +400) after the so-called 'trade-truce'. WTI is also soaring but yuan is fading off pre-open highs...

Including Friday's meltup FOMO, stocks are up 2.5-3%...

Notably, yuan is fading as futures open...

In line with one "base case" which correctly predicted that a Truce - in which existing tariffs stay in place - is the most likely outcome (with a 70% chance), while also accurately predicting a 3 month ceasefire, the agreement will be enough to get the S&P to 2,800...

... so look for a burst of buying in the S&P over the next 24 hours which pushes the stock index higher, but not much higher as trader concerns will next revert back to the Fed which now that trade tensions have been temporarily removed, may promptly revert back to its hawkish bias and resume rising rates well into 2019 which in turn will be the next bearish event-risk to put a damper on any substantial Christmas rally.

And that is exactly where S&P Futs are - 2800...

Meanwhile, WTI Crude futures are soaring 2.5% despite Putin's confirmation that there will be no new oil production cuts...

Gold spiked but immediately faded back.

Published:12/2/2018 5:18:53 PM
[Markets] License To Rally? Not So Much For Now...

Authored by Sven Henrich via,

Our job is to navigate changing markets and we use technical and macro analysis to identify major market turns amidst periods of conflicting signals, emotional markets and often high uncertainty while staying keenly aware of risk to our thesis at any give time. In last weekend’s Bear Trap we discussed the technical signals that suggested a large rally could unfold and outlined some of the macro triggers that could light a fire under these markets. “Bears watch out” I stated. Indeed US markets responded with the strongest weekly bounce in 7 years as one of the triggers, the Fed, came through. A second trigger may have been pulled this weekend (China) giving markets license to rally further.

In this edition of the Weekly Market Brief I’ll review the facts and then outline some going forward considerations.

Let’s start with the technicals.

On twitter and in last weekend’s brief I outlined the technical case for a rally targeting MA reconnects:

On Friday $ES reconnected with its 200MA:

An over 5%, 130+ handle move off the lows in a matter of days.

I had also outlined the $NDX forming a potential bullish wedge and a positive divergence on the internals. Here’s the follow up chart:

One could argue that the internals have yet to show a dramatic improvement and that may be a red flag. But fact is the wedge pattern has remained very clean technically speaking as of now and a break above would suggest higher prices to come.

Especially as it fits with the historic oversold readings on tech that I outlined last week. Follow-up:

This chart is still vastly oversold and suggests it has a lot of potential room to rally higher still.

As you can see the monthly trend line also held last week, an important consideration going forward. I’ve outlined several of these trend line saves in “Saved Again” yesterday and you can see them there.

For this discussion I just highlight again the chart of the Dow Jones Global index:

If this is indeed a bull flag then bears may be in major trouble, especially considering as these types of potential bull flag patterns are visible on other charts as well:



So let’s hone in on some reality here: Bears have failed to break these trends for now. Trend lines have held, even in individual stocks such as $AMZN.

Here’s the follow up to last week’s $AMZN chart, a strong reaction:

On $SPX bears again failed to make lower lows. $SPX throughout 2018 has now printed a series of higher lows:

And that’s a big fat problem for bears in the here and now, especially as some of the signal charts now overtly suggest that there is a lot of potential room to rally. Here’s a follow-up to the equal weight chart I highlighted last week:

In fact, based on all of the above I could even make the case for new highs to come targeting that elusive 2.168 fib target discussed in January:

After all, the 2009 trend line has held twice and the monthly 20MA (the middle monthly Bollinger band) has also held twice as support. Big support confluence. So why not new highs, especially if the macro tiggers go in favor of bulls.

And from the looks of it they are.

Let’s start with the Fed.

Last week I outlined the following:

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

And boy did the Fed cave and rate expectations dropped like a brick:

Now the Fed may all think we’re stupid, but I can look at charts, price and timing of Fed reaction and you tell me if this is not a perfect script replay:

Really? REALLY? A month ago the Fed was all confident and insistent on their rate hike schedule. Just like Janet Yellen was in December of 2015 during her first rate hike only to cave 2 months later after markets were dropping firebombs everywhere. Her caving came after the January counter rally failed and stocks were dropping again into February. Powell just caved after the October counter rally failed and stocks were dropping again in November.

So either this is a giant coincidence or Powell just pulled a Yellen at precisely the same time giving markets again a license to rally.

Last weekend I also I outlined another bear trap trigger:

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

And folks, here’s your “agree to” headline:

US, China agree to 90-day truce to hash out trade differences:

“It’s an incredible deal,” Trump told reporters aboard Air Force One”

In The Summit I stated: “Trump needs a perceived win”.

Now he has one and is positioning it as such even though there is no deal. Just a truce or pause perhaps.

And spread market futures are indicating a sizable gap up as of this writing hours ahead of official futures open tonight (subject to change):

Bottomline: Speaking technically, and in context of the now emerging triggers, bulls have now a license to rally this market and they could rally it all the way to new highs into Q1 2019 with the prospect of a positive China deal hanging as a carrot in front of them. It’s possible.

But there are major hurdles and risks ahead.

For one Brexit deal approval has run into major roadblocks in the UK and European markets clearly want a resolution on December 11. OPEC is meeting on December 6th and oil markets remain in a major funk.

Then there remains event risk as it pertains to the President himself. His former campaign manager, his former attorney and his former National Security Advisor are all in major legal trouble. Manafort is in jail already, Cohen just plead guilty to lying about Trump’s business interests in Russia and Flynn is expected to come clean on Tuesday in his plea. The president’s twitter feed has been pre-occupied about the Mueller investigation in recent days. Things continue to brew there and pose headline risk.

Tuesday of course is December 4th and seasonality suggests that the first two weeks of December can be shaky.


After all a larger gap up into early this week may bring about short term overbought readings. Tax loss selling is a consideration as well as are multiple points of resistance and open gaps ahead.

Lest not forget there is technical damage on the charts and prices would run into major resistance ahead:

And charts like this open the possibility that this current bear trap may turn into a bull trap eventually:

After all liquidity is still being drained from the system, growth is still slowing, no definite China deal has been accomplished and earnings comparisons will still lag in 2019.

Hence the Fed’s efforts last week may ultimately turn out to be ineffective and only delay the perhaps inevitable: That these trend lines will eventually break for good to the downside.

Is the risk zone we outlined still applicable in 2018?

With higher lows in place and only 4 trading weeks left in the year it seems highly unlikely frankly, but not without precedence.

The very last year when markets made a new yearly low in December? All the way back in 2000:

That year too had a double top with weakness into October and November and the late November/early December rally fizzled into new lows. Back then that turned into a 2 day affair before a major rally into January which also produced lower highs before the recession unfolded.

That’s one year out of the past 19. Not exactly an encouraging historical precedent for bears.

It’s true that the $WLSH chart still shows strong resemblance to 2007:

But to prove their case bears need lower lows. And so far they have failed miserably.

Outlook: Last week’s massive rally and indicated further strength have so far supported the Bear Trap scenario. We’ll be reaching short term overbought readings into early December just ahead of traditional short term weaker seasonality. There likely will be some fade/retest trade opportunities. Indeed bulls need to avert a sell the news scenario. A renewed drop below 2700 would constitute a major warning sign for bulls. A drop below the October/November lows would fully open up the lower risk zone again.

Headline risk and technical resistance remain part of the market’s make-up. But bulls have been given a license to rally these markets into year end.

They better not fumble this or this setup turns into a bull trap fast.

[ZH: For now, in spread markets, The Dow is up around 225 points from Friday's close - so not entirely enthusiastic]

Source: IG

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Published:12/2/2018 1:20:24 PM
[Markets] Stocks - Dow Clinches Monthly Gain Amid Late Rally on Trade Hopes - The Dow delivered a late-stage rally Friday to clinch a monthly gain after a Chinese official reportedly suggested that the United States and China are making progress on trade, lifting investor hopes for a trade truce. Published:11/30/2018 6:05:11 PM
[Markets] This Is How The "Everything Bubble" Will End

Authored by Nick Giambruno via,

I think there’s a very high chance of a stock market crash of historic proportions before the end of Trump’s first term.

That’s because the Federal Reserve’s current rate-hiking cycle, which started in 2015, is set to pop “the everything bubble.”

I’ll explain how this could all play out in a moment. But first, you need to know how the Fed creates the boom-bust cycle…

To start, the Fed encourages malinvestment by suppressing interest rates lower than their natural levels. This leads companies to invest in plants, equipment, and other capital assets that only appear profitable because borrowing money is cheap.

This, in turn, leads to misallocated capital – and eventually, economic loss when interest rates rise, making previously economic investments uneconomic.

Think of this dynamic like a variable rate mortgage. Artificially low interest rates encourage individual home buyers to take out mortgages. If interest rates stay low, they can make the payments and maintain the illusion of solvency.

But once interest rates rise, the mortgage interest payments adjust higher, making them less and less affordable until, eventually, the borrower defaults.

In short, bubbles are inflated when easy money from low interest rates floods into a certain asset.

Rate hikes do the opposite. They suck money out of the economy and pop the bubbles created from low rates.

It Almost Always Ends in a Crisis

Almost every Fed rate-hiking cycle ends in a crisis. Sometimes it starts abroad, but it always filters back to U.S. markets.

Specifically, 16 of the last 19 times the Fed started a series of interest rate hikes, some sort of crisis that tanked the stock market followed. That’s around 84% of the time.

You can see some of the more prominent examples in the chart below.

Let’s walk through a few of the major crises…

• 1929 Wall Street Crash

Throughout the 1920s, the Federal Reserve’s easy money policies helped create an enormous stock market bubble.

In August 1929, the Fed raised interest rates and effectively ended the easy credit.

Only a few months later, the bubble burst on Black Tuesday. The Dow lost over 12% that day. It was the most devastating stock market crash in the U.S. up to that point. It also signaled the beginning of the Great Depression.

Between 1929 and 1932, the stock market went on to lose 86% of its value.

• 1987 Stock Market Crash

In February 1987, the Fed decided to tighten by withdrawing liquidity from the market. This pushed interest rates up.

They continued to tighten until the “Black Monday” crash in October of that year, when the S&P 500 lost 33% of its value.

At that point, the Fed quickly reversed its course and started easing again. It was the Chairman of the Federal Reserve Alan Greenspan’s first – but not last – bungled attempt to raise interest rates.

• Asia Crisis and LTCM Collapse

A similar pattern played out in the mid-1990s. Emerging markets – which had borrowed from foreigners during a period of relatively low interest rates – found themselves in big trouble once Greenspan’s Fed started to raise rates.

This time, the crisis started in Asia, spread to Russia, and then finally hit the U.S., where markets fell over 20%.

Long-Term Capital Management (LTCM) was a large U.S. hedge fund. It had borrowed heavily to invest in Russia and the affected Asian countries. It soon found itself insolvent. For the Fed, however, its size meant the fund was “too big to fail.” Eventually, LTCM was bailed out.

• Tech Bubble

Greenspan’s next rate-hike cycle helped to puncture the tech bubble (which he’d helped inflate with easy money). After the tech bubble burst, the S&P 500 was cut in half.

• Subprime Meltdown and the 2008 Financial Crisis

The end of the tech bubble caused an economic downturn. Alan Greenspan’s Fed responded by dramatically lowering interest rates. This new, easy money ended up flowing into the housing market.

Then in 2004, the Fed embarked on another rate-hiking cycle. The higher interest rates made it impossible for many Americans to service their mortgage debts. Mortgage debts were widely securitized and sold to large financial institutions.

When the underlying mortgages started to go south, so did these mortgage-backed securities, and so did the financial institutions that held them.

It created a cascading crisis that nearly collapsed the global financial system. The S&P 500 fell by over 56%.

• 2018: The “Everything Bubble”

I think another crisis is imminent…

As you probably know, the Fed responded to the 2008 financial crisis with unprecedented amounts of easy money.

Think of the trillions of dollars in money printing programs – euphemistically called quantitative easing (QE) 1, 2, and 3.

At the same time, the Fed effectively took interest rates to zero, the lowest they’ve been in the entire history of the U.S.

Allegedly, the Fed did this all to save the economy. In reality, it has created enormous and unprecedented economic distortions and misallocations of capital. And it’s all going to be flushed out.

In other words, the Fed’s response to the last crisis sowed the seeds for an even bigger crisis.

The trillions of dollars the Fed “printed” created not just a housing bubble or a tech bubble, but an “everything bubble.”

The Fed took interest rates to zero in 2008. It held them there until December 2015 – nearly seven years.

For perspective, the Fed inflated the housing bubble with about two years of 1% interest rates. So it’s hard to fathom how much it distorted the economy with seven years of 0% interest rates.

The Fed Will Pop This Bubble, Too

Since December 2015, the Fed has been steadily raising rates, roughly 0.25% per quarter.

I think this rate-hike cycle is going to pop the “everything bubble.” And I see multiple warning signs that this pop is imminent.

• Warning Sign No. 1 – Emerging Markets Are Flashing Red

Earlier this year, the Turkish lira lost over 40% of its value. The Argentine peso tanked a similar amount.

These currency crises could foreshadow a coming crisis in the U.S., much in the same way the Asian financial crisis/Russian debt default did in the late 1990s.

• Warning Sign No. 2 – Unsustainable Economic Expansion

Trillions of dollars in easy money have fueled the second-longest economic expansion in U.S. history, as measured by GDP. If it’s sustained until July 2019, it will become the longest in U.S. history.

In other words, by historical standards, the current economic expansion will likely end before the next presidential election.

• Warning Sign No. 3 – The Longest Bull Market Yet

Earlier this year, the U.S. stock market broke the all-time record for the longest bull market in history. The market has been rising for nearly a decade straight without a 20% correction.

Meanwhile, stock market valuations are nearing their highest levels in all of history.

The S&P 500’s CAPE ratio, for example, is now the second-highest it’s ever been. (A high CAPE ratio means stocks are expensive.) The only time it was higher was right before the tech bubble burst.

Every time stock valuations have approached these nosebleed levels, a major crash has followed.

Preparing for the Pop

The U.S. economy and stock market are overdue for a recession and correction by any historical standard, regardless of what the Fed does.

But when you add in the Fed’s current rate-hiking cycle – the same catalyst for previous bubble pops – the likelihood of a stock market crash of historic proportions, before the end of Trump’s first term, is very high.

That’s why investors should prepare now. One way to do that is by shorting the market. That means betting the market will fall.

Keep in mind, I’m not in the habit of making “doomsday” predictions. Simply put, the Fed has warped the economy far more drastically than it did in the 1920s, during the tech or housing bubbles, or during any other period in history.

I expect the resulting stock market crash to be that much bigger.

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Clearly, there are many strange things afoot in the world. Distortions of markets, distortions of culture. It’s wise to wonder what’s going to happen, and to take advantage of growth while also being prepared for crisis. How will you protect yourself in the next crisis? See our PDF guide that will show you exactly how. Click here to download it now.

Published:11/30/2018 5:07:13 PM
[Markets] US STOCKS-Wall St advances as trade optimism gathers steam Wall Street extended its gains on Friday after a Chinese official's optimistic remarks boosted investor hopes about U.S.-China trade talks as the G20 meeting in Buenos Aires opened. The S&P 500 was poised to post its biggest weekly percentage gain in almost 6 years. The Dow and the Nasdaq were set to record their largest weekly advances in 2 years and 9 months, respectively. Published:11/30/2018 2:07:08 PM
[Markets] Tsunami warning goes into force after 6.7- magnitude earthquake hits Alaska A tsunami warning has been put in place Friday near Alaska after an earthquake slammed the state's largest city by population, Anchorage. The preliminary magnitude of the seismic event was around 6.7, according to an early bulletin from the National Oceanic and Atmospheric Administration. The U.S. Geological Survey placed the epicenter of the quake at about 7 miles north of Anchorage, according to reports. A CNN affiliate KTUU reported that they were "knocked off the air due to the earthquake." Insurer Travelers Cos. Inc.'s stock was among the worst performers among the Dow Jones Industrial Average in Friday trade, down 1.3%, but shares of the company didn't move significantly after reports of the quake. Travelers's shares are down 4.9% this year, compared with a year-to-date gain of 2.4% for the Dow and a 2.5% climb so far this year for the S&P 500 index . Meanwhile, a popular fund used to bet on the property and casualty business, the Invesco KBW Property & Casualty Insurance ETF , was little changed on the session, up less than 0.1%. Published:11/30/2018 12:33:31 PM
[Markets] Tesla has reached production milestone of 1,000 Model 3s a day: report Tesla Inc. has reached the production milestone of 1,000 Model 3 sedans in a day, opening the way to reaching 7,000 units a week, according to Electrek, a blog mostly focused on the company. According to an internal email from Chief Executive Elon Musk to employees, which Electrek said it obtained, Musk told employees to focus on keeping that 1,000-a-day production level steady and to look for ways to reduce costs and find efficiencies. Tesla did not immediately respond to a request to confirm the report. In an interview earlier in November, Musk said Tesla was working on raising the number of Model 3s it produces to 6,000 and eventually to 7,000. Tesla shares rose 2.3% on Friday, bringing weekly gains to 7%. The stock has gained 12% this year, compared with gains of 2.6% and 2.4% for the S&P 500 index and the Dow Jones Industrial Average . Published:11/30/2018 11:03:26 AM
[Markets] Goldman Sachs's stock falls after BofA Merrill cuts rating, slashes price target Shares of Goldman Sachs Group Inc. slumped 1.8% in premarket trade Friday, which would shave about 24 points off the Dow Jones Industrial Average's price, after Bank of America Merrill Lynch analyst Michael Carrier downgraded the bank/broker, citing lingering uncertainty related to the 1MDB scandal. Carrier cut her rating to neutral, after being at buy for at the last the last three years. He slashed his stock price target cut $225, which is 15.5% above Thursday's closing price, from $280. Goldman's stock has tumbled 19% over the past three months, compared with a 2.5% decline in the Dow, with losses accelerating after reports indicated that former Chief Executive Lloyd Blankfein had attended a 2009 meeting with people who have been indicted for conspiring to launder and steal money from sovereign-wealth fund, 1Malasian Development Bhd, or 1MDB. "While we view the current valuation as discounting most of the potential negative scenarios related to 1MDB, we only have limited information and the uncertainty could linger for a while and limit the upside potential if markets stabilize," Carrier wrote in a note to clients. "If the conclusion is a manageable fine and the outlook for capital markets activity is favorable, we could look to resume our positive stance." Published:11/30/2018 8:32:47 AM
[Markets] Futures Surge On Conflicting Lighthizer Headlines About Trump-Xi Dinner

Having slumped to session lows, US stock futures - extremely sensitive to any trade-related headlines - surged instantly when Bloomberg reported that trade hawk Lighthizer had a good feeling about tomorrow's dinner and would be surprised if the China dinner fails:


The headline was enough to spike equity futures, however algo momentum was quickly stopped when Reuters published its own take on what Lighthizer had just said:


The following clarification from Reuters did not help sentiment either:


... but by then the headline scanning algos had established enough upside momentum, and having spiked on Bloomberg's initial take which boosted optimism for a favorable outcome especially once CNBC's own creative take came in...

... and refuting the Goldman pessimism we reported earlier, animal spirits have awoken with the Trump administration clearly intent on massaging stocks before - and perhaps after - the much anticipated dinner tomorrow.

Published:11/30/2018 8:02:26 AM
[Markets] Nervous Traders Drag US Futures, World Stocks Lower Ahead Of G-20

US equity futures, European and Asian stocks all dropped as nervous investors looked ahead skeptically to a much anticipated meeting between the American and Chinese presidents that could decide the course of the trade war. US Treasury yields dropped and the dollar gained amid a flutter of risk-off sentiment across the globe.

The G20 Summit kicks off today in Buenos Aires, and while the main event will be the Trump-Xi "dinner of the decade" on Saturday, headline risk is high for the entire event. Market participants have every reason to be nervous: heading into the meeting neither side has expressed a willingness to make concession, making the outcome highly uncertain.

Ahead of his Saturday meeting with Xi, Trump said Thursday he’s very close to “doing something” with China as officials work on the contours of a deal that may delay ramping up tariffs on the Asian country in January. Any sign of a trade truce could take the edge off a rampant greenback and boost risk assets including emerging-market currencies and stocks. Goldman Sachs, however, said an escalation of tensions is the most likely outcome. Citi agrees and notes that even a positive statement will likely be faded promptly by markets because as Citi notes, "any material break in the trade war impasse is difficult to achieve, and so any positive response on Monday may ultimately be short-lived."

US equity futures were down 0.5%, following weakness in Europe where the Stoxx Europe 600 Index dropped to session lows, falling as much as 0.6% and trimming its weekly gains following a raft of disappointing macro data. Revised data showed Italy’s economy contracted 0.1% q/q in 3Q; German Oct. adjusted retail sales dropped -0.3% m/m; missing estimates of +0.4%. Euro-area inflation slipped to 2% in November from a year earlier, matching estimates, while the core reading unexpectedly dropped to 1%.

Germany’s DAX (-0.6%) felt the burden of falling auto names after Daimler (-2.7%) was downgraded to sell at HSBC, in turn moving the likes of Volkswagen (-1.1%) and BMW (-1.8%) lower in sympathy. Sector wise, consumer discretionary (weighed by auto names) lags, closely followed by financials as Morgan Stanley downgraded the EU banking sector, while Deutsche bank (-3.0%) shares hit an all time low as the bank feels the brunt of a double whammy from the aforementioned downgrade alongside a second day of raids amid the money laundering probe. Italian PM Conte and Economy Minister Tria are studying cutting the 2019 deficit/GDP target to around 2% in order to reach a deal with the EU; according to a paper.

In the latest Brexit news, UK PM May said Britain will be a more divided country if Parliament votes against her Brexit deal, while she also urged MPs to think about delivering on Brexit vote and answered that she is focused on December 11th vote when asked if she has a plan B if her deal is not approved by Parliament. The number of Conservative MPs who have spoken out against Theresa May's Brexit deal hit 100 as critics said her two-week charm offensive is failing.

Earlier in the session, Asian stocks traded mixed amid a cautious global risk tone with shares gaining in Tokyo, slipping in Seoul and slumping in Sydney, while rebounding in Shanghai and Hong Kong ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data. ASX 200 (-1.6%) and Nikkei 225 (+0.4%) initially followed suit to the lacklustre lead from their counterparts stateside with Australia the underperformer on broad weakness in which nearly all sectors declined, while Japanese exporters were hampered by recent flows into the JPY before staging a late recovery. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were initially indecisive due to trade uncertainty amid a ‘hot and cold’ stance by US President Trump who stated he is close to doing something on trade with China but is unsure if he wants to, while reports noted that White House Trade Adviser and ‘China hawk’ Navarro is back on the guest list for the Trump-Xi dinner tomorrow evening. Furthermore, the latest Chinese PMI data left much to be desired as both Official Manufacturing and Non-Manufacturing PMIs missed expectations with the former at its lowest since June 2016. The indices closed higher on the day, however.

  • Chinese Manufacturing PMI (Nov) 50.0 vs. Exp. 50.2 (Prev. 50.2)
  • Chinese Non-Manufacturing PMI (Nov) 53.4 vs. Exp. 53.8 (Prev. 53.9)
  • Chinese Composite PMI (Nov) 52.8 (Prev. 53.1)

Also overnight, Japan reported the latest inflation data, which was slightly weaker on the margin with Tokyo CPI missing expectations;

  • Japanese Tokyo CPI (Nov) Y/Y 0.8% vs. Exp. 1.1% (Prev. 1.5%).
  • Japanese Tokyo CPI Ex. Fresh Food (Nov) Y/Y 1.0% vs. Exp. 1.0% (Prev. 1.0%)

The Bank of Korea hiked the 7 Day Repo Rate by 25bps to 1.75% as expected, while it stated that sluggish employment eased somewhat and that exports will sustain favourable movements, but that it sees investments slowing. BoK Governor Lee said the rate decision was not unanimous as 2 board members voted to maintain rates, while Lee also commented that the policy rate is  still not at neutral and that he is not worried much about capital outflows due to further Fed rate hikes.

In FX, the dollar rebounded sharply from yesterday's losses, rising against most G-10 peers in a muted trading session; Treasury yields edged lower while the yen was steady as investors refrained from taking risks ahead of this weekend’s meeting between U.S. President Donald Trump and China’s Xi Jinping. The euro slipped to a day low, holding below the 1.14 handle, after London came into the market. The Norwegian krone crept lower after oil prices resumed their slump, while retail sales contracted in October, missing estimates and unemployment rose in November; DNB finds it likely that Norges Bank will adjust down its rate path in December. The pound remained under pressure, drifting downward as U.K. Prime Minister Theresa May continued efforts to win backers for her Brexit deal. Emerging-market equities and currencies dipped.

Finally, Korea’s won held on to this week’s losses as Friday’s interest rate increase did little to assuage concern surrounding the economy.

WTI crude was dragged back under $51 a barrel, on track for the biggest monthly drop in a decade. The euro weakened after data showed inflation in the common-currency region easing.

Looking at this weekend's key event, Guggenheim's Scott Minerd told Bloomberg TV that “I wouldn’t be surprised at the end of this weekend if the U.S. and China didn’t announce a concord that basically sat down a path to help resolve the trade frictions. I don’t think that out of the meeting there’s going to come much substance, but there will be a sort of set of principles that will be established to start the process of bringing an end to the trade war."

WTI (-1.4%) and Brent (-1.0%) lost the USD 51/bbl and USD 60/bbl handles respectively with sentiment deteriorating as the G20 Summit goes underway, where participants will be looking out for leaks in regard to any potential supply change discussed by key policy makers. Meanwhile, ahead of the Dec 6th OPEC meeting, Russian Energy Ministry stated that OPEC and non-OPEC producers are comfortable with the current oil price, while the country’s Energy Minister Novak said Russia plans to maintain the average oil output level until year-end. Note: yesterday he said Russia proposes an output cut for next year.

In the metals complex, gold (-0.2%) erodes post-Powell gains and remains in the November range of USD 1200-1240/oz as the yellow metal mirrors the rising USD, with traders noting a clean break above the top of the range could result in further bullish action. Copper (-0.3%) trade lower amid the cautious risk tone ahead of the Trump-Xi G20 showdown, with moves to the downside exacerbated by the disappointing Chinese manufacturing PMIs overnight. Elsewhere, Shanghai aluminium prices declined to their lowest level in over two years to print their third consecutive monthly decline amid oversupply fused with downbeat Chinese PMIs

Economic data include MNI Chicago Business Barometer.

Market Snapshot

  • S&P 500 futures down 0.4% to 2,734.00
  • STOXX Europe 600 down 0.5% to 356.33
  • MSCI Asia down 0.2% to 153.44
  • MSCI Asia ex Japan down 0.4% to 490.93
  • Nikkei up 0.4% to 22,351.06
  • Topix up 0.5% to 1,667.45
  • Hang Seng Index up 0.2% to 26,506.75
  • Shanghai Composite up 0.8% to 2,588.19
  • Sensex up 0.05% to 36,186.77
  • Australia S&P/ASX 200 down 1.6% to 5,667.16
  • Kospi down 0.8% to 2,096.86
  • German 10Y yield fell 0.9 bps to 0.312%
  • Euro down 0.2% to $1.1374
  • Brent Futures down 1.1% to $58.88/bbl
  • Italian 10Y yield fell 5.1 bps to 2.837%
  • Spanish 10Y yield fell 0.2 bps to 1.506%
  • Brent futures down 1.1% to $58.88/bbl
  • Gold spot down 0.2% to $1,221.86
  • U.S. Dollar Index up 0.2% to 97.00

Top Overnight News

  • Federal Reserve officials have stepped off a predictable path of interest-rate increases and are signaling to investors a hard truth about relying on increasingly contradictory economic data: There are no easy answers anymore.
  • Waning year-end demand for the U.S. currency is leading to a decline in dollar-funding costs for Japanese and European investors
  • Gold may be turning the corner as prices head for the first back-to-back monthly gain since January, holdings in exchange-traded funds expand, and investors reappraise the metal’s prospects in 2019 amid speculation the Federal Reserve will pause its tightening cycle
  • The sequence in which the ECB will take its next policy moves “has pretty much been communicated. It’s more about the timing of the various elements,” Estonian central banker Ardo Hansson says in interview with Financial Times
  • The first official reading of China’s economy in November showed the manufacturing PMI on the brink of contraction. New export orders contracted for a sixth month while the non-manufacturing gauge, reflecting activity in the construction and services sectors, expanded but at a slower pace

Asian stocks traded mixed amid a cautious global risk tone ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data. ASX 200 (-1.6%) and Nikkei 225 (+0.4%) initially followed suit to the lacklustre lead from their counterparts stateside with Australia the underperformer on broad weakness in which nearly all sectors declined, while Japanese exporters were hampered by recent flows into the JPY before staging a late recovery. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were initially indecisive due to trade uncertainty amid a ‘hot and cold’ stance by US President Trump who stated he is close to doing something on trade with China but is unsure if he wants to, while reports noted that White House Trade Adviser and ‘China hawk’ Navarro is back on the guest list for the Trump-Xi dinner tomorrow evening. Furthermore, the latest Chinese PMI data left much to be desired as both Official Manufacturing and Non-Manufacturing PMIs missed expectations with the former at its lowest since June 2016. The indices closed higher on the day, however. Finally, 10yr JGB traded lacklustre after having failed to benefit from the risk averse tone in Japan and BoJ’s presence in the bond market, as prices marginally pulled back from recent gains which had seen long-term yields hit their lowest levels since the beginning of August.

Top Asian News

  • China’s Worsening Economy Adds Pressure on Xi Heading to G-20
  • BOJ Governor Kuroda’s Latest Pay Raise Falls Short
  • Meitu Sinks on Concern Data Privacy Warning Will Worsen Losses
  • Evergrande Leads China Developer Rally; Rhb Cites Policy Hopes

Major European indices are lower across the board (Eurostoxx 50 -0.3%) after the region gave up opening gains amid trade jitters heading the US-Sino showdown at the G20 Summit. UK’s FTSE 100 (-0.7%) underperforms peers as heavyweight miners are pressured by the price action in the base metals complex, while Germany’s DAX (-0.6%) feels the burden of falling auto names after Daimler (-2.7%) was downgraded to sell at HSBC, in turn moving the likes of Volkswagen (-1.1%) and BMW (-1.8%) lower in sympathy. Sector wise, consumer discretionary (weighed by auto names) lags, closely followed by financials as Morgan Stanley downgraded the EU banking sector, while Deutsche bank (-3.0%) shares hit an all time low as the bank feels the brunt of a double whammy from the aforementioned downgrade alongside a second day of raids amid the money laundering probe. In terms of stock specifics, Altice (+8.0%) rose to the top of the Stoxx 600 (-0.5%) after the company sold its 49.9% stake in SFR GTTH for EUR 1.8bln, while Faurecia (-7.1%) is the worst performer in Europe amid a downgrade.

Top European News

  • Bayer Gains as Analysts Applaud Surprise Measures: Street Wrap
  • The London Housing Market Is Worse Than It Looks. Here’s Why
  • Italian Jobless Rate Jumps With More Reentering Labor Market
  • SocGen Seeks to Tap African Growth and Shrug Off Europe Woes
  • Europe Auto Stocks Drop as China, Trade Prompt PT Cuts at HSBC

In FX, the Greenback remains off pre-Powell highs in wake of the latest FOMC minutes that effectively affirm a shift in the approach towards forward guidance that may start in December after a final rate hike this year, with less pre-set indications and more flexibility to take on board incoming data. However, the Buck is ahead vs all G10 counterparts bar the Kiwi that is benefiting from favourable cross-winds, with the index edging just over 97.000 again. EUR - The single currency has been more volatile than most ahead of the looming G20 Summit and month end, with more spikes vs the Pound through 0.8900 around fixes due to ongoing/residual RHS interest, but another failure at 1.1400 vs the Usd on round number offers and option expiry flows as circa 1.6 bn roll off between the big figure and 1.1410 at the NY cut. Moreover, some Usd12.6 bn SOMA-related Dollar demand coincides with the final trading day of November, and this usually weighs most heavily on Eur/Usd vs potential bids at 1.1350 where another 1.6bn expiries reside. AUD/CAD - Also underperforming vs the Greenback, with the Aud bearing the brunt of a weaker than forecast Chinese manufacturing PMI overnight ahead of the Trump-Xi meeting on Saturday, and struggling top keep hold of 0.7300 as the Aud/Nzd cross pivots 1.0650 and the Kiwi remains within striking distance of its 200 DMA (0.6870). Meanwhile, the Loonie is back below 1.3300 as crude prices resume their slide amidst reports from Russia suggesting that OPEC+ are content with current levels, which have also piled more pressure on the Rub for obvious reasons.

In commodities, WTI (-1.4%) and Brent (-1.0%) lost the USD 51/bbl and USD 60/bbl handles respectively with sentiment  deteriorating as the G20 Summit goes underway, where participants will be looking out for leaks in regard to any potential supply change discussed by key policy makers. Meanwhile, ahead of the Dec 6th OPEC meeting, Russian Energy Ministry stated that OPEC and non-OPEC producers are comfortable with the current oil price, while the country’s Energy Minister Novak said Russia plans to maintain the average oil output level until year-end. Note: yesterday he said Russia proposes an output cut for next year. In the metals complex, gold (-0.2%) erodes post-Powell gains and remains in the November range of USD 1200-1240/oz as the yellow metal mirrors the rising USD, with traders noting a clean break above the top of the range could result in further bullish action. Copper (-0.3%) trade lower amid the cautious risk tone ahead of the Trump-Xi G20 showdown, with moves to the downside exacerbated by the disappointing Chinese manufacturing PMIs overnight. Elsewhere, Shanghai aluminium prices declined to their lowest level in over two years to print their third consecutive monthly decline amid oversupply fused with downbeat Chinese PMIs.


US Event Calendar

  • 9am: Fed’s Williams Speaks on Global Economy at G30 in New York
  • 9:45am: Chicago Purchasing Manager, est. 58.5, prior 58.4

DB's Jim Reid concludes the overnight wrap

As I peer into the distance toward s snow-covered mountain tops, the last day of November is now upon us and all of a sudden we’re into the final countdown to year-end, my Xmas ski trip, and thus the likelihood of getting reacquainted with my knee surgeon sometime early next year. We noted at the start of this week that there are still a few big events for markets to get past before we can call it a year and the first of those starts today and continues into the weekend with the G20 meeting in Buenos Aires. The G20 overall is a sideshow to the main event, which is the meeting between US President Trump and Chinese President Xi Jingping. Will the two leaders strike a truce and thus a grand bargain on trade or will talks hit another snag? It would take a brave man to predict the outcome and it does feel like messages have been fairly mixed in recent days despite some optimism from the US side, especially from Trump’s economic advisor Kudlow, that a deal can be made. Yesterday, the Wall Street Journal reported that the two sides are approaching a deal, possibly to include suspension of any new US tariffs through next spring in exchange for discussions and the lifting of restrictions on US agriculture and energy exports. On the other hand, the President told the very same newspaper earlier this week that it is “highly unlikely” that the next tranche of tariffs, set to take effect on Jan 1, will be delayed. Yesterday’s Reuters headline quoting Trump as saying that he is “close to doing something with China, but he doesn’t know if he wants to do it” perhaps sums up the state of play nicely. Interestingly, the South China Morning Post reported that the White House trade policy adviser, Peter Navarro – who is a known China hawk – is now scheduled to attend the dinner between Trump and Xi having initially been left out. US Trade Representative Lighthizer is still due to attend.

So all to play for and something for everyone in the pre-show headlines. As for timing, the meeting between Trump and Xi is due to take place Saturday evening at some point over dinner, however the exact timing is uncertain. Another potentially interesting meeting on the agenda was that between Trump and Russian President Putin. However, after the Kremlin confirmed yesterday that the meeting was to go ahead tomorrow, President Trump instead said that he had cancelled the meeting, tweeting yesterday that his decision was “based on the fact that the ships and sailors have not been returned to Ukraine from Russia”.

In any case, the tensions between Russia and the Ukraine should also be a focal point along with the trade war, while the  presence of the Saudi Crown Prince could also be another talking point. The event has no shortage of AListers however with Japan’s Abe, Germany’s Merkel, France’s Macron, UK’s May, EC’s Juncker, EU’s Tusk, Italy’s Conte, and Turkey’s Erdogan among the leaders attending so there’s the potential for plenty of newsflow this weekend.

As for markets, well the strong three-day winning run for US equities came to an end last night with the S&P 500 (-0.22%), DOW (-0.11%) and NASDAQ (-0.25%) all finishing slightly in the red. As has been the trend recently, tech led the decliners with the NYSE FANG index down -1.13% with Apple (-0.77%) down for the sixth time in the last eight sessions. It was hard to know if the slight riskoff was some pessimism ahead of the G20 or reaction to the news that Trump’s former lawyer Michael Cohen had pleaded guilty to a new federal charge and also agreed to cooperate with Robert Mueller. Prior to this, Europe had opened strongly, benefiting from the dovish Powell halo effect, though ultimately the moves faded. The STOXX 600 pared gains of as much as +0.75% to close +0.20% and the DAX erased gains of +0.93% to close flat.

This morning in Asia markets are off to a mixed start with the Nikkei (+0.33%), Hang Seng (+0.69%) and Shanghai Comp (+0.23%) all up while the Kospi (-0.26%) is down. In terms of overnight data, China’s official November composite PMI continued to soften at 52.8 (vs. 53.1 last month) as both manufacturing (50.0 vs. 50.2 expected) and non-manufacturing PMIs (at 53.4 vs. 53.8 expected) missed expectations. In the details of the manufacturing PMI, new export orders (at 47.0) printed below 50 for the 6th month in a row with new orders also continuing to soften sequentially with the current reading at 50.4 (vs. 50.8 in last month and 53.8 back in May). Japan’s preliminary October industrial production stood at +2.9% mom (vs. +1.2% mom expected) - the highest since January 2015.

Elsewhere, futures on S&P 500 (-0.17%) are pointing towards a slightly softer start. The BoJ is also set to release its monthly bond-buying plan for December at 5:00 pm Tokyo time (8:00 am BST) today which is likely to be closely watched for any possible tweaks as the BoJ tries to boost trading in JGBs. The minutes from the November FOMC meeting were released yesterday evening, but didn’t change the debate much, especially when compared to the market-moving comments from Chair Powell earlier this week. The minutes said that many Committee members may want to change the “further gradual increases” language in the policy statement to something that “places greater emphasis on the evaluation of incoming data.” This confirms the renewed emphasis on data dependency that Powell and Clarida pushed this week. The minutes also signaled that a technical adjustment to the rate setting framework would likely be needed at the December meeting, i.e. raising the IOER rate only 20bps rather than the full 25bps in order to keep the effective federal funds rate near the middle of the target range.

There were several notable landmarks in markets elsewhere yesterday. The first was the 10-year Treasury briefly passing below 3% - touching an intraday low of 2.995% - for first time since September 18th and WTI oil passing below $50 – hitting a low of $49.41 - for the first time since October 9th last year. To be fair both rebounded off the lows. Ten-year Treasuries ended the day at 3.026% (still down -3.3bps on the day) while WTI made a full reversal to finish the session back above $51 (+2.11%), which is roughly where it’s trading this morning. That rebound appeared to be helped by a Reuters report suggesting that both Russia and Saudi Arabia were discussing the details behind a cut in production.

The rally for Treasuries was given an added boost by yesterday’s data in the US. The highlight was the soft core PCE print for October (+0.1024% vs. +0.2% expected) which resulted in the annual rate falling by one-tenth from an already downwardly-revised +1.94% yoy to +1.77% yoy, the lowest since February. On the back of a dovish Powell on Wednesday, that data was perhaps more fuel to the fire for the dovish camp and could drive more talk of a pause in the Fed’s tightening cycle. It’s worth noting that the healthcare component of the data was soft and that there could be some seasonality in this data so that is something to keep in mind.

The other interesting data point in the US yesterday was the weekly initial jobless claims print, which jumped 10k to 234k (vs. 220k expected) and the highest in six months. The four-week moving average is now at 223k and the highest since July. There was some talk that the Thanksgiving Holiday may have had an impact on the data, however a persistent uptick in the jobless claims data would definitely be food for thought looking ahead. So worth setting a calendar reminder for this print over the next two Thursdays after a long period where the number has been no more than a mild distraction to lunch or breakfast depending on where you are in the world.

Over in Italy, the Government and the European Commission continued to trade barbs, with Conte saying that they “are not indifferent to the reaction of financial markets [but] we can’t back away from the core promises we made to Italians.” There still seems to be movement toward a budget deficit of 2.2% of GDP rather than 2.4%, but Commission VP Dombrovskis said that would be an insufficient cut. Italian Deputy Premier Salvini said that the Italian government is not considering lowering the budget deficit below 2.2% while adding that “if there is a saving we won’t leave the money there unspent, we will invest it for other spending.” Still, the Italian press reported that the EU could give Italy more time before instigating the Excessive Deficit Procedure, i.e. delaying the decision till February 2019. This helped BTPs rally -5.2bps despite tepid demand as the Treasury auctioned 4.25 billion euros of debt across the 10- and 5-year tenors.

On Brexit, we didn’t get a lot of new information yesterday but the pound nevertheless traded -0.35% weaker versus the dollar. EU Chief Negotiator Barnier said that discussions are over and that the current Withdrawal Agreement is the only possible Brexit deal. DUP Leader Foster reiterated her opposition to the deal, saying that there exists a better option. It’s hard to square those two views, which explains where there is so much uncertainty ahead of next month’s Parliamentary vote. Interesting it looks like we’ll have a live televised debate with May Vs Corbyn on primetime TV on Sunday 9th December. The problem is that May has agreed to have it on the BBC whereas Corbyn is leaning towards ITV as he didn’t want it to clash with the finale of “I’m a celebrity get me out of here”. It rather sums up the process at the moment. Overnight, on her way to the G-20 summit, UK PM May said that national divisions over Brexit will widen if lawmakers fail to back her plans in the parliamentary vote next month while adding that there are no alternatives to her current deal as she ruled out another referendum and said Britain won’t be in a Customs Union with the EU and dismissed the Norway option. She also reiterated that she won’t resign in the event of her Brexit deal getting rejected by the UK Parliament.

Coming back to inflation, there was also some disappointment in the German HICP reading which came in at a below market +0.1% mom (vs. +0.2% expected) – and so pushing the annual rate down two tenths to +2.2% yoy. A reminder that we get the broader Euro Area reading today in addition to country level reports from France and Italy.

Apart from the inflation and jobless claims prints, the US also released personal income and personal spending data, which both surprised to the upside and supported the narrative of continued labour market strength for now. Income rose +0.5% mom, the fastest pace since January, while spending rose +0.6%, fastest since March. The housing market continued to show signs of slowing, as home sales fell -2.6% mom, their sixth consecutive decline. That’s the longest such streak since 2014.

In terms of the day ahead, as mentioned at the top the G20 Leaders Summit officially gets underway and continues into the weekend, so expect headlines throughout. As for data, shortly after this hits your emails this morning we’ll get November Nationwide house price data in the UK and October German retail sales numbers. Not long after that we get the preliminary November CPI reading for France before the aforementioned Euro Area reading. In the US the only release scheduled is the November Chicago PMI, which is expected to largely hold steady around October’s level. Away from the data we’re finishing the week with two more ECB speakers, with Mersch and Coeure speaking at separate events. Finally the Fed’s Williams will speak this afternoon on the “Global Economy” at an event in New York.

Published:11/30/2018 6:31:45 AM
[Markets] Stocks - Dow Snaps 3-Day Winning Streak as Trade Concerns Weigh - The Dow snapped a three-day winning streak Thursday, pressured by selling moments before the close, even as minutes from the Fed's November meeting fueled expectations for a slower pace of rate hikes. Published:11/29/2018 6:00:37 PM
[Markets] Stocks Gain Modestly as Wall Street Turns Attention to Trade Concerns The Dow Jones Industrial Average gained slightly on Thursday a day after posting its biggest gains since March a day before, fueled by dovish comments on interest rates from Federal Reserve Chairman Jerome Powell. shares fell after prosecutors in Germany raided the lender's headquarters in Frankfurt as part of an ongoing probe into money laundering that has implicated several European banks over the past year. Published:11/29/2018 1:28:09 PM
[World] Metals Stocks: Gold prices edge up as dollar steadies, U.S. stock market weakens Gold prices edge up on Thursday as a leading dollar index steadied and benchmark U.S. stock indexes see a pullback a day after the Dow Jones Industrial Average scored its best performance in eight months.
Published:11/29/2018 12:01:07 PM
[Markets] Dick's Sporting Goods's stock dives after J.P. Morgan cuts rating, price target Shares of Dick's Sporting Goods Inc. took a 7.9% dive in morning trade Thursday, wiping out the previous session's gains following an upbeat earnings report, after J.P. Morgan analyst Christopher Horvers backed away from his year-long bullish stance given a "more uncertain earnings outlook." The stock rallied 2.6% on Wednesday after the sporting goods retailer reported fiscal third-quarter results. But that led Horvers to cut his rating to neutral, after being at overweight since Nov. 15, 2017, and lower his price target to $41 from $46. He said the risk-versus-reward profile for investors is now more balanced, following the anticipated inventory "clean up" and gross margin recovery. "However, looking forward, gross margin-driven upside appears less probable given 3Q's performance, changing comparisons and rising inventory levels...," Horvers wrote in a note to clients. He said he also wonders if the past few weeks represents the best same-store sales trends of the holiday season for most retailers, especially those in the apparel business. The stock has shed 3.5% over the past three months, while the SPDR S&P Retail ETF has lost 10.7% and the Dow Jones Industrial Average has slipped 3.4%. Published:11/29/2018 10:28:38 AM
[Markets] Stocks Fall Modestly as Wall Street Turns Attention to Trade Concerns The Dow Jones Industrial Average slipped on Thursday after the blue-chip index rose the most since March a day before, fueled by dovish comments on interest rates from Federal Reserve Chairman Jerome Powell. shares fell Thursday after prosecutors in Germany raided the lender's headquarters in Frankfurt as part of an ongoing probe into money laundering that has implicated several European banks over the past year. Published:11/29/2018 9:57:41 AM
[Markets] McDonald's stock leads Dow gainers after Morgan Stanley turns bullish, boosts price target 21% Shares of McDonald's Corp. rallied 1.1% in morning trade Thursday, to pace the Dow Jones Industrial Average's gainers, after Morgan Stanley said it now recommends buying into to the fast-food giant, citing optimism over its store modernization efforts. Analyst John Glass raised his rating to overweight, after being at equal weight for at least the past three years. He boosted his stock price target by 21% to $210 from $173. "In upgrading, we are endorsing the notion the McDonald's massive store modernization efforts...will begin to pay off in [2019] and should produce best-in-class sales results for more years to come," Glass wrote in a note to clients. Another benefit of McDonald's stock for investors, Glass said, is its "defensive characteristics," as it tends to outperform during periods of economic slowing and within a volatile market environment. The stock has run up 16.4% over the past three months, while the SPDR Consumer Discretionary Select Sector ETF has dropped 8.4% and the Dow has slipped 3.1%. Published:11/29/2018 8:56:19 AM
[Markets] American Express stock falls after Buckingham cuts to neutral Shares of American Express Co. are down 1.1% in premarket trading Thursday after Buckingham Research Group analyst Chris Brendler downgraded the stock to neutral from buy. "Although American Express isn't that expensive relative to historical norms at 14x next year, we have a hard time arguing for additional multiple expansion when American Express's card lender peers (and most financials) are trading so poorly by comparison," he wrote. "With late-cycle credit concerns dominating the trading in balance-sheet lenders and the macro outlook increasingly blurry, we find the risk/reward considerably more balanced at these levels." Brendler said that American Express shares are currently trading at a four-year relative high compared to the S&P 500 . He maintained his $112 target price on the stock, which is up 17% over the past 12 months, while the Dow Jones Industrial Average has risen 6%. Published:11/29/2018 7:26:47 AM
[Markets] Federal Reserve, Deutsche Bank, Elon Musk, Altria - 5 Things You Must Know U.S. stock futures suggested a weaker start for Wall Street on Thursday, Nov. 29, following a Federal Reserve-fueled rally in the previous session as investors awaited developments from this weekend's summit between Donald Trump and Chinese President Xi Jinping. Contracts tied to the Dow Jones Industrial Average declined 62 points, futures for the S&P 500 fell 7.50 points, and Nasdaq futures were down 33 points. Stocks jumped on Wednesday, Nov. 28 - the Dow gained 617 points, or 2.5%, for the index's best day since March 26 - after Fed Chairman Jerome Powell appeared to reverse an earlier assessment on monetary policy, telling the Economic Club of New York that the fed funds rate was "just below" a neutral rate that would neither accelerate nor slow growth in the world's largest economy. Published:11/29/2018 4:56:20 AM
[Markets] US futures seen pulling back, after Dow notched strong triple-digit gains on Wednesday Wall Street saw a stellar session on Wednesday, with the Dow Jones Industrial Average closing up over 600 points following a dovish speech by the chair of the Federal Reserve. In corporate news, Toronto-Dominion Bank, Dollar Tree, Abercrombie & Fitch, Dell Technologies, HP and GameStop are all scheduled to publish earnings. At around 4:30 a.m. ET, Dow futures slipped 49 points, indicating a negative open of -68.43 points. Published:11/29/2018 3:55:51 AM
[Markets] Why Powell's Speech Today Was "A Stroke Of Genius"

Submitted by Nicholas Colas of DataTrek

A Man for All Seasons

To our thinking, Chair Powell’s speech today was a stroke of genius. By easing the Fed’s public stance on rates, he puts all the responsibility for near term market direction on President Trump’s shoulders as he prepares to meet Chinese President Xi at the G20. US equities are barely up on the year, so what happens in Buenos Aires will determine if stocks post a positive 2018.

Federal Reserve Chair Powell really is a “Markets guy” after all, as today’s speech at the The Economic Club of New York showed. After saying interest rates were “far from neutral” on October 3rd, he didn’t make the crowd wait long today for his revised assessment. Powell’s new take, which appears in the 2nd paragraph of his talk: rates “remain just below the broad range of estimates of the level that would be neutral for the economy.”

We’ve been repeatedly pointing you to Fed Funds Futures as a forward-looking indicator for US central bank policy, and that market has been pricing in Powell’s speech as if it had an advanced copy a month ago. After October’s stock market swoon, Futures only gave the Fed a 17% chance of getting to a +3% funds rate, for example. Two-year Treasury yields - our other favored indicator – told a similar story, peaking on November 8th.

Since Fed Fund Futures had this event nailed, even if US stocks did not, let’s see what they say now with the benefit of a few hours to digest Powell’s talk:

  • The odds that the Fed moves in December by 25 basis points are now 83%, up from 79% yesterday.
  • Odds that the Fed stands pat or even cuts rates back to current levels at the March 2019 FOMC meeting are now better than 50/50, at 58/42. Yesterday they were about the same, at 55/45.
  • Futures give the edge to seeing just one 25bp rate increase during all of 2019 (assuming the December 2018 bump), with 38% odds. Chances that the central bank raises rates twice or more in 2019 are now just 33%, down from 37% yesterday.

Hard-nosed numbers aside, the real genius of Chair Powell’s speech today is that it takes Fed policy out of the near term market narrative and shifts investors’ focus to President Trump’s end-of-week G20 meeting with Chinese President Xi. Here’s how this calculus works:

  • US equities rallied strongly today because Powell’s comments effectively acknowledge the market’s concerns of a slowing global economy, driven in large part by the effect of US trade policy.
  • All major US equity indices are up slightly on the year, or at least flat. The Dow: +2.6%. S&P 500: +2.6%. Russell 2000: -0.3%, but up 1% with dividends.
  • The Trump/Xi G20 meeting on Friday is now the make-or-break event that will determine if US stocks print a positive or negative 2018. There simply are no other near-term catalysts that equal the importance of this event.

Squint only slightly through Machiavellian eyes, and Powell’s rate retreat looks very much like a calculated effort to pressure President Trump to make real progress at the G20. Chair Powell left himself enough wiggle room to change his stance in 2019. Mr. Trump does not have the luxury of time if he wants to see US stocks end the year on a high note. And Mr. Trump’s affinity for using the US stock market as a barometer for his professional success as President is well known…

Summing up: our Sunday note highlighted that US stocks sit on a fulcrum with “Hope” of a change in Fed/trade policy the only counterbalances to the heavyweight concerns of a slowing global economy. Chair Powell delivered on one of those hopes today. It will be up to President Trump to find a way to do the same later this week. Given today’s events, he does not really have a choice.

Published:11/28/2018 10:24:45 PM
[Markets] How major US stock indexes fared Wednesday U.S. stocks rocketed to their biggest gain in eight months Wednesday after Federal Reserve Chairman Jerome Powell hinted that the Fed might not raise interest rates much further. The Dow Jones Industrial ... Published:11/28/2018 4:44:26 PM
[Markets] Stocks rally powerfully, with Dow up more than 600 points and Nadaq ahead 200 Stocks rally powerfully, with Dow up more than 600 points and Nadaq ahead 200 Published:11/28/2018 3:22:01 PM
[Markets] 'Powell Put' Sparks Buying-Panic, Dovish Dollar Dump

Seemed appropriate...


What did China know? Stocks in Shanghai soared overnight (after US stocks faded) ahead of today's surge in US stocks post-Powell...


European stocks drifted modestly lower...


But today was all about Powell although we note market participants seem to have missed the nuance of the "just below the policy range" - as opposed to within one hike of being done... Nevertheless, Stocks, Bonds, & Gold all rallied post-Powell as the dollar sunk...


Powell's flip-flop sparked the biggest buying panic since the Feb 9 VIXtermination... (and 2nd biggest uptick since Aug 2011)

But notice that the buying binge immediately faded...


Nasdaq led the day (up 3%!) but every market moved as one...


Futures show it was all Powell...


The Dow soared over 600 points, ramping back above its 200DMA almost tagging its 50/100 DMA...Up 1100 Points in 3 days


The S&P was up 2.3% - its biggest jump since March - which was followed by further pain...


All thanks to a giant short-squeeze... (biggest squeeze of the month)

FANG Stocks soared top fill last week's gap-down drop...


GM made more headlines thanks to Trump today but ended higher...


But Tiffany didn't...crashing 12% to 12-month lows...


Credit markets ripped tighter after Powell's speech...


The 2Y Yield is unchanged since Powell's hawkish comments, stocks are not..


Rate-hike expectations collapsed to a mere 25bps for next year (one hike)...


Treasury yields were mixed with the shorter-end falling (and longer-end rising) after Powell blinked...


The yield curve steepened dramatically after Powell's dovish denouement...

BUT note that we also steepened on Powell's October hawkfest


The dollar collapsed as Powell flip-flopped...


Once again, the dollar stalled its gains at a historically significant level...


And as the dollar sank, offshore Yuan spiked...


Commodities were a mixed bag with dollar weakness sending PMs and copper higher but inventory data not helping WTI...


WTI tumbled to fresh cycle lows...


Gold bounced off its 50 and 100 DMA spiking back above $1230...


So, did Powell "blink"? As Amherst noted:

"The markets are overreacting to what Powell said, perhaps partly because some of the newswire headlines don’t quite accurately convey the nuance of what he said..."

In fact, as the chart above shows, the market was already largely priced for this 'blink' - with barely a hike in 2019 and rate-cuts expected in 2020 and 2021.

And SMART money appears to know something major changed...

Published:11/28/2018 3:22:01 PM
[Markets] Dow ends more than 600 points higher after Fed's Powell says rates near neutral Stocks ended sharply higher Wednesday, rallying after Federal Reserve Chairman Jerome Powell, in an eagerly awaited speech, said interest rates were "just below" the range of estimates of the neutral level that neither slows nor speeds economic growth. The remarks were interpreted by investors as a sign that the end of the rate-hike cycle may be nearer than previously indicated, though economists argued that such an interpretation reads too much into Powell's remarks. The Dow Jones Industrial Average ended around 618 points higher, up 2.5%, near 25,367, according to preliminary figures, while the S&P 500 advanced 2.3% to around 2,744. The Nasdaq Composite finished 2.9% higher near 7,291.59. Published:11/28/2018 3:22:00 PM
[Markets] Dow Surges Into Close as Fed's Powell Says Interest Rates 'Just Below' Neutral The Dow Jones Industrial Average rose Wednesday, trading higher for a third consecutive session, after Federal Reserve Chairman Jerome Powell said interest rates are "just below" neutral for the economy. sank 12% after the luxury jewelry retailer cut its growth outlook for full-year same-store sales. Published:11/28/2018 2:51:36 PM
[Markets] Why We Shouldn’t Get Too Excited by the Dow’s 500 Point Gain Just Yet 2:43 p.m. The market’s feeling good after Federal Reserve Chairman apparently blinked—the Dow Jones Industrial Average is up more than 500 points—but is it feeling too good? Jonathan Krinsky, chief market technician at Bay Crest Partners, contends it is. Yes, the Dow has climbed 525.39 points, or 2.1%, to 25,274.12, while the S&P 500 has gained 1.8% to 2730.83, and the Nasdaq Composite has jumped 2.4% to 7249.12. Published:11/28/2018 2:22:08 PM
[Markets] Dow Jumps 2% as Fed Chairman Powell Says Interest Rates 'Just Below' Neutral Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average rose Wednesday, trading higher for a third consecutive session, after Federal Reserve Chairman Jerome Powell said interest rates remained "low by historical standards. Published:11/28/2018 12:51:52 PM
[Markets] Microsoft surpasses Apple in market cap for first time in more than 8 years Microsoft Corp. surpassed Apple Inc. as a more valuable company for the first time in more than eight years on Wednesday. By mid-day, Microsoft was at a market capitalization of $846.73 billion versus Apple's $846.53 billion but tiny fluctuations in share prices had both tech giants trading off back and forth on who was the most valuable U.S. company Wednesday. Apple surpassed Microsoft in market cap back on May 28,2010, when both companies were worth about $226 billion, and Apple has commanded a larger market cap ever since, according to FactSet. At last check, Microsoft was up 2.8% at $110.10 and Apple was up 2.5% at $178.53. For the year Microsoft shares are up 28.6% while Apple shares are up 5.6%, compared with a 2% gain in the Dow Jones Industrial Average , in which both stocks are components, a 1.8% gain in the S&P 500 index , and a 4.4% rise in the tech-heavy Nasdaq Composite Index . Published:11/28/2018 12:31:27 PM
[Markets] Apple will have to 'seriously contemplate' changes for the iPhone next year, says Wedbush Wedbush analyst Daniel Ives cut his price target on shares of Apple Inc. to $275 from $310 on Wednesday, writing of the "horror show over the last month" but defending his bullish rating. Ives had been the most upbeat Apple analyst tracked by FactSet before he reduced his target. "We ultimately believe Apple will need to seriously contemplate pricing changes and/or design changes with the next cycle of iPhones slated for the fall of 2019 to drive a surge of upgrade activity that has moved out of FY19 and into FY20," he wrote. Ives said that the company will also have to "significantly invest (organically and through acquisitions) in its content/services strategy over the next 12 to 18 months to drive more growth initiatives." He called the downbeat data points regarding iPhone XR and XS demand out of China "a clear worry that will be a drag on earnings and growth in FY19." Apple shares are up 1.2% in premarket trading Wednesday, though they're off 19% in the past month. The Dow Jones Industrial Average has risen 0.2% in that time. Published:11/28/2018 7:49:16 AM
[Markets] US Futures Jump On Fresh Hopes For China Trade Deal, Dovish Powell Speech

In a generally quiet overnight session, renewed hopes for a thaw in U.S.-China trade relations at the upcoming G20 summit helped global shares rise to a one-week high on Wednesday, though lingering fears of a no-deal outcome weighed on European bourses. U.S. futures rose, extending on Tuesday's rebound and tracking gains in Asia as investors rekindled their risk appetite before a key speech by Fed chair Powell who many hope will reverse yesterday's hawkish rhetoric by Clarida, and come off as dovish, especially after this morning's report that Steve Mnuchin has been pushing for a shift from hiking rates to balance sheet reduction. The dollar and Treasuries were steady.

While President Donald Trump talked tough on the trade tariffs issue ahead of a meeting with Chinese President Xi Jinping on Saturday, markets focused on comments by White House economic adviser Larry Kudlow, who held open the possibility that the two countries would reach a trade deal. Kudlow’s comments helped Wall Street close higher and allowed Chinese and Japanese shares to rally 1% as the MSCI index of Asian shares ex-Japan gained 0.7%.

The mood however fizzled into the European session, with the pan-European index giving up opening gains to trade flat and Germany’s DAX trading unchanged. Technology companies and retailers were the best performers in the Stoxx Europe 600 Index, which struggled to maintain early gains as a Tuesday report that Trump may soon decide about new taxes on imported cars, still weighed on sentiment, keeping Europe’s auto sector shares 0.6 percent in the red.

"An expectation is being priced into markets ahead of the G20 meeting that we will see some deal or at least a framework for a deal between Trump and (Chinese President) Xi Jinping,” said Bernd Berg, global macro strategist at Switzerland-based Woodman Asset Management. “But if they come out with nothing this weekend, it’s going to be very bad."

Traders are also focusing on a speech at 12pm ET by Fed Chair Jerome Powell to see if he offers clues on how many more times the Fed could raise interest rates, following yesterday's modestly hawkish if cautious take from vice chair Clarida.

While Fed Vice Chair Richard Clarida took a less dovish stance on Tuesday than some had expected and backed more rate rises, Powell and his colleagues have in recent weeks alluded to global volatility, leading many to speculate the bank’s three-year-long rate rise campaign could pause in 2019.

Continued uncertainty over global trade as well as Brexit and Italy’s ongoing conflict with the European Union, have supported the U.S. dollar, which rose to a two-week high and approached the highest level hit in 2018.

While the main driver for the greenback is the U.S. interest rate path, Rodrigo Catril, senior strategist at National Australia Bank, said it was also benefiting from the uncertain mood. “Markets seem to be jumping at shadows at the moment and against this backdrop of uncertainty, the dollar remains the preferred option for weathering the storm,” Catril said.

Investors are also monitoring developments in Italy’s row with the EU over its budget spending, with Germany’s Handelsblatt and Italy’s La Stampa quoting EU commissioner Valdis Dombrovskis as saying the draft budget needed “substantial correction”.

The 10-year Treasury yield drifted ahead of Jerome Powell’s speech as European bonds nudged higher and the Euro was range bound. Italian bond yields flatlined after sharp rallies that were triggered by what appeared to be a more conciliatory stance from the government over the issue.

The dollar was mixed versus its Group-of-10 peers, trading in narrow ranges ahead of key events this week and EUR/USD hovered below 1.1300; Treasuries were little changed with the 10-year yield at 3.05%. Sweden’s krona gained even after retail sales and an economic tendency survey missed estimates. The pound trimmed some of the previous session’s losses as U.K. Prime Minister Theresa May appeared to back down in a key Brexit battle with Parliament.

Brent crude handed back earlier gains to trade little changed. Brent (-0.4%) and WTI (-0.1%) are lower heading into the US open after initially trading positive. A larger than expected build in API crude stockpiles of +3.453mln compared to the expected build of +0.8mln had little impact on the price rebound at the time which instead focused on the larger than expected gasoline draw. Additionally, three North Sea forties crude cargoes which were scheduled to load in December have been cancelled due to the temporary closure of the 150,000 BPD capacity Buzzard oilfield. Saudi Energy minister Al Falih stated this morning that Saudi will not and cannot reduce output on their own, and is hopeful that upcoming meetings will result in agreement to stabilise the market.

Gold is slightly lower as the dollar continues to firm, although the yellow metal has rebounded from lows of USD 1211.3/oz in the previous session. Separately, copper is higher following a 3-session decline although, gains for the metal have been restricted by ongoing US-China tensions, with the most recent comments coming from White House Economic Advisor Kudlow saying that US President Trump is prepared to raise tariffs if G20 talks are not constructive.

On other markets, cryptocurrency bitcoin jumped 6 percent to above $4,000, its biggest one day jump since the summer, and extending its rebound from a low of $3,475 touched on Sunday.

Today's expected data include mortgage applications, wholesale inventories, and new home sales. Burlington Stores, Royal Bank of Canada, Tiffany, and Weibo are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,686.75
  • STOXX Europe 600 up 0.06% to 357.60
  • MXAP up 0.7% to 152.77
  • MXAPJ up 0.7% to 490.34
  • Nikkei up 1% to 22,177.02
  • Topix up 0.6% to 1,653.66
  • Hang Seng Index up 1.3% to 26,682.56
  • Shanghai Composite up 1.1% to 2,601.74
  • Sensex up 0.8% to 35,785.59
  • Australia S&P/ASX 200 down 0.06% to 5,725.08
  • Kospi up 0.4% to 2,108.22
  • German 10Y yield fell 1.3 bps to 0.337%
  • Euro down 0.05% to $1.1283
  • Italian 10Y yield rose 2.0 bps to 2.92%
  • Spanish 10Y yield rose 0.2 bps to 1.556%
  • Brent futures down 0.3% to $60.05/bbl
  • Gold spot down 0.2% to $1,213.28
  • U.S. Dollar Index little changed at 97.38

Top Overnight News from Bloomberg

  • Treasury Secretary Steven Mnuchin privately asked bond dealers and investors in October whether they want the Federal Reserve to tighten monetary policy by raising interest rates or through faster cuts in its securities portfolio, six people familiar with the matter said; Mnuchin’s question could be seen as suggesting a way for the central bank to accomplish its goal of preventing a strong economy from overheating without triggering the ire of President Donald Trump
  • U.K. Prime Minister Theresa May has backed down in a key Brexit battle with Parliament, ditching moves to stop lawmakers trying to re-write her plans, according to an official. Risk of no-deal Brexit choking ports rising, U.K. lawmakers say
  • President Donald Trump and China’s Xi Jinping will meet over dinner Saturday evening in Buenos Aires marking a pivotal moment in the escalating trade war between the world’s two largest economies. Trump-Xi meeting puts emerging markets on pain-or-pleasure watch
  • President Donald Trump renewed his attack on Federal Reserve Chairman Jerome Powell, telling the Washington Post he’s “not even a little bit happy” with his choice to head the central bank
  • Federal Reserve officials on Tuesday sprinkled small doses of concern into otherwise upbeat assessments of the U.S. economy. Federal Reserve Vice Chairman Clarida backs Fed’s gradual hikes with neutral rate uncertain
  • The U.K.’s effort to rejoin a key World Trade Organization agreement that governs public procurement opportunities worth $1.7t a year gained provisional backing on Tuesday
  • Credit Suisse Group AG is set to make Madrid its post-Brexit trading hub in the European Union after initially planning to move only some investment banking positions to the Spanish capital from London, according to people with knowledge of the matter
  • Italian Prime Minister Giuseppe Conte said the budget negotiations with the European Union “won’t be easy,” as the government sticks to its spending plans, according to an interview published by Corriere della Sera

Asian equity markets traded mostly positive following a similar lead from Wall St. but with the session initially mired by lingering uncertainty regarding US-China trade relations. Nikkei 225 (+1.0%) outperformed as the index coat-tailed on the recent advances in USD/JPY, while ASX 200 (-0.1%) was subdued by weakness in miners after the metals complex felt the brunt of the recent USD strength and with financials subdued by AMP Capital amid risk of further mischarging cases and provisions. Elsewhere, Hang Seng (+1.3%) and Shanghai Comp. (+1.0%) were higher but with price action choppy in early trade amid tentativeness heading into the Trump-Xi showdown at this week’s G20 and as participants mulled over various comments from officials including White House Economic Adviser Kudlow who affirmed that Trump could hike tariffs if no constructive talks occur at G20 and that the White House is disappointed in China's response to the trade issue. However, Kudlow also noted that Trump is open to a deal with China and there were recent comments from China’s Vice Premier Liu that China wants a negotiated solution on trade based on mutual respect. Finally, 10yr JGBs weakened amid a lacklustre tone in T-note futures and with the BoJ’s presence in the bond market overshadowed by the outperformance of Japanese stocks. China's US envoy said selling or reducing purchases of US Treasuries would be very dangerous like playing with fire, while the envoy doesn't think anybody in Beijing is seriously thinking about pulling back from US Treasury debt market should tensions worsen. Furthermore, there were reports that China’s Ambassador to the US warned of dire consequences if the trade war leads to economic separation and that China prefers a negotiated solution, while the Ambassador warned that China will retaliate in proportion to any US sanctions regarding Muslim Uighurs in Xinjiang.

Top Asian News

  • Bank of Thailand Minutes Signal an Interest-Rate Hike Is Coming
  • Furor Over Gene-Altered Babies Deepens With China Project Halted
  • Pakistan’s Umar Says No Hurry for IMF Deal as Talks Resume
  • Turkey Sinks to Last on Emerging-Market Scorecard; Malaysia Tops
  • Brookfield Is Said to Be in Talks to Invest in Dubai’s Meraas

In a slightly choppy session thus far, European equities (Eurostoxx 50 +0.3%) have held on to opening gains seen in the wake of the upbeat US and Asia-Pac sessions, despite lingering trade concerns. The most recent interjection came from White House Economic Adviser Kudlow who commented that Trump is open to a deal with China and that the raising of tariffs to 25% is not a "certainty" but  will be implemented if no constructive talks occur at the G20. In terms of sector specifics, IT names are the clear outperformers at this stage of the session with Wirecard (+1.3%) and Dialog Semiconductor (+3.1%) notable gainers in the tech-space after trying to recoup recent losses with not much else in the way of key newsflow. Noteworthy individual movers include EDF (+3.1%) with shares buoyed by reports that that a potential increase in the French government’s stake in the Co. would take place next year. To the downside, Tenaris (-8.2%), sit at the foot of the Stoxx 600 after the Co.’s chairman was indicted in a graft case, whilst Continental shares (-5.4%) have been weighed on by negative comments from Redburn who have warned over the group’s EBIT prospects in 2019.

Top European News

  • Continental AG Falls After CFO Sees Margin Pressure Persisting
  • Italy Premier Says Social Stability Takes Priority Over Finances
  • Fevertree 2018 Stock Surge Erased Amid Tonic Maker’s Silence
  • LafargeHolcim Says Cost-Cutting Drive Will Lift 2019 Profit
  • Commerzbank, Helaba Are Said to Drop Out of NordLB Bidding

In FX, the DXY was off bet levels but retaining an underlying bid with supportive month end flows alongside HIA and SOMA redemption (24.9bln comes due on Friday) all impacting, while market participants keep a close eye on Fed Chair Powell’s speech scheduled for later today where he may stop the USD in its tracks or exacerbate the rally. The index has gained more ground above 97.000 to just over 97.500 before losing some momentum but still on the course to challenge the YTD high at 97.693, technically if not fundamentally. EUR: more choppy trade for the single currency with EUR/USD trading around the middle of a 1.1267-1.1304 range having taken out stops at 1.1275. Italian politics keep weighing on the currency with the European Commission unimpressed as it will begin disciplinary actions on Italy regarding debt before Christmas. EU Commissioner Dombrovskis also added that a cut of 0.2% of the 2019 budget target is not enough. EUR/USD is being drawn towards a large amount of option expiries between 1.1275 – 1.1300 (1.5bln). Looking ahead, markets will be keeping a close eye on the budget discussion between the Italian PM, two Deputy PM and Finance Minister for any hints of a budge towards EC’s direction. CAD – Another victim of the USD strength and global trade jitters as Trump’s economic advisor Kudlow said the USMCA agreement is to be signed on Friday at the G20 summit, but sticking points remain in regards to dairy. Note, choppy oil prices have hardly helped the Loonie slide to fresh multi-month lows around 1.3330. JPY ­ - Edging closer to 114.00 vs. the buck with heavy option expiries around 113.50-55 (1.47bln) and 114.00 (1.9bln). EM – Mostly weaker as the greenback hold firm with RUB as the standout underperformer amid the ongoing escalation between Russia and Ukraine, though Germany and France stated they are against stricter Russian sanctions for now, while there were witness reports of a Russian minesweeper ship heading towards the Sea of Azov share by Russia and Ukraine. On the flip side, the Russian Central Bank governor emerged earlier with a hawkish tilt whilst keeping options open for the next meeting. Note, USD/RUB is at 67.4000.

In commodities, Brent (-0.4%) and WTI (-0.1%) are lower heading into the US open after initially trading positive. A larger than expected build in API crude stockpiles of +3.453mln compared to the expected build of +0.8mln had little impact on the price rebound at the time. Additionally, three North Sea forties crude cargoes which were scheduled to load in December have been cancelled due to the temporary closure of the 150,000 BPD capacity Buzzard oilfield. Saudi Energy minister Al Falih stated this morning that Saudi will not and cannot reduce output on their own, and is hopeful that upcoming meetings will result in agreement to stabilise the market. Gold is slightly lower as the dollar continues to firm, although the yellow metal has rebounded from lows of USD 1211.3/oz in the previous session. Separately, copper is higher following a 3-session decline although, gains for the metal have been restricted by ongoing US-China tensions, with the most recent comments coming from White House Economic Advisor Kudlow saying that US President Trump is prepared to raise tariffs if G20 talks are not constructive.

Looking at the day ahead, the focus for the market is likely to be squarely with Fed Chair Powell’s  speech. Away from that we also have the second revision of Q3 GDP in the US where no change from the +3.5% qoq saar estimate is expected. The October advance goods trade balance reading should also be closely watched with the consensus expecting a widening in the deficit to $77bn from $76bn last month. Also due out in the US will be October new home sales and the Richmond Fed manufacturing index print.  It is another busy day for ECB speakers however with Coeure, Guindos and Praet all due to speak. The BoE’s Carney will also speak at the Financial Stability Report press conference this afternoon when we will also get the latest annual bank stress test results.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -0.1%
  • 8:30am: Wholesale Inventories MoM, est. 0.4%, prior 0.4%, Retail Inventories MoM, est. 0.5%, prior 0.1%
  • 8:30am: Advance Goods Trade Balance, est. $77.0b deficit, prior $76.0b deficit, revised $76.3b deficit
  • 8:30am: GDP Annualized QoQ, est. 3.5%, prior 3.5%; Personal Consumption, est. 3.9%, prior 4.0%
  • 8:30am: Core PCE QoQ, est. 1.6%, prior 1.6%
  • 10am: New Home Sales, est. 575,000, prior 553,000
  • 10am: Richmond Fed Manufact. Index, est. 15, prior 15
  • 12pm: Fed’s Powell Speaks to Economic Club of New York

DB's Jim Reid concludes the overnight wrap

One thing I haven’t heard much about this year is a Santa Claus rally but the US has now had two up days in a row for the first time since mid month so maybe Santa is trying to get some momentum going. In fact given the conviction with which markets have moved in recent weeks, yesterday was a actually a rare calmer day with US equities opening lower but floating upward into their close. The S&P 500 ended +0.33% despite opening down -0.66%, while the DOW gained +0.44% and the NASDAQ closed flat. Attention continues to focus on this weekend’s meeting between Presidents Trump and Xi. The White House’s top economic advisor Larry Kudlow confirmed today that the two leaders will have dinner on Saturday night at the G-20 in Buenos Aires. He said that “there is a good possibility that we can make a deal” and “I don’t want to go overboard, but he [Trump] has indicated some optimism.” So hopes are continuing to build, and emerging market equities, which would benefit from a benign trade outcome, outperformed yesterday gaining +0.70%.

Apple continues to struggle and traded -0.22% lower yesterday as concerns continue regarding the company’s demand outlook and possible tariffs on components for their goods. Notably, Microsoft overtook it to become the world’s largest company by market cap again for the first time since October 2003! The last time Microsoft was larger than Apple was back in May 2010 (though at that time, Exxon Mobile was larger than either of the tech giants). Since Apple peaked in early October, it has shed around $300 billion of market cap, while Microsoft has shed ‘only’ $60 billion, or the equivalent of Pakistan’s GDP to the equivalent of Panama’s respectively. So in 7 weeks Apple has lost the entire annual GDP of a country with 197 million people in terms of market cap.

Europe struggled after an early positive open to close slightly lower across the board with the STOXX 600 ending -0.26%. Part of the reason for the dip in Europe seemed to lie with a story in the German business magazine WirtschaftsWoche (WiWo) which reported that President Trump may, as soon as next week, impose tariffs on cars imported into the US. However the details of the story appeared vague with the source also referencing “EU circles,” while the EU later rebutted the story. That said, autos lagged the wider market in the STOXX 600 yesterday with the sector down -2.52% with EU Trade Commissioner Malmstrom also repeating the warning of the risk of US tariffs on cars.

Making much less of impact on markets yesterday than his speech from two weeks ago were the comments from Fed Vice-Chair Clarida. It’s hard to argue that there was much new information for the market with many of his points a rehash from the October speech. Interestingly, there was no mention of financial conditions, global growth, or recent market volatility which is perhaps a touch hawkish at the margin, as it potentially signals the Fed isn’t hugely concerned about recent developments. Also, Clarida had previously outlined both upside and downside risks to the inflation outlook, but yesterday he dropped his reference to the downside scenario. The flip side however was Clarida’s mention that market- and survey-based measures of inflation expectations had slipped and also that, with an uncertain r-star, the Fed should infer its level from incoming market and economic data. Treasuries appeared fairly nonfussed though with 10-year yields moving as much as +1.8bps higher but quickly snapping back before ending the session close to flat at 3.055%. The USD index gained +0.31%. Later in the session, Chicago Fed President Evans highlighted that inflation is at target and said he favours getting policy back to neutral. The market did not react, but his comments are significant as he will be a voting member of the FOMC in 2019. His most recent vote was a dissent against the rate hike in December 2017.

Staying with the Fed, today the baton passes to Fed Chair Powell when he speaks at the Economic Club of New York at 5pm GMT on “The Federal Reserve’s framework for monitoring financial stability.” Our US economists previously highlighted that they expect Powell to reiterate the Fed’s plan to get back to neutral. However, since Powell has previously emphasized that neutral is highly uncertain, they are also watching for any hints that Powell sees recent market developments and/or slower activity in rate sensitive sectors like housing and capex as evidence that neutral could be lower than previously thought.

This morning in Asia markets are following Wall Street’s lead with Nikkei (+0.96%), Hang Seng (+0.91%), Shanghai Comp (+0.86%) and Kospi (+0.30%) all up with a rally largely driven by technology shares. Elsewhere, futures on S&P 500 (+0.03%) are pointing towards a flat start.

Moving on. Yesterday’s slew of data in the US was unlikely to move the dial for policy makers much at the Fed. The S&P CoreLogic National Home Price Index rose 0.33% mom and 5.15% yoy on a seasonally adjusted basis, roughly in line with expectations. The FHFA purchase only house price index rose +0.2%, the third weakest month since January 2015. Higher interest rates and tax changes continue to weigh on the housing sector. On the other hand, consumer confidence and the labour market continue to look strong, with the Conference Board Consumer Confidence index printing at 135.7 as expected, down 2.2pts but near its multi-decade high. The labour market subindex rose to 34.4, a new cycle high.

In other news, the daily Italy update consisted of another comment from the League suggesting that the deficit could be lowered to the 2.2% to 2.3% range, this time from Armando Siri. Reuters also reported that EU government delegates are today expected to back the EC’s disciplinary move against Italy, however a formal disciplinary proceeding may not begin until February. Also out yesterday was an MNI article suggesting that the ECB might be willing to consider OMT as an option for Italy should spreads come under further pressure. The story did appear to be rightly ignored by the market however, especially considering that OMT is conditional on an ESM programme. We are not close to being there yet, even if our head of research David Folkerts-Landau believes that the ESM and structural reforms will need to eventually be negotiated together in a grand bargain to deal with the Italian problem (see the op-ed here from David).

After a good run, BTPs were slightly weaker yesterday with two-year yields closing +3.3bps higher and 10-year yields +2.0bps. As we go to print Italian daily Corriere Della Sera reported PM Conte as saying that dealing with the EU over the budget wont be easy while adding that Italy will push ahead with reforms as social stability is more important for Italy. Elsewhere, the EC VP  Dombrovskis said in an interview with La Stampa that Italy needs a “significant correction” of its budget. Indeed as we’re pressing the send button HB is reporting that the EU will open deficit procedures before Christmas. So the pressure is still high even if the news flow has improved of late.

Over to Brexit, where Prime Minister May continues to try to sell her Brexit Withdrawal Agreement to the public and to lawmakers. The leader of the DUP, Arlene Foster, said yesterday that “as far as I can see, this [deal] is not going through parliament” and the pound dropped -0.73% versus the dollar, as passage looks less and less likely and a hangover from the Trump comments the previous night on it being a better deal for the EU and that it precludes a UK/US free trade deal percolated. Nevertheless, a reminder that we turned bullish on the pound on Monday due to two key factors: first, the Government will allow amendments during the legislation process, and second, Labour has signaled their willingness to work through the amendment channel rather than try to topple the government. Together, these ingredients should enable the ‘soft Brexit’ majority in Parliament to coalesce around a non-disruptive exit plan. Voting on the motion to accept or reject the Brexit deal will start in the House of Commons at 7 p.m. on December 11 but the “Meaningful Vote” debate will start on December 4. There will be five days of 8hrs debate, each led by a different cabinet minister. So we may get an idea of potential amendments from next week.

As far as the day ahead is concerned, as noted earlier the focus for the market is likely to be squarely with Fed Chair Powell’s  speech. Away from that we also have the second revision of Q3 GDP in the US where no change from the +3.5% qoq saar estimate is expected. The October advance goods trade balance reading should also be closely watched with the consensus expecting a widening in the deficit to $77bn from $76bn last month. Also due out in the US will be October new home sales and the Richmond Fed manufacturing index print. This morning in Europe it’s quiet with December consumer confidence in Germany and  the October M3 money supply reading for the Euro Area the only data due. It is another busy day for ECB speakers however with Coeure, Guindos and Praet all due to speak. The BoE’s Carney will also speak at the Financial Stability Report press conference this afternoon when we will also get the latest annual bank stress test results.

Published:11/28/2018 6:19:34 AM
[Markets] Stocks - Dow Closes Higher as Larry Kudlow Fuels Trade Deal Hopes - The Dow closed higher Tuesday as investor concerns over trade appeared to ease after U.S. economic advisor Larry Kudlow offered some hope of a deal with China. Published:11/27/2018 6:29:52 PM
[Markets] The Dow Rose 108 Points Because the Fed Didn’t Spook the Market The market racked up a second consecutive day of gains after weeks of turmoil. The Dow Jones Industrial Average rose to 24,748.73. The Nasdaq Composite inched up 0.01%, to 7082.70. Published:11/27/2018 5:15:55 PM
[Markets] Dow Surges Despite Crude, Credit, Crypto, & Kudlow Chaos

The day started with hopeful headlines about Trump and Xi having a cozy dinner and ended with China's US ambassador warning of "all-out conflict"...


Chinese markets see-sawed once again around unchanged on the week...


Early gains in European stocks faded as EU-Italy tensions rose once again...


Of note overnight was the chaotic spike (and dump) in stock futures on a headline that is a month old...


A roller-coaster day in US equities, but Small Caps were clubbed like a baby seal compared to the rest of the market...(Nasdaq was ramped into the green in the last 30 mins)


It looks like Dow is trying to get back to even with Small Caps on the month...


Futures show the overnight swings best...(again broadly speaking buying panic started as US opened)


GM shares tumbles as Trump threatened to remove all subsidies and erased all of yesterday's gains...


FANG Stocks gave up their gains amid trade tensions...


Credit markets are suffering despite the ongoing drop in VIX... (now where have we seen this before)


With LevLoans collapsing...


And HY Energy bond risk soaring...


Treasury yields ended the day practically unchanged despite some notable intraday gap moves...


Notably, a brief rise in Eurodollar curves after Clarida's hawkish comments was lost as trade concerns re-emerged...Notably there was lots of other Fed speak today and none of it hinted at any dovish tilt to the hawkish Powell rate-hike treajectory...


Inflation breakevens tumbled into the red for 2018, catching down to the collapse in crude...

The Dollar surged once again back up near 2018 highs...


As the USD rallied, offshore Yuan weakened notably against it...well below the Yuan fix


Cryptos were relatively stable for the second day in a row...


Dollar strength sent PMs lower and China tensions did not help copper or crude (until oil was panic bid)...


WTI Crude slumped back to a $50 handle...before being panic bid back above it


Gold broke back below its 50- and 100-DMA...


Finally, we note that much has been made recently of how great the US economy is and how weak China is... For instance:

Kudlow: "Our economy is in good shape, China's is not"

As of this week, that is not true...

Either way - they are all going down the same path unless someone starts printing money again soon...

Published:11/27/2018 3:15:41 PM
[Markets] Dow ends up over 100 points as consumer staples, health-care stocks rise Dow ends up over 100 points as consumer staples, health-care stocks rise Published:11/27/2018 3:15:41 PM
[Markets] US STOCKS SNAPSHOT-Dow, S&P 500 end up after White House adviser's trade comments The S&P 500 and Dow edged higher on Tuesday after White House economic adviser Larry Kudlow said a meeting between President Donald Trump and his Chinese counterpart on Saturday was an opportunity to "turn ... Published:11/27/2018 3:15:41 PM
[Markets] Dow down just 20 points as stock-market indexes mount intraday rebound bid Dow down just 20 points as stock-market indexes mount intraday rebound bid Published:11/27/2018 10:43:22 AM
[Markets] Stocks - Wall Street Falls as Fed’s Clarida Sounds Less Dovish - Wall Street was lower on Tuesday, as market sentiment declined after cautious comments from Federal Reserve Vice Chairman Richard Clarida.The S&P 500 fell 10 points or 0.40% to 2,662.63 as of 9:30 AM ET (14:31 GMT), while the Dow slipped 83 points, or 0.34%, to 24,557.02 and the tech-heavy Nasdaq Composite was down 39 points, or 0.56% to 7,042.18.Comments from Clarida dampened investor sentiment, as he noted that interest rates are closer to neutral. The central bank should take a gradual approach to rising rates based on data, he added. ... Published:11/27/2018 10:43:22 AM
[Markets] Oil and the Broader Market Might Be Dragging Energy ETFs On November 16–23, US equity indexes ended in the red. Last week, the Dow Jones Industrial Average (DIA), the S&P 500 (SPY), and the S&P Mid-Cap 400 (IVOO) fell 4.4%, 3.8%, and 2.2%, respectively. Energy stocks form ~5.2%, 5.9%, and 5.1%, respectively, of these equity indexes. Published:11/27/2018 9:15:28 AM
[Markets] Dow on track for triple-digit loss after Trump remarks stoke U.S.-China trade jitters U.S. stocks fell at the opening bell on Tuesday after President Donald Trump didn't rule out increasing tariffs on Chinese imports from the beginning of 2019. The S&P 500 opened lower by 0.4% to 2,664. The Dow Jones Industrial Average shed 105 points to 24,534. The Nasdaq Composite fell 0.5% to 7,049. Trump's remarks come ahead of his meeting with China's leader Xi Jinping in Bueno Aires for the G-20 summit at the end of the week. If talks fail to yield a deal, Trump said in an interview with the Wall Street Journal that he would go forward with additional tariffs on $267 billion of imports. Published:11/27/2018 8:54:26 AM
[Markets] Trading guru Bollinger: U.S. stock market just flashed not one, but two, buy signals Last week my market-timing system generated two rare buy signals — one on November 21st and one on the 23rd. In that context, it’s worth a close look at the trading system that generated them. When I began my career in technical analysis there was a popular market-timing system that employed the Dow Jones Industrial Average (DJIA) , a set of trading bands, and two market-breadth oscillators. Published:11/27/2018 4:42:04 AM
[Markets] United Technologies stock rises on report of likely breakup United Technologies Corp. shares rose in the extended session Monday following a report that the industrial conglomerate is on track to divide itself now that its acquisition of Rockwell Collins Inc. is clear. United Technologies shares advanced 2.3% after hours, following a 0.8% decline to close the regular session at $127.98. Late Monday, The Wall Street Journal reported that United Technologies will divide itself into three separate companies now that Chinese regulators have signed off on the company's acquisition of Rockwell Collins, which was reported on Friday. Any breakup of United Technologies will likely affect the makeup of the Dow Jones Industrial Average , which includes the company as a component. Published:11/26/2018 5:39:41 PM
[Markets] Stocks - Dow Rallies Triple Digits as Amazon Soars on Cyber Monday Optimism - The Dow made a bullish start to the week Monday, led by Amazon as investors bet Cyber Monday would rack up strong gains for retailers. Published:11/26/2018 5:11:55 PM
[Markets] Dow finishes up over 350 points in best day since Nov. 7 Dow finishes up over 350 points in best day since Nov. 7 Published:11/26/2018 3:08:20 PM
[Markets] Dow rises 350 points after global markets, crude oil rally Stocks rallied Monday, following the worst Thanksgiving-week performance in seven years, as oil prices and global equities gained ground, and as U.S. shoppers begin to take advantage of deals offered by retailers on Cyber Monday. The Dow Jones Industrial Average (DJIA) surged 366 points, or 1.5%, to 24,650, while the S&P 500 index (SPX) rose 31.22 points, or 1.4%, to 2,668. Published:11/26/2018 10:46:07 AM
[Markets] The stock market usually bounces from Thanksgiving to Christmas The Dow has averaged a gain of 1.93 percent in that time period since 1990, while the S&P 500 and Nasdaq gain 1.77 and 1.66 percent, respectively. The Russell has outperformed during the holidays, rising on average 2.46 percent. Investors could use gains like these right now as stocks have struggled amid a correction in popular tech stocks and worries of a global economic slowdown. Published:11/26/2018 9:58:34 AM
[Markets] Dow rises 300 points after global markets, crude oil rally Stock rose at the start of trade, following the worst Thanksgiving-week performance in seven years, as oil prices and global equities rally, and as U.S. shoppers begin to take advantage of deals offered by retailers on Cyber Monday. The Dow Jones Industrial Average (DJIA) surged 331 points, or 1.4%, to 24,614, while the S&P 500 index (SPX) rose 31.11 points, or 1.2%, to 2,664. On Friday, the Dow Jones Industrial Average fell 178.74 points, or 0.7%, to 24,285.95, the S&P 500 index off 17.37 points, or 0.7%, at 2,632.56, while the Nasdaq Composite Index retreated 33.27 points to 6,938.98, a decline of 0.5%. Published:11/26/2018 9:10:29 AM
[Markets] Wall Street opens higher as retail, tech stocks gain (Reuters) - U.S. stocks opened higher on Monday, as optimism of a robust holiday season powered gains in shares of retailers and technology stocks bounced back after a brutal sell-off last week. The Dow ... Published:11/26/2018 8:41:11 AM
[Markets] Stock futures point to a rebound as global markets, crude oil rally A rebound for crude prices is feeding through to gains for U.S. stock futures, with Dow futures up nearly 300 points. Published:11/26/2018 8:07:36 AM
[Markets] Dow set for a triple-digit rise at the open after Black Friday losses Monday is a quiet earnings day, with fashion retailer Buckle set to report results after the bell. In economic data, Chicago Federal Reserve national activity index numbers are due at 8:30 a.m. ET, while Dallas Fed manufacturing survey data are due to be released at 10:30 a.m. ET. Dow Jones Industrial Average futures were up 288 points, indicating a higher open of 272 points, while S&P 500 and Nasdaq futures were also in the black. Published:11/26/2018 4:08:41 AM
[Markets] Bear Trap?

Authored by Sven Henrich via,

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

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

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

Heck they have even taken over the malls

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

In lieu of that I have a question:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let me show you a few to consider.

Equal weight, $XVG:

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

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

Why? Because there are positive divergences in the internals.

Example: $USHL:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Add sentiment to the equation…

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

Next week:

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

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

Remember the risk zone:

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

However also note the technical backdrop I outlined on twitter:

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

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

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

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

*  *  *

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Published:11/25/2018 2:32:47 PM
[Markets] EU Chair Donald Tusk recommends Brexit deal approval: Dow Jones EU Chair Donald Tusk recommends Brexit deal approval: Dow Jones Published:11/24/2018 9:01:36 AM
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