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[Markets] Dow surges more than 450 points and is poised for best day in about 8 months The Dow Jones Industrial Average was trading sharply higher midday Tuesday, putting blue chips on track to book the best one-day gain since early February. The Dow was up about 450 points, or 1.8%, at 25,700. That gain was partly on the back of a surge in shares of component UnitedHealth Group Inc., which was delivering a roughly 70-point jolt to the price-weighted equity gauge. Share gains for UnitedHealth come after the health-care company raised its full-year earnings outlook and said it continues to see growth in health-care plan membership and premiums. Meanwhile, the S&P 500 index was climbing 1.8% at 2,800 and the Nasdaq Composite Index advanced by 2.4% to 7,610. Wall Street investors appear to be focusing upbeat earnings, including those from Goldman Sachs Group Inc. , Johnson & Johnson and Morgan Stanley . Published:10/16/2018 1:12:49 PM
[Markets] Dow rallies by 370 points and is poised for best day in about 2 months as earnings shine The Dow Jones Industrial Average was trading sharply higher midday Tuesday, putting blue chips on track to book the best one-day gain since mid August. The Dow was up about 370 points, or 1.5%, at 25,620. That gain was partly on the back of a surge in shares of component UnitedHealth Group Inc., which was delivering a roughly 64-point jolt to the price-weighted equity gauge. Share gains for UnitedHealth come after the health-care company raised its full-year earnings outlook and said it continues to see growth in health-care plan membership and premiums. Meanwhile, the S&P 500 index was climbing 1.5% at 2,792 and the Nasdaq Composite Index advanced by 2% to 7,579. Wall Street investors appear to be focusing upbeat earnings, including those from Goldman Sachs Group Inc. , Johnson & Johnson and Morgan Stanley . Published:10/16/2018 11:11:26 AM
[Markets] Dow on pace for best day in about two months with 350-point surge The Dow Jones Industrial Average was trading sharply higher in late-morning action Tuesday, putting blue chips on track to book the best one-day gain since mid August. The Dow was up about 350 points, or 1.4%, at 25,600. That gain was partly on the back of a surge in shares of component UnitedHealth Group Inc. , which was delivering a roughly 64-point jolt to the price-weighted equity gauge. Share gains for UnitedHealth come after the health-care company raised its full-year earnings outlook and said it continues to see growth in health-care plan membership and premiums. Meanwhile, the S&P 500 index was climbing 1.4% at 2,788 and the Nasdaq Composite Index advanced by 1.7%. Wall Street investors appear to be focusing upbeat earnings, including those from Goldman Sachs Group Inc. , Johnson & Johnson and Morgan Stanley . Published:10/16/2018 10:41:32 AM
[Markets] Dow surges 330 points, on pace for best day in about two months The Dow Jones Industrial Average was trading sharply higher in late-morning action Tuesday, putting blue chips on track to book the best one-day gain since mid August. The Dow was up about 330 points, or 1.3%, at 25,579. That gain was partly on the back of a surge in shares of component UnitedHealth Group Inc. , which was delivering a roughly 64-point jolt to the price-weighted equity gauge. Share gains for UnitedHealth come after the health-care company raised its full-year earnings outlook and said it continues to see growth in health-care plan membership and premiums. Meanwhile, the S&P 500 index was climbing 1.2% at 2,784 and the Nasdaq Composite Index advanced by 1.5%. Wall Street investors appear to be focusing upbeat earnings, including those from Goldman Sachs Group Inc. , Johnson & Johnson and Morgan Stanley . Published:10/16/2018 10:09:31 AM
[Markets] Dow Surges as Strong Earnings Push the Blue-Chip Index Higher The Dow Jones Industrial Average rose sharply on Tuesday. Click here to register for a free online video in which TheStreet's retirement expert Robert Powell and an all-star panel run down all you need to know. Published:10/16/2018 9:10:19 AM
[Markets] Dow's earnings reporters providing a 92-point boost to futures' rally Of the 30 Dow Jones Industrial Average components, 29 are trading higher in the premarket, with the three that reported third-quarter earnings accounting for nearly a half of the gains in Dow futures . Of the other reporters, shares of UnitedHealth Group Inc. climbed 3.2%, Goldman Sachs Group Inc. rose 2.2% and Johnson & Johnson gained 0.4%. The stocks' price gains are adding about a combined 92 points to the Dow's price, and futures are up 227 points. The most active Dow stock was Apple Inc.'s , which rose 0.9%. The lone Dow decliner Coca-Cola Co.'s stock , which lost 0.6%. Published:10/16/2018 8:41:14 AM
[Markets] Companies releasing earnings reports Tuesday account for half of early Dow surge Companies releasing earnings reports Tuesday account for half of early Dow surge Published:10/16/2018 8:41:14 AM
[Markets] Morgan Stanley Gains, Walmart Advances as Dow Jumps STOCKSTOWATCHTODAY BLOG Good Times. The Dow Jones Industrial Average was heading higher Tuesday after closing in the red on Monday. Attention will be on corporate earnings, with (GS) Morgan Stanley, and (JNJ) among the companies set to report. Published:10/16/2018 7:37:28 AM
[Markets] U.S. Stocks Set For Solid Open as Q3 Earnings Impress; Goldman Boosts Dow China stocks fall into bear market territory ahead of Friday's Q3 GDP release amid persist concern that its U.S. trade war will harm second half growth. U.S. stocks called higher, with the Dow slated for a 100 point gains thanks to solid earnings from Morgan Stanley, Goldman Sachs and Johnson & Johnson. Published:10/16/2018 7:12:43 AM
[Markets] Johnson & Johnson reports Q3 profit, revenue beats Johnson & Johnson reported third-quarter profit and revenue beats early Tuesday. Earnings for the latest quarter rose to $3.93 billion, or $1.44 per share, after $3.76 billion, or $1.37 per share in the year-earlier period. Adjusted earnings per share were $2.05, above the FactSet consensus of $2.03. Revenue rose to $20.3 billion from $19.7 billion, above the FactSet consensus of $20.1 billion. Sales for the company's consumer and pharmaceutical segments beat the FactSet consensus, while sales for its medical device unit missed. The company also raised its 2018 revenue guidance from between $80.5 billion to $81.3 billion to a range of $81 billion to $81.4 billion, in line with the FactSet consensus of $81.2 billion. Johnson & Johnson also now expects 2018 adjusted EPS of $8.13 to $8.18, an increase from previous guidance of $8.07 to $8.17 and in line with the FactSet consensus of $8.14. Company shares rose a scant 0.1% in premarket trade. Shares have surged 7.4% over the last three months, compared with a 1.7% decline in the S&P 500 and a 0.7% rise in the Dow Jones Industrial Average . Published:10/16/2018 6:22:29 AM
[Markets] Global Stocks Edge Cautiously Higher; Saudi Tensions, China Weakness, Cap Gains China stocks fall into bear market territory ahead of Friday's Q3 GDP release amid persist concern that its U.S. trade war will harm second half growth. U.S. stocks called higher, with the Dow slated for a 30 point bump, ahead of earnings from Morgan Stanley, Goldman Sachs, Johnson & Johnson and IBM. Published:10/16/2018 2:36:13 AM
[Markets] Chris Wood: The Biggest Risk To The World Economy Is Not What You Think

Authored by Chris Wood via Grizzle.com,

There have recently been some dramatic moves in America’s bond market where the US Treasury bond market broke through a 37-year trend line on the upside in yield terms when the 10-year Treasury bond yield rose above the 3% level (see following chart). It is now 3.16%.

US 10-YEAR TREASURY BOND YIELD (LOG SCALE)

Source: Bloomberg

The ostensible trigger for the bond sell-off was a strong non-manufacturing ISM number which rose to the highest level since 1997.

But whatever the precise catalyst, the bond sell-off is potentially of enormous significance since the breaking of a trend line of declining Treasury bond yields in place since 1981 is, on the face of it, marking the end of an extremely benign era for financial assets.

THE STEEPENING US YIELD CURVE POINTS TO FED RATE HIKES

From a more near-term perspective, the renewed steepening of the US yield curve also raises the potential for a greater number of Fed rate hikes than currently envisaged by the markets. The spread between the 10-year and 2-year Treasury bond yields has risen from a recent low of 19bp reached in late August to 31bp (see following chart). That, in turn, raises the probability of more casualties in Asia and emerging markets from the current Fed tightening cycle. Oil’s continuing strength also means that, in many respects, Asian economies are more vulnerable as oil consumers than many other parts of the emerging world.

US YIELD CURVE (10Y-2Y TREASURY BOND YIELD SPREAD)

Source: Bloomberg

DECLINING MONEY SUPPLY

The impact of this US monetary tightening, which combines both rising interest rates and ongoing Federal Reserve balance sheet contraction, can be seen clearly in declining money-supply growth in America.

US M2 growth has slowed from 7.5%YoY in October 2016 to 4%YoY in September (see following chart). Still, there is considerable evidence that the squeeze on US-dollar funding has been much greater offshore than in America because of another bullish consequence of tax reform for American corporates and indeed for the American economy and stock market this year. That is the increased incentive provided by the Trump administration’s tax reform to repatriate the estimated US$3 trillion held by US corporates offshore.

US M2 GROWTH

Source: Federal Reserve

There is no precise way of measuring this inflow, but the data suggests significant repatriation has taken place this year. The latest American balance of payments data provides some interesting insight on this point. It shows that US corporates’ direct investment dividend income receipts, which measure earnings of foreign affiliates repatriated to the parent company in America in the form of dividends, surged from US$82 billion in 2H17 to US$464 billion in 1H18.

While reinvested earnings in foreign affiliates declined from US$167 billion in 2H17 to a negative US$210 billion in 1H18, meaning repatriation of dividends has exceeded current-period earnings (see following chart). To make the repatriation point crystal clear, the Bureau of Economic Analysis stated in its balance of payments announcement in September:

The large magnitudes for dividends and withdrawals and the negative reinvested earnings reflect the repatriation of accumulated earnings by foreign affiliates of US multinational enterprises to their parent companies in the United States in response to the 2017 Tax Cuts and Jobs Act (TCJA).

US DIRECT INVESTMENT INCOME RECEIPTS: DIVIDENDS AND REINVESTED EARNINGS

Source: US Bureau of Economic Analysis – International Transactions Accounts

REPATRIATION AND SHARE BUYBACKS

The same repatriation effect is also suggested by the decline in Treasury bond holdings in low-tax jurisdictions such as Ireland, Switzerland, the Netherlands, Bermuda, and Bahamas. Thus, Treasury securities holdings in these jurisdictions have declined by US$52 billion in the first seven months of this year, according to the Treasury Department’s Treasury International Capital (TIC) System data (see following chart).

Repatriation is also suggested by the continuing surge in American corporates’ share buybacks which some Wall Street pundits are now suggesting could reach as much as US$1 trillion this year. S&P500 companies’ actual share buybacks surged by 59%YoY to a record US$190.6 billion in 2Q18, following US$189 billion of buybacks in 1Q18 (see following chart).

HOLDINGS OF US TREASURY SECURITIES BY LOW TAX JURISDICTIONS

Note: Include Ireland, Switzerland, the Netherlands, Bermuda and Bahamas. Source: US Treasury – Treasury International Capital (TIC) System

S&P500 SHARE BUYBACKS

Source: S&P Dow Jones Indices

So far the market reaction to this US monetary tightening cycle has been classic in the sense that the fringe areas have succumbed first, starting with cryptocurrencies and then moving into emerging markets and Asia. The obvious risk at this juncture, with the Fed still committed to tightening and with money markets still assuming 75bp more of rate hikes in this cycle, is that the American stock market looks increasingly like the “last man standing”.

And indeed it has now begun to correct, with the S&P500 declining by 7.2% from its peak as of 11 October (see following chart). Certainly American equity valuations are the highest among major regions in the world, though forward multiples have reduced from last year as a result of the tax-driven earnings surge. The S&P500 12-month forward PE has declined from a peak of 18.8x in January to 16x (see following chart).

S&P500

Source: Bloomberg

S&P500 12-MONTH FORWARD PE

Source: Datastream, IBES

THE BOTTOM LINE FOR THE US ECONOMY

The issue now remains whether US cyclical momentum, in terms of both earnings and GDP growth, is peaking. The base case here remains that cyclical momentum has probably peaked, but that America is more likely to slow back to the trend real GDP growth rate of 2.2% prevailing since 2009 prior to the tax cut than enter an outright recession. And that any such renewed slowdown is likely to lead to a stepped-up effort by Donald Trump to implement his infrastructure agenda in the second half of his administration; though the practical ability to do that will be influenced significantly by the outcome of the November mid-term elections.

Meanwhile, America is unlikely to face an outright recession, as opposed to a slowdown to trend growth, without the negative catalyst of a financial shock. And this financial shock will need to be reflected in a surge in credit spreads. In this respect, anyone investing in equities by tracking money supply growth will have sold too early, since US money supply measures have been trending down since 4Q16. Rising credit spreads, however, are the signal that monetary tightening is hitting the real world and that it has become time to sell. And the more the Fed tightens, the bigger the risk of such a shock.

This raises the question of where the private-sector borrowing has been in this cycle. The answer at the macro level is that the US corporate sector has increased debt while the household sector has reduced it, relative to GDP. Thus, nonfinancial corporate debt as a percentage of GDP has risen from a low of 39.7% at the end of 2010 to a record 46.2% in 2Q18, while the household debt to GDP ratio has declined from a peak of 98.4% in 1Q08 to 75.4% in 2Q18, the lowest level since 2Q02 (see following chart).

US NON-FINANCIAL CORPORATE DEBT AND HOUSEHOLD DEBT AS % OF GDP

Source: CLSA, Bureau of Economic Analysis, Federal Reserve

It is also the case that much of this corporate debt has been extended in this cycle outside the highly regulated banking system, as can be seen in the continuing relatively sluggish growth in American banks’ commercial and industrial (C&I) loans.

C&I loan growth was 5.2%YoY in early October. Still, that does not mean that there has been no borrowing. There are estimates of around US$3 trillion of speculative-grade floating rate corporate debt in America of which over US$1 trillion are so-called “leveraged loans”, many of them “covenant-lite” loans.

Many of these loans have been pooled together in tranches and bought by so-called credit funds, which are the fixed-income appendage of the booming private-equity fund industry.

US BANKS’ COMMERCIAL AND INDUSTRIAL (C&I) LOAN GROWTH

Source: Federal Reserve

A problem in the above area or another one is the sort of shock that can trigger a risk-off move in markets and a Fed U-turn, in terms of monetary policy. This is because surging credit spreads raise the risk of an asset deflation cycle since they indicate forced deleveraging. And it is a decline in asset prices, not conventional “overheating” concerns, which is the biggest risk to the American economy and indeed the world economy, given that asset inflation has been the prime driver of growth in the developed world since the global financial crisis 10 years ago on the back of such a long period of ultra-easy monetary policy.

Published:10/15/2018 8:14:48 PM
[Markets] Dow Drops 89 Points as Early Gains Do the Big Fade The Dow Jones Industrial Average closed lower Monday—where it joined the Nasdaq and S&P 500—despite spending most of the day in positive territory. The Dow Jones Industrial Average lost 89.44 points, or 0.4%, to 25,250.55 on Monday, while the S&P 500 receded 0.6% to 2750.79, and the Nasdaq Composite dropped 0.9% to 7430.74. The numbers have been strong so far: As of last Friday, 29 S&P 500 companies have reported their third-quarter results, and 79% of them have topped analyst earnings estimates, according to Bank of America Merrill Lynch. Published:10/15/2018 4:34:49 PM
[Markets] Gold Extends Gains As Bonds, Stocks, Dollar Slide

Sorry...

China started off hopefully and ended ugly overnight...

But Europe managed gains, riding the coat-tails of US pre-market algos...

Saudi stocks plummeted to 6-month lows...

And while US equities were down overnight, they ramped into the US open and then chopped up and down - generally higher for Dow and S&P and lower for Nasdaq - all day... until the Saudi headlines hit and sparked selling and an ugly close...

 

Trannies and Small Caps outperformed as Nasdaq notably lagged...ugly close...

 

The S&P was glued at its 200DMA all day, The Dow could not hold above its 100DMA, Nasdaq was unable to break above it 200DMA and Small Caps continue to be ugly...

 

VIX dipped a little today at front-end (remains above 20) but the term structure remains inverted...

 

The spike in volatility has been mostly in equity while other assets displayed a smaller increase...

 

Stocks continued to catch down to global central bank balance sheets, EM risk, and global systemically important banks...

 

Treasury yields were incredibly quiet today ending the day practically unchanged across the curve...

 

10Y Yields traded in an exceptionally tight 2bp range all day...

 

Among the lowest range days of the year...

 

But there was on bond that moved...

 

While the dollar drifted to 2-week lows... (the dollar has now flip-flopped higher and lower for 8 straight days)

 

Offshore Yuan trod water, finding upside resistance at the Yuan Fix...

 

The Turkish Lira rose for the 7th straight day...as Pastor Brunson arrived back on American soil.

 

Cryptos had a sudden spike overnight amid selling in Tether and remain marginally higher from Friday's close...

 

Despite dollar weakness (and Saudi threats), crude and copper slipped lower on the day and PMs higher...

 

WTI Crude spiked at the open after the Saudi threat op-eds but faded all day and dipped when the CNN headlines hit late on...

 

Gold and Silver were bid during the Asia session and started to fade as Europe opened...

 

Gold tested its 100DMA (briefly)...

And Silver closed above its 50DMA for the first time since June...

And as a reminder, specs are about as short gold and silver as they have ever been (as of last Wednesday)...

 

Fear and Greed "off the lows" but still at "extreme fear"...

Finally we note that today's disappointing retail sales data sent US "hard" economic data reeling back near one-year lows...

And as Gluskin Sheff's David Rosenberg notes, don't fall for the "storm" excuse...

Published:10/15/2018 3:09:16 PM
[Markets] Dow finishes down nearly 90 points as tech sector pressures stocks Dow finishes down nearly 90 points as tech sector pressures stocks Published:10/15/2018 3:09:16 PM
[Markets] "Bubble-Vision" Has Returned In Spades...Right On Cue

Authored by Mark St.Cyr,

They say “History doesn’t repeat, but it sure does rhyme.” Today, nowhere is there a singing chorus belting out remakes of the once tried and true classics from the forgotten “hits-ville” era of bull markets past than what I witnessed across what I refer to as the mainstream business/financial media.

I perused just three of the major outlets (e.g., CNBC™, Fox Business™, Bloomberg™) over this past week, not to gain any insight into the current market gyrations, but rather to see how it was being reported. I was not disappointed in entertainment value, however, the flip side of that insinuates that those that are actually looking for insight (actually, the few) are once again being told and sold the most vapid, vacant, if not deplorable analysis for what is currently taking place in the markets today. Then again – this is precisely the same styled tunes they were spinning in 2007/08 – 1999/2000 – and 1987.

The “markets” may have recovered since then, but the reputation for insight across these platforms has not, as I’ll explain.

Now to be fair, there are many people who work at these outlets which I have both admiration, as well as respect for their insights and analysis. But you rarely, if ever, see them on camera or mic. What I’m speaking to here is what I was watching across the television side which is where most, if not all, retail consumers of this type of information get their fix. And that fix is anything but.

These outlets seem to have morphed into some quasi rendition, or cross between “The Voice,” “Do You Think You Can Dance,” and the “Gong Show” with each next-in-rotation-fund-manager auditioning for the judges/hosts in hopes they’ll be called back and a ratings hit.

If there’s no contestant available (because, they may be fielding so many incoming calls from now frightened clients) fear not. The hosts of different shows will pull together in a programming crossover styled “panel of experts” and tell you what they think. Hint: Beats the Comedy Central® offerings every time.

Let me start with CNBC earlier during the week when none other than the buzzer-king, James Cramer gave his song and dance as to why he would not be selling during the nascent sell off. When the Dow Jones Industrial Average™ was at around the mid 400’s during the market rout Mr. Cramer gave his reasoning as to why he wouldn’t be a seller. Hint: The “markets” would go on to fall  – another –  1000+ before recovering slightly.

I’m just going to mention two (although, in my opinion, is all one needs to know) of the most egregious examples given. As always, you should watch the clip and come to your own conclusions, but here’s mine.

First. A question was raised about whether or not this will impact housing and more, which was much of the catalyst for the last panic. The answer came back with some convoluted reasoning mixed in with a bit of whimsical expectations because, “FICO™ scores are much higher today…” As if this would be a reason why banks will still lend in an interest raising environment, coupled with an emerging pricing slump and increasing inventory as mortgage origination continues to fall and re-fi’s fell just this July to 20-year lows. (By the way, that was a report via CNBC, I guess they don’t read their own news, but I digress.)

The other “insight” Mr. Cramer gave was that he was pushing back against a circulating meme that this was ominously reminiscent of 1987. He then went on to give the reasons why his viewpoint was more valid than most proposing this, because, he was all “in cash” during that period so he understood what true scares were when they occurred and this was not that.

Fair point, but I was around in 2008 and actively trading in the markets and remember clearly his calls for calm and more including his now infamous “Bear Stearns” advice implying people’s money was safe to which Jon Stewart of “The Daily Show” mercilessly crucified him on his show. Mr. Cramer’s reputation (along with the networks) never recovered. That is, unless you watch CNBC. For they, much like many of their hosts, seem to have forgotten the financial crisis. Hint: Viewers have not. And that’s why they haven’t returned to these shows either. Just look at the ratings for clues.

In 2017 alone their viewership dropped to 22 year lows. And yet, if you listened to many a so-called “expert” such as this from 2009 you would have to conclude it was all about a “bull or bear market” nothing more. Hint: it wasn’t, and the-proof-is-in-the-pudding as they say.

Then there was a segment I watched on Bloomberg where the interviewed was none other than Brian Belski, the only investing strategist, in my opinion, that can make both Tom Lee and Tony Dwyer appear risk averse.

During his well crafted reasoning on why this time (as always seems to be the case) was the best time to own stocks for the long haul, he made a statement that falls directly into the reasoning for why this time is both different, as well as not, and it is this: He made the case that in his 30 years of being in the financial field he has never seen a market made up of more “renters” than he sees today. i.e., No one’s buying for the long haul, it’s more about momentum.

I have only one thing to say too that, in my best Gomer Pyle impersonation Well “Go-o-o-llee!” Ya think? And why does one think that might be, I’ll ask? Hint: Starts with Federal, ends with Reserve, equalling fast money, momentum chasing. Period. Yes Mr. Belski, this ain’t your mom and pop’s buying for the long haul market. Welcome to reality.

As vacant as most of the above was there was a complete knock down drag out of just who could out do the other as to keep at bay any assailing of the “BTFD” narrative and reasoning (buy the f’n dip), for that was what transpired on Fox’s “Varney & Co.” between the hosts and guests which included David Stockman.

Here, in my humble opinion, was a rendition of “The Gong Show.”

I have been asked many times why I won’t go on any of these programs and this example exemplifies precisely why. (along with I have no inkling to travel to N.Y.C.)

Mr. Stockman was a guest along with Jonathan Golub to discuss the recent gyrations. Let’s just say there were more dance moves and gyrations trying to spin the “market” news (aka music) of the day that would make a game show contestant jealous.

The discussion (and that’s being kind) morphed into a sheer free-for-all when Mr. Stockman tried to give his reasonings to counterpoint much of what was being proclaimed. It was, again, in my humble opinion, sheer financial comic relief. However, my sympathies for trying goes out to Mr. Stockman.

I wish it could stand alone for its hilarity rather, than the truly scary nature it portends for many going forward. Halloween may have a more frightening foe if what may come to pass actually does, because it is clear: the horrors of financial panics past have been relegated to the Betamax® section for market analysis and B-roll footage. i.e., “Beta…what?”

Here’s just a few of the highlights, I would advise one to watch the clip for themselves, rather than just take my words:

During the segment the overall argument is that this is nothing more than another “BTFD” moment as argued via Mr. Golub. Mr. Stockman, of course, would have none of it and was trying to argue why. And there is the key word in that sentence: trying. Because with every counter point Mr. Stockman tried to make, it was a three against one free for all of vapid reasonings against. Here are a few, all are paraphrased:

Golub: “There was no catalyst for this sell off therefore it is a buying opportunity.”

Sorry, there was a catalyst, it’s called The Federal Reserve. And when Mr. Powell confirmed not only that they were going to continue raising rates, but in conjunction left for conclusion that the balance sheet roll-off was going to be allowed not just to continue, but to accelerate to the now assumed $50Billion per month level – the markets began selling off in unison.

Show hosts: “You know David you’ve been saying this for a long time and if people listened they would not of participated in this rally!”

Again, I’m sorry, but that same type of argument was said from about 2 years leading into then right after the top of the dot-com peak. Nearly a decade later all those that participated in that “great rally” found themselves right where it all began in what seemed like no time at all. Rhymes with dot-com crash aka “The Greenspan era.”

Then, it all happened again. Only this time it was with Bernanke (are you seeing a pattern here?) where trying to correct the prior policies with tightening into weakness brought on the next crisis where that old “buy and hold” saw allowed many a holders account to be sawn leaving the equivalent of only a stump of what was then a forest of burgeoning equities and profits.

Some weren’t so lucky as many a “stump” was removed as the markets plunged lower than the original dot-com crash the preceded it.

And here we are today in the midst of not just another Fed. blown bubble, but one where all central banks followed and are still following the Fed’s lead. And now, once again, the Fed. is tightening into weakness, along with shrinking its balance sheet that equivocates to about the same, in-kind, of additional hiking measures. i.e., a 1/4 point hike, along with the continuing reductions of balance sheet normalization equates to about the same as tightening by 1/2. So in-effect and in practice the rate cycle is the equivalent of double the stated raises.

Yet, the coup de grâce for any hopes of insight came when the questions began revolving around the answer to when Mr. Stockman had sold his holdings connected with the markets. It was at that point I knew that my decision years back to no longer watch these shows for any insight was well founded. The reasoning was simple: What is the point of knowing when Mr. Stockman sold out? Does that further the conversation for insightful dialogue or, does it just make for some seemingly vacuous “got-cha” type moment for television?

Let me make this point: One could easily have disgorged all of ones holdings of stocks during the initial downdraft of 2007, which in retrospect, we now appear to be mimicking the same gyrations – and you would have not needed to experience any losses or longing look at “missed gains” till some seven years later in early 2013 when the markets first eclipsed that initial panic stages. (Don’t take my word for it, just go look at any chart via a monthly perspective.)

Just two years later in 2015 the markets were rolling over and had dipped so much that the difference between initial sell off of 2007 and the bottoming in 2015 gains were considered “minimal” in comparison to the then risks in the markets. i.e., Then Chair Janet Yellen, in no uncertain terms, flipped on her stance of running a “hot monetary policy” to a tightening via any and all short-hairs with the election of Mr. Trump.

Only the front running of the residual “hot money” contained within the markets via the expansion of the balance sheet, along with the tax policies and repatriation laws passed to allow for buy backs and more, did the markets zoom higher. i.e. That fuel has now been expended.

To reiterate: the moment, repeat, the moment the market got its first glimpse that indeed under the new Fed Chair Powell that the balance sheet would indeed begin (aka QT quantitative tightening) so too did the market react, and just like this recent sell off, caused the now moniker’d “February Scare” and now this possible expanding rout.

Just like myself, along with Mr. Stockman and a few others said it would.

There, just like today, was no reason or indicator seen for the sell off. That is: only if you don’t consider this as a market reaction to the only thing that has mattered for the last 10 years aka Federal Reserve. If you don’t – then of course you don’t see anything, which is precisely my underlying point.

Mr. Stockman is seen during the end of this interview basically throwing up his hands in disgust, for there truly was no discussion taking place. It was all just about some form of “See, we’re right and you’re wrong!” i.e., You’ve been wrong and we have this wonderful rally as to prove it too you and everyone else.”

Sounds pretty convincing until begins employing reasoned arguments to the contrary. That’s why Mr. Stockman, I assume, threw his hands in the air, i.e., There is no reasoning going on here, just narrative pushing.

Here’s just one thing to contemplate I’ll leave you with dear reader as you take what I’ve illustrated above:

If for whatever the reasoning this “market” suddenly sells off mimicking 2007-09 fashion as it seems to be giving clues of doing just that (along with, if we sold off in what is purely an acceptable, and within reasoning, to the next purely text book example or conclusion or technical area of support, which is somewhere in the area from where the now moniker’d “Trump Bump” began, circa Nov. 2016); how do you believe not just the U.S., but in unison with all the other markets globally that have been propelled on central bank stimulus – will react?

That’s the question that is not being asked across all of these platforms. Which is why I (and what seems is most others) can no longer tune in.

Actually, what may be worse is that they think it can’t ever happen again, because: “It’s different this time.”

All I’ll say to that is: “Of course it is, that’s why the old saw uses the term ‘rhyme.'”

Think about it.

Published:10/15/2018 1:03:16 PM
[Markets] NewsWatch: The stock market’s nightmare may be far from over After a nail-biting week with the Dow Jones Industrial Average sinking nearly 1,400 points over two sessions, the jury is still out on whether the selloff signals a fundamental shift in the stock market or a brief episodic correction. But one thing is certain, investors should brace for more drama in the coming days as corporate earnings, rising interest rates and economic data all converge for a volatile mix of angst-ridden trading.
Published:10/15/2018 11:04:42 AM
[Markets] Dow Futures Steady;Saudi Tensions, Trade Concerns Keep Global Investors Cautious Global stocks weaken as geopolitical and trade tensions keep investors cautious following last week's selling on Wall Street. Saudi Arabia has vowed to react to any punishment meted out following the disappearance of prominent journalist Jamal Khashoggi in Turkey last week. U.S. stocks set for more red at the open, with the Dow indicated 20 points lower at the bell after better-than-expected third quarter earnings from Bank of America. Published:10/15/2018 8:04:17 AM
[Markets] NewsWatch: The stock market’s nightmare may be far from over After a nail-biting week with the Dow Jones Industrial Average sinking nearly 1,400 points over two sessions, the jury is still out on whether the selloff signals a fundamental shift in the stock market or a brief episodic correction. But one thing is certain, investors should brace for more drama in the coming days as corporate earnings, rising interest rates and economic data all converge for a volatile mix of angst-ridden trading.
Published:10/15/2018 8:04:16 AM
[Markets] Bank of America Rises, Sears Slumps as Dow Slips STOCKSTOWATCHTODAY BLOG Not Too Bad. The Dow Jones Industrial Average was heading lower Monday morning, following a nerve-racking week, but the damage isn’t too great…yet. Trade with China is still an issue, and fears about higher oil prices have been added to the mix due to tensions between the U. Published:10/15/2018 7:33:25 AM
[Markets] Dow Drops 79 Points and Oil Is the New Fear STOCKSTOWATCHTODAY BLOG 6:23 a.m. A bad week ended with a good day. Too bad the good times couldn’t last. S&P 500 futures have fallen 0.4%, while Dow Jones Industrial Average futures have declined 79 points, or 0. Published:10/15/2018 6:00:28 AM
[Markets] Global Market Rout Returns As Futures Slide, China Tumbles To 4 Year Low

Last week's global stock rout returned despite Friday's tentative bounce, as the selloff resumed in Asia with China tumbling 1.5%, closing at a fresh 4 year low, dragging European shares lower with S&P futures sliding 0.5% and Nasdaq futs down -0.8% on Monday, as a new diplomatic crisis between the US and Saudi Arabia added to a list of investor concerns and drove up oil prices. Safe havens bounced, led by Gold with Treasuries and the yen also rising.

“The breakdown in Brexit talks, the disappearance of dissident Saudi journalist Jamal Khashoggi, the demise of the CSU in Bavarian elections, the impasse over Italy’s budget and the worried tone coming from the IMF/World Bank meeting in Bali all combine to give financial markets an uncomfortable feel this morning,” according to SocGen FX strategist Kit Juckes.

A renewed threat by Trump to impose more sanctions on Beijing overpowered encouraging words from China’s securities regulator, accelerating the $3 trillion rout in China's stock market, while evidence of weakening domestic demand added to concern about the trade war with the U.S. The Shanghai Composite Index fell 1.5%, closing at session lows and the lowest level in the index since November 2014 following a weekend of warnings on global economic fragility from finance chiefs meeting at an annual IMF gathering.

Over the weekend, President Trump threatened to impose another round of tariffs on China in an interview with CBS’s “60 Minutes” that aired Sunday. When asked whether he wants to push China’s economy into a depression, Trump said “no.” Also over the weekend, at the IMF annual meetings in Bali, finance officials weighed tremors rattling the global economy, from stock sell-offs to trade concerns and rising U.S. rates.

The Shanghai Composite has slumped 19% in the past six months and is in a bear market since its January highs as trade tensions increased and data signaled a slowdown in the economy, while the yuan has fallen more than 9%. A gauge of consumer-related shares dropped the most after data showed purchases of passenger vehicles and online appliance sales slumped in September. Liu Shiyu, chairman of the China Securities Regulatory Commission, said the country will deepen capital market reforms and press ahead with opening up after he met with investors.

The subindex of consumer discretionary stocks fell 2.1%, the most among the CSI 300 Index’s 10 industry groups. Great Wall Motor Co. slumped 9.4 percent to its lowest since 2012, while Qingdao Haier Co. tumbled 9.2 percent.

"The fundamental issues that haunt investors -- lower global risk appetite and a slowing Chinese economy -- remain," said Ken Chen, Shanghai-based analyst with KGI Securities Co. "The market will only recover if those concerns are resolved, and it’s going to take more than just verbal promises."

The Hang Seng Index fell 1.4% after three weeks of losses, while the Hang Seng China Enterprises Index dropped 1.5%. Tencent Holdings Ltd. slumped 1.9%. As we reported last week, purchases of passenger vehicles by Chinese dealerships plunged for a third straight month in September, dropping the most on record.

Over the weekend, Steven Mnuchin expressed concerns about the yuan’s weakness and called for a currency clause that would prevent competitive devaluations to be included in any trade talks with Japan. Separately, China’s ambassador to the U.S. said Beijing has no choice but to respond to what he described as a trade war started by the U.S.

Asian weakness spread to Europe, where industrial goods makers and technology firms were the biggest losers in the Stoxx Europe 600 index. In Frankfurt, stock trading has resumed after the opening was delayed by a technical glitch. Main European Indices are mixed amid current market uncertainty; the Dax is up (+0.3%) despite being weighed on by Lufthansa which is down by over 3% following agreements on new employment conditions, featuring moderate salary increases. Sectors are mixed with IT lagging at -1% as a follow on from poor IT performance in Asia due to continued U.S-China tension; this is despite Friday’s Wall Street rebound for IT which saw it as the leading sector finishing up by 3%. Convatec shares tumbled over 25% following a cut in revenue guidance.

The Bloomberg Dollar Spot Index slipped while Treasuries climbed amid the risk-averse mood. Most Asian currencies fell against the dollar, led by the Indian rupee and South Korean won as the rebound in global equities Friday failed to follow through after the weekend IMF gathering.  The British pound was volatile, paring a drop of as much as 0.5% after the U.K. and the European Union remained on course to miss this week’s key milestone on the road to a Brexit deal after talks broke up in stalemate on Sunday. The yen pushed higher while gold headed toward its fourth advance in five days.

Italian bonds erased earlier gains as the nation prepares to meet Monday’s midnight deadline for euro-area governments to turn in fiscal budgets.

Meanwhile, Crude and Brent are up 0.6% and 0.9% respectively amidst supply concerns following possible U.S sanctions against Saudi Arabia over missing journalist Khashoggi, which Saudi say they will respond in kind to if implemented. Prices are currently just over USD 71.5/bbl and USD 81/bbl respectively. Additionally, IEA’s Birol stated that high oil prices are hurting consumers and that extra barrels will need to come to the market soon to avoid further tightening.

Gold is once again up with mass uncertainty in the market from unproductive Brexit talks, US-China trade war and Italian’s budget deadline day causing investors to move into the safe haven. Global trade tensions have also caused selling pressure in London metals causing prices to slip. Shanghai rebar steel futures climbed to their highest levels in over 3 weeks, boosted by  expectations that China’s sustained anti-pollution campaign could further disrupt production.

Expected data include retail sales and Empire State manufacturing. Bank of America, Schwab, and JB Hunt are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 0.7% to 2,749.00
  • STOXX Europe 600 down 0.6% to 356.81
  • MXAP down 1.1% to 152.56
  • MXAPJ down 1% to 479.89
  • Nikkei down 1.9% to 22,271.30
  • Topix down 1.6% to 1,675.44
  • Hang Seng Index down 1.4% to 25,445.06
  • Shanghai Composite down 1.5% to 2,568.10
  • Sensex up 0.1% to 34,775.90
  • Australia S&P/ASX 200 down 1% to 5,837.10
  • Kospi down 0.8% to 2,145.12
  • German 10Y yield fell 0.8 bps to 0.49%
  • Euro up 0.01% to $1.1561
  • Italian 10Y yield rose 1.3 bps to 3.203%
  • Spanish 10Y yield fell 0.4 bps to 1.672%
  • Brent futures up 0.7% to $80.98/bbl
  • Gold spot up 1% to $1,229.01
  • U.S. Dollar Index down 0.1% to 95.11

Top Headlines

  • The U.K. and the European Union are on course to miss this week’s key milestone on the road to a Brexit deal after talks broke up in stalemate on Sunday. Talks are now paused after weekend negotiations failed to break deadlock; EU now considering a crisis summit in November for no-deal contingency planning according to people familiar
  • Sears Holdings Corp., the 125-year-old retailer that became an icon for generations of American shoppers, filed for bankruptcy, saddled with billions of dollars of debt racked up as it struggled to adjust to the rapid shift toward online consumption
  • After weeks of conflicting messages from Rome, market turmoil, and an early warning that the spending plans would breach EU rules, the European Commission will start reviewing Italy’s plan to start delivering on costly election promises
  • Chancellor Angela Merkel faces a new round of coalition turbulence after her Bavarian sister party dropped to a historic low in a regional election that exposed the scope of voter disaffection with Germany’s political establishment
  • Mnuchin: wants a currency clause that would prevent competitive devaluations to be included in any trade talks with Japan; Kudlow says Trump is concerned that the Fed might choke off the U.S. recovery
  • ECB’s Rehn: latest core inflation numbers were somewhat disappointing; ECB should gradually move to data- dependent rate guidance
  • PBOC Governor Yi: sees no reason to hike rates; China won’t use its currency as a tool to deal with trade conflicts
  • Saudi Arabia: Trump says Saudi would face "severe punishment" if linked to disappearance of Khashoggi; State news says kingdom will retaliate against any measures with even stronger response.

Asian equity markets resumed last week’s stock rout as the region failed to take impetus from Friday’s rebound on Wall Street where tech outperformed and all majors finished a tumultuous session in the green, albeit with losses of around 4% on the week. ASX 200 (-1.0%) slumped from the open as financials and tech led the broad losses which dragged the index briefly below the 5800 level, while Nikkei 225 (-1.9%) suffered from continued flows into the JPY. Elsewhere, Shanghai Comp. (-1.5%) and Hang Seng (-1.4%) conformed to the negative tone with sentiment not helped by President Trump’s reiteration that the US may have to impose another round of tariffs on China, with indecision seen in the mainland after the PBoC skipped open market operations and refrained from rolling over maturing MLF loans as its previously announced 100bps RRR cut took effect. Finally, 10yr JGBs were pressured at the open and tracked the recent weakness in T-notes, but then recovered as the widespread risk averse tone spurred safe-haven demand.

Top Asian News

  • SoftBank Dive Hits $22 Billion Amid Saudi Outcry, Tech Rout
  • China’s Stocks Extend $3 Trillion Rout as Consumer Firms Crumble
  • Asian Stock Markets Fall. And There’s a Slew of Reasons Why
  • Singapore Home Sales Rebound as Buyers Move Past Curbs

Main European Indices are mixed amid current market uncertainty; the Dax is up (+0.3%) despite being weighed on by Lufthansa
which is down by over 3% following agreements on new employment conditions, featuring moderate salary increases. Sectors are mixed with IT lagging at -1% as a follow on from poor IT performance in Asia due to continued U.S-China tension; this is despite Friday’s Wall Street rebound for IT which saw it as the leading sector finishing up by 3%. Convatec are down by over 25% following a cut in their revenue guidance. Chr Hansen are up by over 2% following a positive earnings update and reports that their chairman will not seek re-election, with Dominique Reiniche to be nominated as the next chairman.

Top European News

  • Speed Trader Hudson River Chooses Dublin as Post-Brexit Home
  • Greencore to Sell Troubled U.S. Food Unit for $1.1 Billion
  • Frankfurt Trading Resumes After Open Delayed by Technical Glitch
  • S&P Upgrade Boosts Zloty and Bonds as EM Woes Threaten Rally

In FX, JPY - The clear G10 outperformer and beneficiary of a downturn in Asia-Pacific stocks as jitters over global trade, protectionism and sanctions undermined sentiment. Usd/Jpy has retreated from 112.25 highs and through 112.00 to a 111.70 low, breaching the 55 DMA at 111.83, while Eur/Jpy is back below 129.50 alongside broadly softer Jpy crosses. From a technical perspective, 111.50 will be eyed next on the downside as a psychological marker and 50% Fib, roughly aligning with daily support around 111.47 plus decent option expiry interest between 111.55-40 (1 bn). GBP - At the opposite end of the spectrum, the Pound has been undermined by a breakdown in talks between the UK and EU just days ahead of the latest scheduled Brexit summit that may now take the form of a no deal meeting given the ongoing Irish border impasse. Cable has managed to regain some composure and recoup losses under 1.3100, but Eur/Gbp is holding above 0.8800 where a hefty expiry lies (1 bn). In EM - The Try remains bid just off 5.8160 peaks vs the Usd on follow-through buying/relief in wake of the release of US Pasto Brunson, while the Rub and Zar are also up vs the Buck (circa 65.6500 and 14.4500) on firm Brent and Gold.

In commodities, Crude and Brent are up 0.6% and 0.9% respectively amidst supply concerns following possible U.S sanctions against Saudi Arabia over missing journalist Khashoggi, which Saudi say they will respond in kind to if implemented. Prices are currently just over USD 71.5/bbl and USD 81/bbl respectively. Additionally, IEA’s Birol stated that high oil prices are hurting consumers and that extra barrels will need to come to the market soon to avoid further tightening. Gold is once again up with mass uncertainty in the market from unproductive Brexit talks, US-China trade war and Italian’s budget deadline day causing investors to move into the safe haven. Global trade tensions have also caused selling pressure in London metals causing prices to slip. Shanghai rebar steel futures climbed to their highest levels in over 3 weeks, boosted by expectations that China’s sustained anti-pollution campaign could further disrupt production.

It’s a quiet start to the week. In the European morning, the only release of note in Europe is Italy's August general government debt numbers. In the US, we’ll see the October Empire manufacturing release along with September retail sales and August business inventories. Away from the data, ECB vice president Luis de Guindos will speak at an event in Madrid while, Euro-area countries including Italy send final budgets to the EC for approval. Bank of America will report earnings.

US Event Calendar

  • Oct. 15-Oct. 18: Monthly Budget Statement, est. $75.0b, prior $7.9b
  • 8:30am: Empire Manufacturing, est. 20, prior 19
  • 8:30am: Retail Sales Advance MoM, est. 0.6%, prior 0.1%
  • 8:30am: Retail Sales Ex Auto MoM, est. 0.4%, prior 0.3%
  • 8:30am: Retail Sales Ex Auto and Gas, est. 0.4%, prior 0.2%
  • 8:30am: Retail Sales Control Group, est. 0.4%, prior 0.1%
  • 10am: Business Inventories, est. 0.5%, prior 0.6%

 

DB's Jim Reid concludes the overnight wrap

Most of the blame for last week’s market turbulence was the move in yields from the previous week. The support actors have been Italy, the ongoing trade dispute and perhaps a little bit of Brexit uncertainly (of which the news flow hasn’t got much better over the weekend. US bond markets should take most of the responsibility though even if they did rally back a little in the latter part of the week. Given this, its worth highlighting that over the weekend here at DB we have reiterated our 2018 YE 10-year Treasury forecast at 3.50% but edged up the forecast to 3.70% for Q1 2019 and at 3.80% by the end of Q3 2019. By YE 2019 the forecast is back to 3.60% due to the possibility of the house view of potential US rate cuts in H2 2020 being priced in after five more hikes before the end of next year. In addition, 10-year Bunds are expected to be 1.25% by the end of 2019. See the report here for more details.

The key events for this week are the Italian budget being submitted to the EC today, China’s inflation data tomorrow, the latest FOMC minutes on Wednesday, the EU leaders Summit to discuss Brexit on Wednesday and Thursday, China’s monthly data dump on Friday and US earnings season kicking slowly into gear. Brexit headlines here in the UK will likely to be intense all week with negativity being the overriding theme last night as Brexit Secretary Raab travelled to Brussels yesterday to communicate to Michel Barnier that Mrs May couldn’t sign up to what is currently being offered and discussed. Elsewhere, EU’s chief Brexit negotiator Michel Barnier tweeted yesterday that “despite intense efforts, some key issues are still open, including the backstop for IE/NI to avoid a hard border.” The pound has fallen -0.35% in Asian trading as a result. This news followed intense weekend negotiations with many hoping today would see the outline of a deal announced. This seems highly unlikely now and some attention will turn to whether this week’s EU leaders summit will conclude that the November summit should be about preparing for a no-deal Brexit instead of ratifying a successful one. Tomorrow the UK has a cabinet meeting devoted to Brexit so plenty to watch out for. At this point in time I’ve absolutely no idea how this is all going to work out. There are so many immovable obstructions on all sides. However, with all things EU related over the years one learns that until 23.59:59 ticks over to midnight then there’s always a chance of a deal.

Staying with weekend politics, the Bavarian election saw the CSU - German Chancellor Angela Merkel’s coalition partners - see their vote share decline to 37.2% down from 47.7%, marking the worst performance for the CSU since 1950 while the center-left Social Democrats share declined to 9.7% down from 20.6%, marking the worst performance since World War 2. The Greens and AfD’s vote share rose to 17.5% and 10.2%, respectively. Our economists have previously stated that a poor showing for the CSU might trigger a reshuffle of Merkel’s cabinet, i.e., the ousting of Seehofer as Minister of the Interior, fostering better co-operation among the Groko, enhancing the federal government's efficiency, and shifting the government’s stances, especially on asylum policy and European policy. The exact impact will depend on the CSU's future coalition partner in Bavaria. Their baseline scenario is for a coalition among the CSU, the Free Voters, and the FDP.

The week has started off with a risk-off tone in Asia, despite last Friday’s rebound in global equities. The Nikkei (-1.30%), Hang Seng (-1.01%), Shanghai Comp (-0.79%) and Kospi (-0.52%) all lower. Elsewhere, futures on S&P 500 (-0.18%) are pointing to a slightly weaker start. Overnight, BoJ Governor Kuroda said that “the amount of JGB purchases is no more the monetary operating target” adding, “It’s only yield curve control.” This further reinforces that the BoJ’s commitment to buy JPY 80tn of JGBs each year is only symbolic now.

Last week was a tough one for risk assets, with most major equity indexes posting their worst week since the February-March sell-off even if Friday ended on a high as we’ll show below. The S&P 500, DOW, and NASDAQ closed -4.10%, -4.19%, and -3.27% lower on the week. Cyclical sectors - industrials, materials, financials, and energy - were the worst-performing sectors, while the safe havens of utilities and consumer staples were the best performers. Small-caps continued their recent trend by lagging behind the broader market, with the Russell 2000 down -5.23%, their worst week since January 2016 and their 7th consecutive week of underperformance versus the S&P 500 – the longest such streak in over a year. The VIX index rose to as high as 28.8 and closed at 21.3, its highest level since April and biggest move since March.

The Euro Stoxx 600 shed -4.64%, roughly in line with the DAX (-4.86%) and CAC (-4.91%), while the FTSEMIB lagged behind (-5.36%). In Asia, the Nikkei and KOSPI shed -4.58% and -4.95%. Chinese bourses were hit hard after being closed for the first week of October, with the CSI 300, Shanghai Composite, and Shenzhen Composite losing -7.60%, -7.80%, and -10.07%, respectively. Broader emerging markets actually held up well over the course of the week, with the MSCI EM index down only -1.35% and EM currencies gaining +0.76%. They were boosted by a soft US CPI print on Wednesday and a generally softer dollar (-0.38%).

On Friday markets found their footing and pared their losses, with the S&P 500, DOW, and NASDAQ gaining +1.42%, +1.15%, and +2.77%, respectively, on the day. Treasury yields resumed their rise, rising +1.5bps on Friday but were still -6.8bps lower on the week. Given the equity sell-off this was a relatively mild rally showing that there does seem to be a structural element to the recent rise in yields. Elsewhere, Bunds outperformed and yields dipped another 2.0bps to take their weekly rally to 7.5bps, while peripheral spreads were mostly wider.

Noise continued to emanate from Italy regarding the budget, but we didn’t get any substantive new information and the sell-off in BTPs (+15.3bps) wasn’t notably more painful than in Spain (+9.7bps) or Portugal (+9.9bps). After the close on Friday, Moody’s upgraded Portugal’s debt to investment grade, though it feels more like the agency catching up to the market than the other way around.

US banks effectively kicked off the third quarter earnings season on Friday, though the results were understandably  overshadowed by the broader market moves. Still, they were mostly positive. Citi posted lower expense than expected while maintaining revenue in line, JP Morgan saw revenues grow a healthy 7% yoy, and Wells Fargo exceeded DB’s expectations on costs despite a headline earnings miss. Bank stocks nevertheless led losses on Friday, with the S&P 500 bank index shedding -0.40% despite the broader rally to end the week -5.43% lower.

Published:10/15/2018 6:00:27 AM
[Markets] Dow Futures Tumble as Saudi Tensions, Trade Concerns Keep Investors Cautious Global stocks weaken as geopolitical and trade tensions keep investors cautious following last week's selling on Wall Street. Saudi Arabia has vowed to react to any punishment meted out following the disappearance of prominent journalist Jamal Khashoggi in Turkey last week. U.S. stocks set for more red at the open, with the Dow indicated 200 points lower at the bell and investors looking for Q3 earnings from Bank of America. Published:10/15/2018 4:01:28 AM
[Markets] Asia stocks fall following sell-off last week Asia stocks fell on Monday morning as investors remain cautious, following global losses in the previous week. The Dow Jones Industrial Average and S&P 500 finished the week down by more than 4 percent, while the Nasdaq Composite posted a 3.7 percent weekly loss. Stocks in Asia slipped on Monday morning as investors remain cautious, following global losses in the previous week. Published:10/14/2018 7:58:14 PM
[Markets] Has "It" Finally Arrived?

Authored by Chris Martenson via PeakProsperity.com,

With the recent plunge in the S&P 500 of over 5%, has the long-anticipated (and long-overdue) market correction finally begun?

It’s hard to say for certain. But the systemic cracks we've been closely monitoring definitely got an awful lot wider this week.

After nearly a decade of endless market boosting, manipulation and regulatory neglect, all of the trading professionals I personally know are watching with held breath at this stage. The central banks have distorted the processes of price discovery and market structure for so many years now, that it’s difficult to know yet whether their grip on the markets has indeed failed.

But what we know for certain is that bubbles always burst. Inevitably. Each is built upon a fallacy; and when that finally becomes apparent to enough people, the mania ends.

And today, there are currently massive bubbles in stocks, bonds and real estate. Every one courtesy of the central banks (as we have written about in great detail here at PeakProsperity.com over the years).

And with no Plan B in place to gracefully exit the corner they have painted themselves -- and thereby the global economy -- into, the only option available to them is to double-down on the pretense that we'd all be screwed without their stewardship. They have to do this I suppose. To admit the truth would throw the world into panic and themselves out of a job. 

Who knows what they think privately? But in public, they give us real gems like these:

Williams Says Fed Rate Hikes Helping Curb Financial Risk-Taking

U.S. interest-rate increases will help reduce risk-taking in financial markets, Federal Reserve Bank of New York President John Williams said.

"The primary driver of us raising interest rates is just the fact that the U.S. economy is doing so well in terms of our goals,” Williams said Wednesday in a reply to questions after a speech in Bali, where the annual meetings of the International Monetary Fund and World Bank are taking place. “But I would also add that the normalization of monetary policy in terms of interest rates does have an added benefit in terms of financial risks.”

"A very-low interest-rate environment for a long time does, at least in some dimension, probably add to financial risks, or risk-taking, reach for yield, things like that," he said.

"Normalization of the monetary policy, I think, has the added benefit of reducing somewhat, on the margin, some of the risk of imbalances in financial markets."

(Source)

And with that, our award for “Finally closing the barn door after the horse left 8 years ago,” goes to John Williams of the US Federal Reserve.

Come on, Mr. Williams. Your historic 'very-low interest-rate environment' didn't merely lead to a slight degree of higher risk at the margins here.

Instead, it has lead to an explosion of excessive risk everywhere today, including:

  • Junk bonds trading near their most expensive prices ever

  • Covenant lite loans out the wazoo

  • The highest levels of corporate debt ever

  • The most expensive stock markets ever, by several measures

  • The highest margin debt on record

  • Real estate bubbles across the globe

  • Pensions highly exposed to the stock market

And the central banks' policy over the past decade hasn't merely been to create a “very low interest rate environment”. It has been nine long years of intense and deliberate financial repression.

The resultant risk-taking didn’t happen “in some dimension”. It happened right here on Planet Earth, in real time, and in public and private portfolios alike, across the globe.

Pensions have been monkey-hammered by this policy, forced to throw away 100 years of accumulated investment wisdom and flip from traditional allocations of 60/40 bonds-to-stocks to the opposite in a desperate chase for yield.

The mathematically-certain insolvency of much of the pension system lies on your shoulders Mr. Williams. And those of your other Fed colleagues. 

Moreover, the other malignant market responses to the Fed’s distorting policies didn’t “probably add to financial risks”. It absolutely guaranteed a future crisis -- one that will dwarf any prior.

In my assessment, the biggest crime of the Fed was the decision under Greenspan to try to eliminate the business cycle by replacing it with a credit cycle. Here’s what that looks like in chart form:

If you can't clearly spot the absurd Fed-blown asset bubbles in the above chart, you may as well stop reading here. With that kind of blindness, nothing can help you plan for what's coming next.

Now, why would central banks prefer credit cycles? Easy! They're a lot more fun. When they're expanding, everybody loves you. You get invited to Davos and people love celebrating you at parties.

Just as good, when the bubbles burst, as they always must, you get to ride to the rescue and play the role of savoir. And when the dust settles, you get feted as a “hero” by the mainstream media (even though you were no better than an arsonist putting out his own fire).

Case in point:

Yes, I blame the central banks for the breakdown about to come. They are the villain to blame for their horse-whipping of stocks, bonds and real estate into dangerously over-valued asset price bubbles. Nobody else.

Former Fed chairs Greenspan, Yellen and Bernanke have to shoulder nearly all of the culpability. It remains to be seen what Powell does, but so far he seems less interested in bailing out stock market declines than his predecessors. If indeed so, he’s an enormous improvement.

Already, under Powell, for the first time in a decade, we are emerging out from underneath the miserable thumb of financial repression, the key cornerstone of which is having to accept negative real yields on saved money.  Today the rate of interest on a 3-Mo T-bill is higher than the (stated) rate of inflation. It’s also higher than the dividend yield on US equities. So savers finally have an option that doesn't unjustly punish them.

If we can thank Powell for that, then he’s already done more good than all three of his predecessors combined. And if he allows this last ill-conceived credit cycle to finally die of its own accord, he'll actually deserve that "hero" accolade. Especially because doing so will not only be the right thing to do, it will be deeply unpopular with the Powers That Be, and require an inordinate amount of courage to effect.

Heck, Trump was already gunning for Powell on Wednesday after just the first -3% decline:

“The Fed is making a mistake, they’re so tight. I think the Fed has gone crazy.”

~ Donald Trump, 10/10/18

But if Trump was concerned on Wednesday, he must have been spitting nails on Thursday as the market carnage continued:

Is this really it?

Has the worm really turned?  Is it not possible that the authorities will once again rescue these “markets” driving them ever higher in their quest for printed-up prosperity?

Again, anything is possible, but our view is that until and unless the central banks decide to reverse their QE wind-down operations the faux gains that resulted from the money flood will evaporate as well.

Our view is that things progress from “the outside in” reflecting the fact that it is always the cash strapped zombie company that fails before the AAA rated company, and it is the weaker emerging market economy that suffers before the core OECD economy.

This table of various year to date stock market returns perfectly illustrates that the “outside in” dynamic has been in place for a while.

It’s not a perfect detection mechanism certainly (Germany is down 4x more than Portugal?) but the pattern is more than directionally adequate.  The money flood has reversed and we’re seeing that in the losses that have been mainly concentrated at the periphery --  but are fast rippling into the strongest "core" markets

Time For Safety

Admittedly, we’ve been mostly out of the markets for a long while, preferring cash, gold, some core real estate holdings; while slowly building a small short position.

Our main strategy for surviving bubbles is to not get caught up in them in the first place. We've long advocated the wisdom of amassing cash, to have 'dry powder' capital to deploy at much better valuations after the bubble's bursting. In our opinion, everyone should be working on ‘buy list’ for that day.

Sadly, the expansion of the Everything Bubble has gone on for far too long as the central banks have all but destroyed true price discovery and well-informed capital allocation. Heck, most Millenial adults weren't old enough to experience the 2000 and 2008 episodes -- to them, today's Frankenmarkets are 'normal'. Most seem to have exactly zero clue of the role of the central banks have played in fostering the lion’s share of the stock and bond market gains that have occurred during their short adult lives.

The investment chat sites I lurk through to gauge the mood are awash with folks telling each other to “buy the dip” and “stand firm.”  Many are parroting the Wall Street/CNBC mantra that "This time is different!", so it’s best to just keep putting money in, staying long and fully invested.

We disagree. And we think those blindly marching to Wall Street's tune will be the first and worst victims when the next major correction hits.

Which is why we encourage everyone reading this to crash-test their portfolio with their professional financial advisor. If indeed we're entering another 2008-style correction, how will your current holdings fare? How risk-managed are your positions? Are your potential losses hedged to the downside? And once the dust settles, what's your plan for re-entering the market?

These are critical questions to be asking right now. And the time to address them may indeed be very scarce (the Dow has dropped another 100 points as I've been writing this).

If you don't have a financial advisor, or are having difficulty finding one willing to address the risks discussed here, consider scheduling a portfolio crash-test consultation (it's completely free) with the advisor Peak Prosperity endorses.

Just please, whatever you do, make sure you've taken prudent steps to prepare for a major market downturn. Don't leave your hard-earned wealth exposed, unless that's an intentional decision on your part.

Conclusion

The recent market sell-off was not at all unexpected by us. We began observing the first tremors at the periphery many weeks ago.

Last week, on October 5th, we sent out a market warning to our premium subscribers under the banner The Markets Are Suddenly Looking Very Sick.

Whether the central banks blink here and ride to the rescue is the big question.

While we'll have to wait and see to learn the answer, in all of our interviews with experts (e.g. Axel Merk) who know the Fed and its staffers personally, the consensus is that Powell is a different animal from his predecessors. He'll tolerate quite a lot of stock weakness before he's moved to act.  Is his line in the sand -20%?  -30%? 

Whatever it is, it’s likely a lot more than the -6% we’ve seen so far.

Further, the ECB is in a bind because it, too, are publicly committed to tapering its balance sheet expansions to zero by the end of 2018. And as the EU is also locked in a budget battle with Italy, and it would be very politically difficult for the ECB to both play dove and hawk at the same time by bailing out the markets with more QE while also not buying any more Italian government debt or helping Italian banks.

The Bank of Japan is pretty much done, too. It has recently even (gasp!) shrunk its balance sheet a few times in recent months.

China is busy fighting its own battles with slowing growth and history's largest ever-real estate bubble. It's also in very delicate trade negotiations with the US, complicated enormously recently with the revelation that the Chinese PLA had a role in inserting hardware hacks (chips) onto high tech products supplied to the US.  So the PBoC is probably not going to be in the business of doing anything dramatic in terms of balance sheet expansion right now.

Add it all up, and the “outside in” contagion we’ve been observing over the past few months seems to have finally reached the core.

In Part 2: Preparing For The 'Big One' we examine what a true market "crash" would look like.  We’ll be looking at bonds, stocks, gold, the gold miners, currencies as well as discussing potential candidates to consider for your post-crash 'buy list'.

Ready or not, developments are escalating. Be as ready as you can for what's coming.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access

Published:10/13/2018 9:54:13 AM
[Markets] Weekend roundup: Tech stocks plunge | Strategies for rising interest rates | Which retailers may follow Sears into oblivion? When the Dow Jones Industrial Average (DJIA) declined 832 points on Wednesday, the worst S&P 500 (SPX) was information technology, which fell 5%. Here’s why investors are nervous about tech stocks. The Federal Reserve’s change of direction — it has increased the federal funds rate three times this year — has annoyed President Trump and is one of the factors leading to this weak’s significant pullback for stock prices. Published:10/13/2018 6:51:18 AM
[Markets] Market Snapshot: The stock market’s nightmare may be far from over After a nail-biting week with the Dow Jones Industrial Average sinking nearly 1,400 points over two sessions, the jury is still out on whether the selloff signals a fundamental shift in the stock market or a brief episodic correction. But one thing is certain, investors should brace for more drama in the coming days as corporate earnings, rising interest rates and economic data all converge for a volatile mix of angst-ridden trading.
Published:10/12/2018 5:16:54 PM
[Markets] Stocks rally to close higher but log worst week since March U.S. stock market rallies on Friday, with equities rising broadly in a partial rebound from a multiday rout that slashed about 1,400 points from the Dow Jones Industrial Average and left the Nasdaq on the precipice of a correction. Published:10/12/2018 4:46:14 PM
[Markets] Global Markets Dump $6 Trillion As "Loco" Fed & Trade Turmoil Spark Panic

What's $6 trillion between friends? "Everybody else was buying so I followed in their tracks..."

Global Capital Markets aggregate 'wealth' collapsed in the last two weeks... (bonds first, then stocks)...

 

79 of 94 global equity indices ended the week red...

 

China started badly and ended worse - biggest weekly loss since Jan 2016...

 

European stocks were a bloodbath, closing on their lows this week (second worst week since Jan 2016) at the lowest since Jan 2017...Italy was worst on the week (and is now in a bear market)

 

US equity markets were clubbed like baby seals...

Catching down to the rest of the world...

 

But a late Friday afternoon bounce flattered them in the end (see you Sunday night)...

 

It wouldn't be 'Murica if we closed red on a Friday...all of which lines up the perfect narrative that this confirms the worst is over

Take your pick of the headlines:

  • *S&P 500, DOW AVERAGE, NASDAQ 100 END WORST WEEK SINCE MARCH

  • *S&P 500 RALLIES 1.4% FOR BIGGEST GAIN SINCE APRIL

  • *NASDAQ 100 SURGES 2.8% IN BEST RALLY SINCE MARCH

All US equity sectors were red on the week led by Materials and Industrials (and Financials floundered today despite the earnings)...Utes outperformed (but were still down 1.7%)

 

On the month so far, it's carnage:

  • Nasdaq 100 is on course for the worst month since Nov 2008

  • Small Caps are on course for the worst month since September 2011

  • S&P is on course for the worst month since August 2015 (China Deval)

 

All the major US equity indices ramped back up to their 200DMAs... (Russell well below, Dow to its 100DMA)

 

Interestingly, Value/Growth ended almost unchanged on the week...

 

FANGs were down on the week, but bounced today...

 

Small Caps joined Transports in the red YTD...

 

Tech, Consumer Discretionary, and Healthcare all together at the top as best performers of the year (but well off the highs) - all other sectors are red for 2018 with Materials worst...

 

US Equity breadth is a disaster...

 

VIX spiked almost 9 vols on the week - the biggest weekly jump since March, doubling since 10/3 as the curve massively inverts...

And the Put-Call Ratio is spiking...

HY Bonds were right... again!

 

Corporate bond breadth was also a catastrophe this week... as new 52-week lows spike in IG and HY...

 

Away from the bloodbath in stocks, bonds were notably bid... (maybe they just needed that day off on Monday?)

 

With 10Y Yields dropping most in 5 months (after last week's biggest yield rise since Nov 2016)...

 

The yield curve flattened notably on the week...

 

The Dollar Index fell on the week (after two straight weeks higher)

 

But remains rangebound..

 

China fixed the yuan lower every day this week, clearly signaling something to Trump, as yesterday's epic spike in Yuan roundtripped today..

 

Crypros were not spared from the carnage - dumping on Wednesday night when Asia opened (and KRW plunged)...

 

Black Gold was battered (global growth/demand and inventories) as Yellow Gold surged...

 

WTI Crude had its worst week since May, testing down to a $70 handle...

Oil tracked stocks - simple

 

Gold just had its best two-week gain since January...

Silver did not managed new highs...

Gold in Yuan remains well managed...


*  *  *

What does it mean when the most systemically important banks in the world are down 26% from their highs and accelerating lower?

 

Is this it?

Published:10/12/2018 3:15:18 PM
[Markets] Dow Ends Up 282 Points Friday, Finishes Volatile Week Off 4% The Dow Jones Industrial Average rebounded to close higher Friday, capping a volatile week that saw the index lose 4% overall. Published:10/12/2018 3:15:18 PM
[Markets] Dow Trading Up 240 in Final Hour of Volatile Day The Dow Jones Industrial Average rose in late trading Friday, reclaiming some, but not all, of its gains from earlier in the day. Published:10/12/2018 2:51:30 PM
[Markets] Jim Kunstler Exposes "The Great False Front Of Financial Markets"

Authored by James Howard Kunstler via Kunstler.com,

Looks like somebody threw a dead cat onto Wall Street’s luge run overnight to temporarily halt the rather ugly 2000 point slide in the Dow Jones Industrial Average - and plenty of freefall in other indices, including markets in other countries. A Friday pause in the financial carnage will give the hedge funders a chance to plant “for sale” signs along their Hamptons driveways, but who might the buyers be? Hedge funders from another planet, perhaps? You can hope. And while you’re at it, how do you spell liquidity problem?

Welcome to the convergence zone of the long emergency, where Murphy’s law meets the law of unintended consequences and the law of diminishing returns, the Three Amigos of collapse. Here’s where being “woke” finally starts to mean something. Namely, that there are more important things in the world than sexual hysteria. Like, for instance, your falling standard of living (and that of everyone else around you).

The meet-up between Kanye West and President D.J. Trump was an even richer metaphor for the situation: two self-styled “geniuses” preening for the cameras in the Oval Office, like kids in a sandbox, without a single intelligible idea emerging from the play-date, and embarrassed grownups all standing ‘round pretending it was a Great Moment in History. You had to wonder how much of Kanye’s bazillion dollar fortune was stashed in the burning house of FAANG stocks. Maybe that flipped his bipolar toggle. Or was he even paying attention to the market action through all the mugging and hugging? (He did have his phone in hand.) Meanwhile, Mr. Trump seemed to be squirming through the episode behind his mighty Resolute desk as if he had “woke” to the realization that ownership of a bursting epic global financial bubble was not exactly “winning.”

If I were President, I’d declare Oct 12 Greater Fool Day. (Nobody likes Christopher Columbus anymore, that genocidal monster of dead white male privilege.) The futures were zooming as I write in the early morning, a last roundup for suckers at the OD corral, begging the question: who will show up on Monday. Nobody, I predict. And then what?

The great false front of the financial markets resumes falling over into the November election.

The rubble from all that buries whatever is left of the automobile business and the housing market. The smoldering aftermath will be described as the start of a long-overdue recession — but it will actually be something a lot worse, with no end in sight.

The Democratic Party might not be nimble enough to capitalize on the sudden disappearance of capital. Their only hope to date has been to capture the vote of every female in America, to otherwise augment their constituency of inflamed and aggrieved victims of unsubstantiated injustices. It’s been fun playing those cards, and the Party might not even know how to play a different game at this point. Democratic politicians may also be among the one-percenters who watch their net worth go up in a vapor in a market collapse, leaving them too numb to act. The last time something like this happened, in the fall of 2008, candidate Barack Obama barely knew what to say about the fall of Lehman Brothers and the ensuing cascade of misery -  though unbeknownst to the voters, he was already a hostage of Wall Street.

Complicating matters this time will be the chaos unleashed in politics and governing when the long-running “Russia collusion” melodrama boomerangs into a raft of indictments against the cast of characters in the Intel Community and Department of Justice AND the Democratic National Committee, and perhaps even including the Party’s last standard bearer, HRC, for ginning up the Russia Collusion matter in the first place as an exercise in sedition. The wheels of the law turn slowly, but they’ll turn even while financial markets tumble. And the threat to order might be so great that an unprecedented “emergency” has to be declared, with soldiers in the streets of Washington, as was sadly the case in 1861, the first time the country turned itself upside down.

Published:10/12/2018 2:51:30 PM
[Markets] [$$] Rising Rates Not a Worry for Big Banks Rising interest rates make it more expensive for households to maintain a borrowing binge that has reached record highs in some categories, yet banks reported Friday that default rates nonetheless improved in the third quarter. Fears that higher borrowing costs could lead to a slowdown in consumer spending and business investment helped drive the Dow Jones Industrial Average down 5% over Wednesday and Thursday. blamed the steep drop in markets this week on the Federal Reserve’s decision to raise short-term rates: “I think the Fed has gone crazy,” he said. Published:10/12/2018 1:43:46 PM
[Markets] Barclays: "Expect $130 Billion More In Systematic Selling Over Next Few Days"

A battle royale of Wall Street quants has erupted.

In one corner, we have JPMorgan's chief quant, Marko Kolanovic who moments ago said that the selling pressure from systematic, vol-targeting strategies such as risk-parity, CTAs, and trend following is mostly over and that the "current setup favors buying the dip."

In the other corner, Barclays's quant Manesh Deshpande completely disagrees with Kolanovic, and overnight wrote that while "some signs of capitulation are emerging" he thinks that "more selling is yet to come."

A lot more.

Deshpande, like so many others in recent days, writes that Thursday's sell-off was similar to the Feb 2018 liquidation, in that there was indiscriminate selling across equities and the ratio of put to call volume increased significantly.

However, unlike Kolanovic who is confident that the selling has now been mostly exhausted as we discussed earlier, Desphande warns that there are no signs of ETF selling which accompanies sell-offs.

In fact, over the past few days ETF flows have not turned negative yet and in fact have been mildly positive ($0.59 and $0.34 billion for the 10th October and 11th October, respectively). Thus this class of investors has not capitulated yet, according to the Barclays quant. Looking at history as a guide, ETF outflows between Feb 1st and Feb 9th earlier this year was ~$35Bn or 1.7% of AUM. Given the higher AUM currently, ETF investors are likely to sell ~$40Bn over the next few days.

It's not just ETFs. Compared to the sell-off during February 18, 2018 which was driven by the VIX complex, the current sell-off options complex has been relatively orderly. In particular the SPX Skew as shown below has not steepened significantly despite the sharpness of the sell-off.

Meanwhile, Desphande notes that the market activity in SPX Put/Call option volume ratio has spiked "and is showing some signs of capitulation among investors as they scramble to buy protection."

So in light of the recent surge in the VIX, which as Goldman calculated overnight was the 25th largest one day spike...

... the spike in equity volatility is likely to drive further systematic selling from Volatility Control Funds according to Barclays. How much?

To answer that question, Deshpande first estimates that the AUM in the Volatility control/Targeting strategies is ~$355Bn.These funds decrease their overall leverage to maintain fixed portfolio volatility (the higher the VIX, the more the selling), creating a positive feedback loop:

Since the forecasted volatility increases during market declines, these funds sell risky assets that would exacerbate the selloff. The precise details of how portfolio volatility is forecast are likely to vary across funds but we use the S&P Daily Risk Control 10% index (ticker: SPXT10UT) as a benchmark strategy. This index rebalances between S&P exposure and cash to maintain a 10% volatility target.

Next, the Barc quant calculates allocation trigger points, and writes that until the past week the allocation according to the benchmark strategy was 100% to equities. However, with the sell-off, the allocation has been reduced to ~65%.

Putting it all together, Barclays reaches a conclusion that is diametrically opposite that of Kolanovic, i.e., "we expect further systematic selling to the tune of ~$130Bn from these funds to reduce allocation to equities over the next couple of days."

Putting this number in the context of the February 2018 VIXtermination crash, back the systematic volatility control funds sold over $150Bn exacerbating the volatility and lead to a second leg lower. So between the $80BN or so already sold, and the $130BN still left to sell, by the time the systematic selling is over, the aggregate vol-targeting deleveraging (selling) will be substantially higher than what was experienced in February when the S&P tumbled as much as 10%.

So in this Wall Street battle royal of quants, who will be victorious: JPMorgan's cheerful Kolanovic or Barclays' gloomy Deshpande? Considering that the Dow opened 400 points higher and shortly after noon turned negative, if this selling accelerates, especially into the critical last hour of trading, it may well be a technical knock out.

Published:10/12/2018 1:15:06 PM
[Markets] Dow Trades Modestly Higher as Sharp Rebound for Wall Street Fades The Dow Jones Industrial Average again trades in positive territory on Friday after briefly going negative. The index rebounds after piling up two days of losses of nearly 1,400 points. Published:10/12/2018 12:50:19 PM
[Markets] Intraday reversal wipes out nearly 400-point Dow surge Intraday reversal wipes out nearly 400-point Dow surge Published:10/12/2018 12:17:06 PM
[Markets] Stocks Fall Back to Earth After two days of pain, stocks began Friday sharply higher before falling, with the Dow dipping back into the red for a brief spell. Published:10/12/2018 12:17:06 PM
[Markets] Strong open by the Dow industrials is fading — and fast Strong open by the Dow industrials is fading — and fast Published:10/12/2018 11:46:53 AM
[Markets] Why US Stocks Are Not "Out Of The Woods" Yet

Authored by Nicholas Colas via DataTrekResearch.com,

Yesterday’s market action broke just about every rule that might signal that the worst is past, based on what we outlined previously. Specifically:

  • We didn’t get an outsized selloff at the open. Thanks to a tepid CPI print, bonds rallied modestly and the S&P actually ticked higher in the first half hour of trading.
  • Instead of rallying after 10am, US stocks began to sell off. This will remind readers who were in the market during the Financial Crisis of the dreaded “margin clerk selloff” that typically occurred mid morning during 2008. Today looked a lot like that.
  • Neither Boeing (10% of the Dow) or large cap Tech (25% of the S&P) could muster a positive day. Yes, Tech outperformed the rest of the market but that is cold comfort at best.

Therefore, we don’t think US equities have seen their near term lows. The typical market response to a down 4% day (like Wednesday) is a modest up day in the next session (+1.7% on average). This signals that investors think prices reflect some near term opportunity. That’s what happened in early February of this year, for example, and markets found their footing. The fact that today did not follow the traditional day-after pattern worries us.

And while we are not superstitious by nature, we get a little worried about Friday-Monday trading whenever volatility picks up. 

Case in point: a large sell program hit US stocks around 230pm today. This drove the S&P 500 down 20 points in a matter of 15 minutes. If you have similar action today, and investors have all weekend to stew over their losses, that sets up for a larger selloff on Monday morning.

On the glass half-full side of things, three points:

  • Emerging markets outperformed US stocks today, down 1.0% versus the S&P’s 2.1% decline. News reports that Presidents Trump and Xi will meet at the next G20 meeting in late November helped here. Also, the “VIX of” Emerging Markets sits at levels not seen since April, so the chance for a bounce here is good.
  • EAFE (developed Europe, Asia, Far East) stocks likewise outperformed the S&P today, down 1.4%, and both this geography and EM have done mildly better than US stocks over the last week. The S&P is down 6.0% over the last 5 trading sessions; EM is off 4.5% and EAFE is 4.8% lower. If non-US markets are starting to bottom, that could bode well for next week.
  • Earnings season kicks off on Friday with Citi, JP Morgan, Wells Fargo and PNC reporting. Analysts’ expectations for Financial sector results are wonky: 3% revenue growth but 34% earnings growth. Still, positive color on the US economy from bank CEOs may help calm investors’ frayed nerves.

Our bottom line: the next two days are too fraught with uncertainty to consider increasing portfolio risk. During volatile periods, we stick to a rules-based approach to determine investable bottoms. And yesterday broke too many rules.

We're not out of the woods yet.

Published:10/12/2018 11:46:53 AM
[Markets] The Dow's powerful opening Friday rally is fizzling--fast The Dow Jones Industrial Average is losing steam in midday action Friday, with the blue-chip index shedding more than 300 points from its intraday peak. The Dow remains in positive territory, up 91 points, or 0.4%, but it had been up by as many as 442 points at the start of trading, signaling that a powerful rebound from a two-session rout may be at hand. Meanwhile, the S&P 500 index was trading with a gain of 0.7% at 2,748, while the Nasdaq Composite Index was up 1.3%. All three benchmarks were well off their best levels of the session. Friday's action comes after the Dow shed roughly 1,400 points between Wednesday and Thursday. That sharp drop prompted by growing fears about rapidly rising interest rates has left the equity gauges in position to post their worst weekly losses since March. Published:10/12/2018 11:15:26 AM
[Markets] Dow Surges as Wall Street Rebounds From Two Days of Steep Losses The Dow Jones Industrial Average jumps on Friday after the index piled up two days of losses of nearly 1,400 points. Published:10/12/2018 10:15:44 AM
[Markets] Dow Soars as Wall Street Rebounds From Two Days of Steep Losses The Dow Jones Industrial Average jumps on Friday after the index piled up two days of losses of nearly 1,400 points. Published:10/12/2018 9:24:36 AM
[Markets] Wall Street gains at open as banks rise U.S. stocks opened higher on Friday, as bumper results from the country's largest banks, including JPMorgan , set an upbeat tone for the earnings season. The Dow Jones Industrial Average rose 354.80 points, ... Published:10/12/2018 8:44:19 AM
[Markets] Whalen: Donald Trump Is Right About The Fed

Authored by Chris Whalen via TheInstitutionalRiskAnalyst.com,

President Donald Trump has been criticizing the Federal Open Market Committee for raising interest rates.  The reaction of the US equity markets is self explanatory.  But while the economist love cult in the Big Media may take umbrage at President Trump’s critique of the central bank, in fact Trump is dead right.

First, the Fed’s actions in terms of buying $4 trillion in Treasury debt and mortgage paper has badly crippled the value of the fixed income market as a measure of risk.  The Treasury yield curve no longer accurately describes the term structure of interest rates or risk premiums. This means that the Treasury yield curve is useless as an indicator of or guide for policy.  Nobody at the Federal Reserve Board understands this issue or cares.

Second, Operation Twist further manipulated and distorted the Treasury market.  By selling short-term paper and buying long dated securities, the Fed suppressed long-term interest rates, again making indicators like the 10-year Treasury bond useless as an measure of risk. Without QE 2-3 and Operation Twist, the 10-Year Treasury would be well over 4% by now.  Instead it is 3% and change and will probably rally to test 3% between now and year end.

Third is the real issuing bothering President Trump, even if he cannot find the precise words, namely liquidity.  We have the illusion of liquidity in the financial markets today.  Sell Side firms are prohibited by Dodd-Frank and the Volcker Rule from deploying capital in the cash equity and debt markets.  All bank portfolios are now passive.  No trading, no market making.  There is nobody to catch the falling knife.

The only credit being extended today in the short-term markets is with collateral.  There is no longer any unsecured lending between banks and, especially, non-banks. As we noted in The Institutional Risk Analyst earlier this week, there are scores of nonbank lenders in mortgages, autos and consumer unsecured lending that are ready to go belly up.  Half of the non-bank mortgage lenders in the US are in default on their bank credit lines.  As in 2007, the model builders at the Fed in Washington have no idea nor do they care to hear outside opinions.

If you understand that the Fed’s previous “extraordinary” policy actions have the effect of understating LT interest rates by at least a percentage point, then you know why President Trump is howling like a wounded hound. Nobody understands the danger of leverage better than a real estate developer.  When you see the dislocation and distress visible to those with eyes wide open in the non-bank residential and, especially, multifamily mortgage sectors, then you know why President Trump is rebuking the Federal Reserve.

Bottom line: We fully expect to see some business failures in the residential lending and multifamily development sectors over the next 12 months.  The real estate markets are over-extended, asset prices are silly and the only way forward for debt and equity valuations is lower.  More important, if the "real" rate for the 10-year bond is over 4%, then where should the Dow and S&P be tomorrow at the opening?  By raising short-term interest rates instead of unwinding QE 2-3 and Operation Twist, the Fed is repeating the mistakes of 1928 and is creating the circumstances for a liquidity crisis.

Published:10/12/2018 6:17:47 AM
[Markets] J.P. Morgan Chase home lending the only business unit with a revenue decline Shares of J.P. Morgan Chase & Co. rose 0.9% in premarket trade Friday, after the banking giant kicked off third-quarter earnings reporting season with profit and revenue that rose above expectations. The stock pared earlier gains of 1.7% seen before the results. Higher interest rates helped boost results, with revenue rising 5% from a year ago to $27.82 billion, above the FactSet consensus of $27.44 billion, and with net interest income climbing 7% to $14.1 billion to top expectations of $14.0 billion. Higher rates hurt the bank's home lending business, however, which was the only segment that saw revenue decline, as part of the bank's consumer and community banking unit that saw revenue rise 10% to $13.3 billion. Home lending revenue fell 16% to $1.3 billion, weighed down by lower net servicing revenue, and by loan spread and production margin compression. The stock has gained 1.2% over the past three months, while the SPDR Financial Select Sector ETF has lost 2.6% and the Dow Jones Industrial Average has tacked on 0.5%. Published:10/12/2018 6:17:47 AM
[Markets] Market Snapshot: Stocks set for sharp rebound, but still on track for worst week since March U.S. stock benchmarks look set to rebound Friday, following a multiday rout that slashed about 1,400 points from the Dow Jones Industrial Average and left the Nasdaq on the precipice of correction.
Published:10/12/2018 6:17:47 AM
[Markets] U.S. stock index futures up sharply as global equities attempt bounce after rout Futures on the Dow Jones Industrial Average were up 288 points, or 1.1%, in early European trade Friday as global equities appeared set to attempt a bounce following this week's U.S.-led drubbing. S&P 500 futures rose 1%, while Nasdaq-100 futures were up 1.3%. Wall Street stocks ended sharply lower Thursday, a day after the Dow and S&P 500 posted their biggest one-day declines since February and the Nasdaq Composite saw its biggest slide since June 2016. Asian stocks opened with a weak tone Friday but erased early weakness to turn broadly higher. European stock index futures pointed to a positive start. Published:10/12/2018 1:41:16 AM
[Markets] FOREX-Dollar at Oct lows as weak Wall Street sours sentiment, euro firms The Dow has lost around 7 percent from an all-time high of 26,951 hit on Oct. 3. The euro was the primary beneficiary of broad-based dollar weakness on Friday, hitting a fresh weekly high at 1.6009 on the back of dollar selling and a positive tone in minutes of the last European Central Bank (ECB) meeting. The minutes suggested the ECB was on track to normalise its ultra-loose monetary policy this year despite concerns about slowing growth in Europe. Published:10/11/2018 11:45:20 PM
[Markets] "It's Not Such A Crazy Idea": The Hunt For Another Red October

On Monday, Morgan Stanley's equity strategist Hans Redeker made an ominous observation: highlighting the decline of easy monetary policy and the rapid shrinkage of central bank liquidity...

... Redeker noted that the recent spike in bond volatility has been mostly a side-effect of the receding monetary tide.

Why the focus on bond volatility, i.e., the MOVE Index? For one reason: while rising FX and equity volatility can remain isolated events, rising bond market volatility tends to steer other volatility indices too, Redeker said. Hence, rising bond volatility makes a difference when volatility for risky assets diverged on the back of liquidity concentration in the US.

This led him to conclude that "in many aspects, the current constellation reminds us of what happened in autumn 1987", which we recalled as follows:

The Fed was hiking rates, deploying a hawkish tone. Chair Greenspan had just taken office, providing hawkish rhetoric, and the global economy seemed to trail the better US performance supported by the second Reagan tax package kicking in in 1986. The consensus assumed the rest of the world (RoW) – notably Europe – was running wider output gaps and hence was surprised when the Bundesbank withdrew liquidity in September 1987. In this sense, we would not dismiss hawkish remarks from ECB's Knot, who said that ECB rate hikes could come earlier than markets are expecting.

Just two days later, and the Dow over 1,400 points lower, it appears Redeker was on to something.

But not everyone agrees. As Bloomberg's latest macro commentator John Authers, who recently joined from the FT, writes in a note tonight, whereas there is a growing chorus that the market may be coming up against it own Black Monday moment - and historically half of the biggest market crashes in the US have taken place in October which is statistically significant...

... Authers believes that despite the growing concerns, it's not really quite as dire as what Morgan Stanley suggests.

He explains why in the note below.

The Hunt for Another Red October

It is not such a crazy idea. The elements of a narrative that finds a parallel between the alarming sell-off in equities over the last few days and the epic disaster that was the Black Monday crash of October 19, 1987, do exist.

Then, like now, stocks had been rising despite a menacing rise in bond yields. Then, like now, there is a new and untested chairman at the Federal Reserve (for Alan Greenspan then, read Jerome Powell now); and then like now, the U.S. economy had just enjoyed a big tax cut at the end of the previous year, after much drama involving Congress and the Republican president.

So it should be no surprise that references to Black Monday, when U.S. stocks fell more than 20 percent, are proliferating ahead of its 31st anniversary. Earlier this week, Hans Redeker’s team at Morgan Stanley produced a note suggesting that the greatest risk from the parallel was the implication that European monetary policy would also now have to tighten, as happened in 1987. Similar arguments might apply to Japan, where the Bank of Japan has been aggressively expanding its balance sheet ever since the Fed desisted from doing so.

Scott Minerd, the widely quoted chief investment officer at Guggenheim Partners, also drew the parallel, saying “Rising rates and declining stocks echo shades of October 1987." Plenty on social media have been making similar comparisons.

Any comparison to Black Monday is bound to set alarm bells ringing. And in any case, almost all of history’s most famous market crashes happened in October.

However, even with the S&P 500 down more than 5 percent in four days, the comparison is overdone. Equities were overblown entering this sell-off, but looked nothing like as frothy as they did in 1987:

Further, the international context is starkly different. In 1987, the party in the developed world outside the U.S., covered by the MSCI EAFE index, was just as intense as it was on Wall Street. The EAFE had gained 42 percent by October 14 that year, before it joined the subsequent sell-off to the full. This time around, the U.S. has stood alone; the EAFE is currently down 7.7 percent for the year, and has been moving gently lower for most of the year. The FTSE’s All-Word stock index, including all developed and emerging markets, entered this month up only 2 percent for the year. The ground for a dramatic short-term correction, therefore, is far less fertile than it was in the second week of October 1987

If we turn to the move in bond yields, widely taken as a reason for the pressure on stocks, we can see that the rise this year is indeed roughly comparable with the rise that was experienced in 1987. There is a true tightening of financial conditions, and this can only be expected to have an effect on the stock market

The problem with this, however, is that the bond market starts from a much lower and more accommodative level, and with cheap money available in the rest of the world. This move feels tight for traders who have grown accustomed to rates of virtually zero, but in absolute terms the rise in 10-year bond yields was far greater in 1987. At this point, the 10-year Treasury yield has gained some 70 basis points for the year; by the same point in 1987, it had risen by some 300 basis points

This is already another Red October for the stock market, and there are indeed a few similarities with 1987. But on this occasion the historical comparison is unduly alarming. There are good reasons to fear that stock markets could fall a lot further from here, but there is no particular reason to think that we are primed for a massive financial accident on the scale of what happened in October 19, 1987

Is Authers right? There are less than three weeks left in the month of October (and four until the midterm elections). We'll know the answer in less than a month.

Published:10/11/2018 9:12:07 PM
[Markets] FOREX-Dollar hovers near two-week lows on falling yields, Wall Street losses The Dow has lost around 7 percent from the all-time high of 26,951 hit on October 3. The euro was the primary beneficiary of broad-based dollar weakness on Friday, hitting a fresh weekly high at 1.6003 on the back of dollar selling and a positive tone in minutes of the last European Central Bank (ECB) meeting. The minutes suggested the ECB was on track to normalise its ultra-loose monetary policy this year despite concerns about slowing growth in Europe. Published:10/11/2018 9:06:14 PM
[Markets] Australia stocks lower following continued market rout on Wall Street The ASX 200 saw losses in early trade. Overnight on Wall Street, stocks continued to slip for the second straight day, with the Dow Jones Industrial Average falling by more than 500 points and the S&P 500 closing below its 200-day moving average. U.S. President Donald Trump attributed the stock plunge stateside to the Federal Reserve and interest rates. Published:10/11/2018 7:08:32 PM
[Markets] [$$] Investor Fears Drive Up Hedging Costs Investors are bracing for greater turmoil across markets, increasing hedges on their stock positions after months of calm. Meanwhile, the Dow Jones Industrial Average and S&P 500 on Wednesday recorded their biggest one-day falls since February and continued to fall on Thursday. “It really seems to be the anticipation of looming danger through rising rates,” said Stefan Wintner, vice president of volatility strategies at Florida-based Dunn Capital Management. Published:10/11/2018 6:53:46 PM
[Markets] Margin Call: Burst Of Sell Orders At 2:43PM Was Highest Since The Flash Crash

Earlier today, when looking at yesterday's dramatic market plunge, we highlighted a note from BMO technical analyst Russ Visch who showed that, according go the NYSE "ARMS" Index which is a means of determining market strength or weakness by analyzing the relationship between advancing stocks and declining stocks and their respective volumes, Wednesday's selling pressure was actually not that high despite the seemingly relentless push lower in stocks in the afternoon.

In other words, there was no "selling panic", and no legitimate liquidation as the selloff was largely a function of coordinated deleveraging by both hedge funds and systematic traders.

Which is why as of Thursday morning, Visch had a simple, and correct, conclusion based on yesterday's market action: "Expect more downside."

Today was different, because shortly after 2:40pm when a massive selling program emerged as if out of nowhere and sent the Dow Jones plummeting by over 600 points in a manner of minutes, the selling volume was indeed one for the ages.

According to the NYSE TICK, or uptick minus downtick, index, at precisely 2:43pm, the selling order flood was so big it not only surpassed the acute liquidation that was observed around 3PM on Wednesday, but the -1,793 print was one that had not been seen for 8 years: as Bay Crest Partners technical analyst Jonathan Krinsky wrote, the sudden and violent surge in selling as measured by the TICK index, when downtick volume overpowered upticks, was the lowest reading since the May 6, 2010 "flash crash" when liquidity dried up in markets, sending the market plummeting for a few minutes, as HFT briefly went haywire (or when a spoofer outsmarted the algos, depending on what version of events one believes).

In any case, "someone" was in a massive hurry to get out of the market and was willing to hit literally any and every bid in doing so.

So who was it that got the margin call "tap on the shoulder" into the last hour of trading?

Picking up where Visch left off, Krinsky said that while "we never know if that was "the" low, but certainly with that type of TICK into support, it can signal "a" low." Incidentally, the "low" he was referring was the S&P e-mini futures falling to 2,730, a price just below the 200DMA and one which saw the highest amount of trading volume over the last 200 days according to Bloomberg.

Did the near record burst of selling at 2:43pm mark the bottom? We look forward to Visch's take tomorrow, although absent any major changes in market dynamics, we may know for a fact as soon as tomorrow if the selling pressure persists.

Published:10/11/2018 6:53:46 PM
[Markets] Tencent Music Delays IPO Due To Market Rout As Its Parent Wipes Out $250BN In Value

Things are going from bad to worse for China's tech companies...

One day after the biggest drop in Chinese stocks since February 2016 as the Shanghai Composite plunged by more than 5% overnight which resulted in nearly a third of Chinese publicly traded companies, or roughly 1000 stocks, halted limit down, on Thursday afternoon the WSJ reported that Tencent Music Entertainment Group is postponing its initial public offering until at least November "because of the turmoil in global markets", hitting pause - potentially indefinitely - on what would be one of the largest IPOs in the U.S. this year.

According to the WSJ, the music-streaming company met with its underwriting team this week to discuss the price range Tencent Music would set for its hotly anticipated IPO, but they opted to wait several weeks over worries that the market turmoil would affect the pricing. Based on early conversations with investors, demand for the listing was expected to be strong, one of the people said, and Tencent Music was expecting a valuation between $25 billion and $30 billion - a valuation range that would have made the company one of the biggest tech IPOs ever.

Meanwhile, Tencent Music’s private valuation has soared in the past year: the firm was valued at $12.5 billion late last year when it swapped stakes with peer Spotify Technology SA.

The company was expected to kick off its roadshow to sell shares to investors next week and was expected to start trading the week of October 22; however that plan is now in limbo.

The IPO delay comes amid a sudden, sharp global market rout, which sent U.S. stocks sharply lower on Thursday, one day after the Dow industrials tumbled, led by falling shares of technology companies. The S&P 500 index has declined more than 5% so far in October, wiping out almost all of its YTD gains in just a handful of days.

Meanwhile, in an ironic twist, one of the companies to have been hit hardest is none other than Tencent's parent, Tencent Holdings: the Chinese internet giant has been crushed recently by a record-breaking sell-off, which is got worse overnight with Thursday’s 6.8% rout bringing losses since late January to $252 billion - by far the biggest wipeout of shareholder wealth worldwide. The stock, which as Bloomberg notes is one of the most widely held in emerging markets, has tumbled for an unprecedented 10 straight sessions.

It was a different story on the way up: the company’s more than 67,000% return from its 2004 initial public offering through January trounced that of every other large-cap stock worldwide. That ended in 2018 when its slide this year presaged a steep drop in tech shares from Tokyo to New York. Some money managers say it’s too soon to call a bottom.

“While it’s a good company and we obviously still like it, at the moment it’s the proxy of all the things investors want to avoid,” said Virginie Robert, the founder and president of Paris-based Constance Associes. Robert, who has an underweight position in Tencent, said she’ll refrain from adding to holdings until the company provides more clarity on its business outlook.

Founded by billionaire Pony Ma in 1998, Tencent had until recently captivated investors with its massively popular online gaming business, payments system and WeChat social networking platform. The Shenzhen-based company’s integral role in the lives of hundreds of millions of Chinese helped propel average annual earnings growth of about 48 percent over the past decade, faster than Apple Inc.’s 35 percent.

And now, just like all other tech stocks who have enjoyed a record valuation in recent months, questions are mounting over whether Tencent’s growth is sustainable. That’s partly because of macroeconomic concerns, including a slowing Chinese economy and a weakening yuan.

But the biggest worry for many observers is regulatory meddling from Beijing. The company’s cash cow, online gaming, has become a liability for the stock after an industrywide government crackdown left the business, which accounts for about 40 percent of Tencent’s revenue, clouded in uncertainty. The country halted approvals for new games in March and authorities have given little indication of when the ban will end.

Policy makers are also tightening restrictions on Tencent’s fast-growing internet finance business as they try to reduce systemic risks in an economy saddled with record levels of debt. The regulatory squeeze has contributed to a 20 percent drop in analysts’ 2018 earnings estimates since February, according to data compiled by Bloomberg.

Still, bulls argue that this year’s challenges have done nothing to threaten Tencent’s dominance in its key lines of business and that the stock will rally once regulatory and economic headwinds fade.

"We feel Tencent is as important as ever," said Denis Barrier, San Francisco-based co-founder and chief executive officer at Cathay Innovation, which manages $1 billion. The stock rout “is not going to change the position of its market share,” Barrier said.

Even so, some of the company's biggest long-term bulls are getting cold feet and are becoming way of piling in. Tencent’s 12-month forward price-to-earnings multiple has dropped from about 42 to 23, but it’s still higher than when shares bottomed after major declines over the past decade. Facebook Inc.’s multiple is 16, while Alibaba Group Holding Ltd.’s is 21.

“They are cheap," said Mitchell Green, the Santa Barbara-based founding partner of Lead Edge Capital, which manages $1.5 billion. “But what is cheap can get cheaper.”

Published:10/11/2018 4:49:11 PM
[Markets] Why the stock market just ushered in its worst start to October since 2008 It has been an ugly stretch for U.S. stocks, which was capped by Thursday’s more-than-540-point tumble for the Dow Jones Industrial Average, coming immediately after a 831-point drop in the prior session. Published:10/11/2018 4:49:11 PM
[Markets] The sell-off by the numbers: Stocks post worst 2-day stretch in eight months The financials and energy sectors were the biggest laggards on Thursday, falling around 3 percent each. Tech shares like Apple, Alphabet and Netflix failed to rebound after posting steep losses. The Dow Jones Industrial Average dropped 545.91 points to post its worst two-day decline since early February. Published:10/11/2018 4:17:12 PM
[Markets] Ilargi Meijer: "Of Course The Fed Is Crazy"

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

Finally financial ‘markets’ go through a substantial dip, which Steve Mnuchin claims is just temporary and Donald Trump says is caused by the fact that the Fed is ‘loco’. Mnuchin may well be right, but it won’t be because he knows something you don’t.

And Trump is certainly right, but in reality the Fed has been loco for many years, so why be surprised if it acts crazy now? The reason Mnuchin and a million other ‘experts’ may be right without realizing it is that the Fed has been crazy enough to kill the financial markets.

Or at least killed what made the markets functional, and beneficial to society. And that may well be exactly what Jay Powell is trying to repair, but he may well not be aware of that either. Looked at from a ‘benign’ angle, Powell is perhaps raising rates so people can regain insight into what they’re buying.

The pre-Powell Fed pushed up asset prices (don’t let’s say ‘values’) to such heights nobody has any insight anymore into what anything is truly worth. And in what was formerly known as the financial markets that was not important, because what were formerly known as investors were making heaps of money regardless.

Surely they must all have known that this wouldn’t continue?! That it’s just a matter of timing, of knowing when it would end? Oh, but that’s not really possible, is it, without the very price discovery process the Fed successfully strangulated?

Still, there must also be tons of people left thinking the Fed can kick that can six times to the moon and back, or sixty. If only because they’ve never bothered to think about price discovery, and what role it plays in the very ‘markets’ they volunteer to spend their money in.

And along those same lines, many acknowledge housing bubbles in Sydney and Vancouver but think the US has learned its lesson a decade ago. And the loco Fed plays its role there too: mortgage rates have been ultra-low, enticing the last left batch of greater fools not mortally wounded by the last fire to jump in this time. Wolf Richter’s Case-Shiller graph says plenty in that regard:

But of course things tend back to normalcy, and it doesn’t take all the overleveraged stock- and home-buyers longing for price discovery; it takes just a few to get the engine started. And then everyone will be along for the ride. So from that angle Jay Powell looks anything but crazy raising rates, we just can’t be sure if he knows what the consequences will be.

Not that it matters all that much what he does or does not know.

What was formerly the market is like a pendulum swung so far out of balance that it costs ever more effort and money to keep it from moving towards equilibrium, and that process has only one possible outcome.

For mortgage rates, it looks something like this, and to make anyone able to buy any home at all higher rates will of necessity mean lower prices. You can’t, nobody can, not the Fed or the government can, keep that pendulum away from its tendency towards equilibrium forever.

For stocks it looks much the same. So why try, you’d think?! To prevent incumbents and ruling classes from being exposed as swimming naked, that’s why. They invented a way to make the entire nation swim naked, thinking they’d never be found out because the water levels were so high.

Whether yesterday’s 831-point Dow dip is temporary or not is of little interest. Much more important is that the entire asset prices situation is temporary. It doesn’t matter if the Fed pumps $1, $10, or $100 trillion into what once were markets, in the end it all comes down to how many people can pay how much money for the assets.

And since there is never an unending supply of greater fools, we know where this is going. The easy money and low rates and asset purchases at central banks and stock buybacks by companies can and will result only in more profits and more wealth for a few, and sheer endlessly less for the many.

Inequality in the US has now reached such extremities that the country’s AAA rating threatens to be taken away –as Moody’s indicated-; the government has so many people it must support financially (or let perish) that its financial position comes under pressure. Which is, again, negative for the many, for the few; they don’t care about that rating.

Yes, too many people are on some form of welfare in America. And Washington would love to throw many of them off of it. The many have no representation on Capitol Hill anymore. Just about any senator and congress(wo)man is a millionaire or certainly well-off.

How can the country get its rating back, or at least not lose it due to its increasing inequality? There seem to be two ways: let the 80 million now on welfare die by the side of the road, or provide them with jobs that allow them a fruitful life. That may sound like socialism or something, but it’s really the exact opposite.

It’s not the government’s role to give people jobs, but it is its role to make sure conditions are in place for the private sector to provide them. Trump’s ‘trade wars’ look crazy to many, but the intent is to get jobs back to the US. But there is much more.

America was once prosperous. What changed?

Here’s one thing: In what was -arguably?- America’s wealthiest time as a nation, the post-World War II period, income taxes for the richest were as high as 90% (1952: 92%); they were slowly brought down towards 70%. Only when Ronald Reagan took over in 1980 did they really fall (1982: 50%). This was ‘justified’ by lowering the highest income bracket (1982: $85,600, it had been between $200,000 and $400,000 for years).

In 1988, the top rate plunged to 28%, and the highest bracket to $29,750. Today, the top rate is 39.6% and the high bracket $400,000. In a graph, the consequences look like this:

The corporate tax rate, meanwhile, pulled this one, and don’t get started on tax havens etc.:

And that situation has led to a huge financial crisis, to the Fed going crazy and handing out trillions to the exact wrong part of society, those who already have a lot of money, and the result has been an absolute disaster, at least for the country; not so much for its elites.

But as even Moody’s now recognizes, you can’t run an AAA-rated country on elites alone. Despite the crazy Fed trillions, the US has achieved negative growth (imagine where it would be without):

Something must be done. Problem is, with only those millionaires in charge in the House and Senate, the likelihood of boosting income tax levels up to where they were when America was most prosperous is extremely low. And Trump’s tariffs are not on their own going to bring back the jobs; they can’t rebuild the lost infrastructure, for one thing.

Something must be done, and it’s entirely unclear what, or rather, who’s going to do it. The Democrats have nothing, or nothing but frustrated millionaires and Bernie Sanders. The GOP has only Trump. None of these people are going to vote to double their income taxes.

Much of what needs to be done will be classified as socialism, ridiculed and thrown out the window, even if the country was anything but socialist under Eisenhower and Kennedy, during its -at least economic- Golden Age.

It’s a nice puzzle, isn’t it? Well, maybe not so nice after all.

Published:10/11/2018 3:45:34 PM
[Markets] U.S. stocks close lower as Dow drops nearly 1,400 points in 2 days U.S. stocks extend losses to finish lower Thursday with the Dow Jones Industrial Average losing nearly 1,400 points over two days. Published:10/11/2018 3:45:34 PM
[Markets] Shocktober Day 2: Stock Rout Accelerates As Bonds, Bullion Surge

It was all going so well...

China was ugly overnight with about 1000 companies halted 10% limit-down...

AsiaPac was a bloodbath... (down 10 days in a row and 27% from the highs)

Europe plunged (led by Italy)...

 

US Futures show the chaos and hopeful rebounds that just kept failing today...

 

Nasdaq flip-flopped desperately around unchanged for much of the day before margin calls hit...

 

Since October began, Trannies, Nasdaq, and Small Caps are down 9%!.

 

S&P is down 6 days in a row - still the longest losing streak since Nov 2016's run into Hillary's victory (which was 9 straight losing days)... and below its 200DMA (first close below since April)...

The Dow was down almost 700 points at its worst and then a headline about a Trump-Xi meeting sparked panic-buying...back above its 200DMA...

 

The Dow ended down 545 points today - Double Top much? The Dow is down 1950 points from its highs last week

 

Nasdaq remains below its 200DMA...

 

Nasdaq 100 on track for its worst month since November 2008...

“There is a tipping point where higher rates start to have potentially a negative impact on growth and on equity valuations,” said Toby Gibb, client portfolio manager at Fidelity International in London. “People have started to get concerned that we may be approaching that level.”

Small Caps are well below their 200DMA and went red for 2018 today...

YTD gains are evaporating...

And Healthcare Sector is now best YTD -outperforming Tech...

S&P Tech closed below the 200DMA - first time since Brexit...

Only 1.5% of S&P Tech stocks are above their 50DMA...

 

VIX reached almost 29 intraday...

 

With the term structure now massively inverted...

 

As Stocks were slammed, bonds and bullion saw safe haven bids...

 

Bonds were bid as stocks skidded...

 

The yield curve flattened notably on the day...

 

The Dollar Index continued to slide to one-week lows...

 

Yuan soared today - interestingly following Mnuchin's face-to-face with the PBOC...biggest spike since August - WTF did Mnuchin say?

 

Cryptos were dumped too as Asia markets opened...

 

WTI Crude tumbled to a $70 handle on inventories and OPEC demand downgrades, but PMs were the big winner...

 

WTI had its worst 2-day drop since March 2017...

 

Gold futures spiked to $1230 today, highest since July (jumping by the most since Brexit), breaking above its 50DMA and the $1200 Maginot Line...

 

Since The Fed hiked rates in September, there's only one asset class in the green...

 

Finally, we ask, are US markets about to start the Great Rotation back into sync with the rest of the world...

Published:10/11/2018 3:17:47 PM
[Markets] Dow ends down nearly 550 points as Nasdaq enters correction territory Dow ends down nearly 550 points as Nasdaq enters correction territory Published:10/11/2018 3:17:47 PM
[Markets] Dow tumbles almost 700 points at lows as stock-market rout continues Thursday The Dow Jones Industrial Average tumbled pared its worst losses of the session on Thursday, but were still trading decidedly lower, as carnage in the 122-year-old stock gauge persisted. The Dow was off almost 700 points, down 2.7%, at 24,962 Thursday afternoon, coming fresh off the index's 831-point tumble on Wednesday. Most recently, however, it was down 300 points, or 1.2%, at 25,291. Meanwhile, the S&P 500 index was down 1.1% at 2,754 and the Nasdaq Composite Index declined by 0.4% at 7,391. The equity benchmarks have been attempting to rebound from the prior session's downdraft all day but have thus far been unable to find footing higher. Recent declines have been underpinned by a rise in U.S. government bond yields which rose to multiyear highs earlier in the week, indicating higher borrowing costs for corporations and individuals. That has caused a reassessment of equity values. Published:10/11/2018 2:45:25 PM
[Markets] US Stocks Extend Declines, Dow Tests 200-Day Moving Average, Amid Global Rout U.S. stocks extended declines Thursday, with the Dow briefly approaching an 800-point slide, as investors continue to test the resiliency of risk markets amid the biggest global sell-off since February. Published:10/11/2018 2:16:35 PM
[Markets] Call 'em crazy, but Fed officials likely to keep raising rates A stock sell-off, rising trade tension with China, slower global growth and verbal pressure from the White House are unlikely to dent the U.S. Federal Reserve's rate hike plans in an economy performing in line with the central bank's forecasts. A bumpy 48 hours included an 800 point drop in the Dow Jones Industrial Average and hefty declines in other stock indexes, a forecast of slowing global growth from the International Monetary Fund, and a broadside from President Donald Trump in which he called the Fed "crazy," "loco," and "too aggressive" in raising rates. Gradual rate increases - moving the overnight federal funds rate over the next year and a half or so from between 2 and 2.5 percent now to around 3.4 percent - would slow the economy a bit, but keep inflation in check during a record-setting era of recession-free growth spanning the Obama years and Trump's first term. Published:10/11/2018 1:45:26 PM
[Markets] Stock declines accelerate again Thursday with Dow down more than 550 points Stock declines accelerate again Thursday with Dow down more than 550 points Published:10/11/2018 1:45:22 PM
[Markets] Dow Pares Losses Following Steep Selloff, Nasdaq Trades Higher The Dow Jones Industrial Average and the S&P 500 fell again Thursday after both indexes on Wednesday logged their largest losses on a percentage basis since Feb. 8. The S&P 500 has closed lower for five straight days. The Nasdaq was up modestly on Thursday, a day after the tech-heavy index had its biggest percentage drop since June 2016. Published:10/11/2018 11:47:24 AM
[Markets] Trump Blames Market Correction On Fed, Says Won't Fire Powell

With US stocks headed for their sixth day of losses, President Trump has decided to clarify that he's "not going to fire" Fed Chairman Jerome Powell after bashing the central bank and its "aggressive" interest-rate hikes in comments made Wednesday night and Thursday morning. Trump's not angry with the Fed chief, he said; rather, he's just "disappointed."

Trump

While Trump said he'll let Powell keep his job (for now, at least), the president tripled down on his claim that the Fed is responsible for the Dow's 1,700 point drop from the highs, saying that the central bank is being "too stringent" and they're "making a mistake."

Here's a roundup of key quotes from Trump's latest interview.

  • "It’s a correction that I think is caused by the Federal Reserve," President Trump says, when asked about the markets.
  • "I think the Fed is far too stringent and they’re making a mistake"
  • "I’m not going to fire him," he says about Fed Chairman Jerome Powell

And in another comment that will aggravate policy makers (the Treasury in particular) and dollar bulls alike, Trump sounded less-than-enthusiastic about the dollars' strength so far this year, saying that "frankly" the strong dollar "doesn't necessarily mean all good."

"The dollar is very strong, very powerful," President Trump tells reporters in the Oval Office amid continued criticism of the Fed’s interest rate policies. "And that causes just a little difficulty with doing business, frankly. Strong dollar doesn’t necessarily mean all good. But we do have a very strong dollar."

Somewhere in California, Janet Yellen just sparked up a joint and started giggling at the television...

 

Published:10/11/2018 11:19:11 AM
[Markets] Hedge Funds Are Getting Destroyed

While today's cash market session started off confused, with the Dow crossing the unchanged line numerous times before the selloff once again accelerating, it follows a furious plunge yesterday which was driven by momentum stocks, and as noted yesterday, the MSCI USA Momentum ETF (MTUM) suffered it worst performance day ever on Wednesday.

The problem, as we discussed over the summer especially in the aftermath of the Facebook Q2 earnings fiasco, is that many of these momentum names are also among the most widely held hedge fund stocks. And while we already knew that hedge funds have had a bad year, as demonstrated by the fresh 1 year low print in the declining HFR equity hedge fund index...

... with the latest liquidation of momentum stocks, the recent market move has been absolutely brutal for hedge funds.

One place to watch the carnage first hand is the Goldman Sachs Hedge Industry VIP ETF, or GVIP, which was created to replicate exposure to stocks which are the most widely held by hedge funds long portfolios: this ETF has tumbled >7% from its recent just two weeks ago and has fallen 12 of the last 14 trading sessions. The current drop is now of similar magnitude to both the February VIX explosion and the March tech collapse.

And while it is common knowledge that the mega-cap tech names are - or at least were - a magnet for hedge funds, with the BofA fund manager survey reporting the "Long FAANG+BAT" as the most crowded trade for eighth straight month...

... a look at the performance over the past five days of some non-supercap "hedge fund hotels" which have at least 10% hedge fund ownership, paint a far more troubling picture of the bigger problem at hand for hedge funds. Here are the details from Bloomberg:

  • Roku -22% (Melvin, Whale Rock, Citadel, Hitchwood, Buckingham were among top hedge-fund holders as of the last filings, many of which were from June 30)
  • Trivago -18% (PAR Capital, 683 Capital, Greenhouse Funds, Altimeter, Apertura, Citadel)
  • Etsy -17% (Renaissance, DE Shaw, Millennium, Citadel, Black-and-White, Goodnow, Hitchwood)
  • Spotify -16% (Tiger Global, Coatue, Steadfast, Lansdowne, Jericho, Soros, Hitchwood)
  • Stitch Fix -15% (Light Street, Steadfast, Hitchwood, Park West, Citadel, Garelick, Scopus)
  • ANGI Homeservices -15% (Luxor Capital, TCS Capital, SQN, Tiger Eye, PAR Capital)
  • Autodesk -14% (Viking, Tiger, Darsana, PointState, Meritage, Citadel, Sachem Head)
  • GoDaddy -14% (Select Equity, Renaissance, Egerton, Brahman, Silver Lake, DE Shaw)
  • Square - 13% (DE Shaw, Lone Pine, Whale Rock, Matrix Capital, Hitchwood Capital)
  • Lululemon -13% (AQR, Laurion, DE Shaw, Renaissance, Arrowstreet, Millennium, Alyeska)
  • Goodyear Tire -12% (Diamond Hill, Citadel, DE Shaw, Moon Capital, AQR, Portolan)
  • Ralph Lauren -12% (Renaissance, AQR, Millennium, DE Shaw, Maverick, Arrowstreet)

Needless to say, this is the last thing the industry needed, when it was already suffering from shrinking assets, bad performance, and prominent hedge fund closures such as lthe $12.1 billion Highfields Capital fund, the $2 billion Criterion Capital fund, and Tourbillon’s Jason Karp returning $1 billion as he shuts his main fund.

So with this latest "hedge fund hotel" devastation, one wonders just how many more fund managers will be forced to shut down, and liquidate the rest of their holdings, in the process perpetuating the selloff as more of the most widely held names by hedge funds have to find willing buyers in a market where idea dinners have already made them the most widely held stocks of the "smartest people in the room."

 

Published:10/11/2018 10:48:16 AM
[Markets] Dow Down 1700 Points From Highs, Futures Near Overnight Lows

Another 300 points drop today and the cash Dow is now down almost 1700 points from last week's 26,951 highs...

 

The dead cat bounce is dead...

And Nasdaq is leading the charge lower...

We're gonna need more claiming tones from The White House!!

Published:10/11/2018 10:18:18 AM
[Markets] Dow Goes Sharply South Again Following Its 800-Point Selloff The Dow Jones Industrial Average and the S&P 500 fell sharply again Thursday after both indexes on Wednesday logged their largest losses on a percentage basis since Feb. 8. The S&P 500 has closed lower for five straight days. The Nasdaq tumbled on Thursday, a day after the tech-heavy index had its biggest percentage drop since June 2016. Published:10/11/2018 10:18:17 AM
[Markets] Trump Not Dictating Fed, Says Economic Adviser, After 'Gone Crazy' Criticism White House Economic Adviser Larry Kudlow defended Donald Trump's criticism of the Federal Reserve Thursday, just hours after the President called the central bank "crazy" for signalling faster interest rate hikes in a booming U.S. economy. The President had sharp words for the Fed Wednesday, telling reporters in Eire, Pennsylvania that he thought it had "gone crazy" and was "too tight" when asked for his opinion on yesterday's 800 point plunge for the Dow, which had followed a weaker-than-expected sale of 10-year Treasury bonds that drew that highest yield since 2011. "The President has his own views and he's stated them many times," Kudlow told CNBC Thursday. Published:10/11/2018 9:47:05 AM
[Markets] October Market Sell-Off: Will Q3 Earnings Add to Investors’ Woes? October started on a negative note for the broader market. On October 10, the S&P 500 benchmark registered losses for the fifth consecutive session. As of October 10, the S&P 500 Index (SPY) has fallen 4.4% so far in October. Similarly, the Dow Jones Industrial Average (DIA) has fallen 3.2%, while the NASDAQ Composite Index (QQQ) has fallen ~7.6% in October. Published:10/11/2018 9:19:12 AM
[Markets] Dow industrials down triple digits early Thursday Dow industrials down triple digits early Thursday Published:10/11/2018 8:46:25 AM
[Markets] Walmart partners with interactive video technology developer Eko in push to expand entertainment strategy Walmart Inc. is working with interactive video technology developer Eko on a joint venture to develop content for Walmart's entertainment side, the company announced Thursday. The venture, called W*E Interactive Ventures, will produce content that allows users to participate in and shape stories as they're being told, with content ranging from cooking shows to advertising media like interactive toy catalogs. "Our partnership with Eko will help us accelerate efforts to deepen relationships with customers and connect with new audiences in innovative ways and is one part of an overall entertainment ecosystem we're building," said Scott McCall, senior vice president for entertainment, toys and seasonal at Walmart U.S. The venture will be headed up by Yoni Bloch, Eko's chief executive officer, Walmart said. Eko has previously partnered with Sony Pictures Entertainment and MGM Studios, and received prior funding from Sequoia Capital, Intel Capital, Warner Music Group, Samsung and Walmart. As part of the venture, Walmart has agreed to participate in Eko's next funding round. Shares of Walmart have fallen 3% so far this year, while the Dow Jones Industrial Average has gained 3.6%. Published:10/11/2018 7:43:13 AM
[Markets] All 30 Dow stocks fall ahead of the open All 30 Dow stocks fall ahead of the open Published:10/11/2018 7:18:50 AM
[Markets] "It's Just Beginning": US Futures Plunge As Global Rout Hammers Asia, Europe

It is a sea of blood red this October morning as the biggest market rout since February and the longest selloff of the Trump administration triggered a surge of global selling from the U.S. through Asia and spreading to Europe on Thursday, with markets from Tokyo to London slumping amid fresh fears the decade-old bull market may be coming to an end.

“Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” summed up analysts at ANZ.

The sell-off that started in the U.S. ripped across Asian stock markets Thursday, with indexes in Japan, Hong Kong and China all tumbling.

All but one stock listed on Japan’s Nikkei 225 Stock Average retreated, while the country’s Topix index posted its steepest decline since March losing around $207 billion in market value, falling 3.5%. China’s Shanghai Composite sank 5.2%, its biggest drop since February 2016 to close at its lowest since November 2014, while the Hang Seng Index lost 3.5%. Taiwan’s Taiex index led the rout with a 6.3% slump.

The MSCI Asia Pacific Index had its worst day since June 2016, when the U.K. voted to leave the EU, with the index plunging 3.5% and closing in on entering a bear market.

Turbulence spiked in Asian markets as the Nikkei Stock Average Volatility Index surged 44%. The MSCI Asia Pacific Index ex Japan closed down 3.6%, hitting its lowest level since March 2017. China’s main indexes had slumped over 5 percent

The Asian regional benchmark gauge has slumped 13 percent this year as uncertainties such as the U.S.-China trade war weigh on investor sentiment. The Shanghai Composite Index has lost 22 percent in 2018, while Japan’s Topix is down 6.4 percent.

"It’s just a beginning," said Banny Lam, head of research at CEB International Investment. "The U.S. tech bubble may take a while to burst and we are facing many external uncertainties - trade wars, risks in emerging markets currencies and oil price. And people should also watch yuan closely."

"Asia is like a leveraged play on the U.S. market and the global trade situation right now, that’s not going to change until a deal is reached between the two largest economies in the world,” said Olivier d’Assier, head of applied research for the Asia-Pacific region at Axioma. For emerging markets, “the trifecta of a falling U.S. market, higher U.S. interest rates, and a stronger dollar is a deadly combination so they are likely to remain under pressure.”

The Asian rout then spread to Europe, where stocks slumped to a more than an 18-month low. Losses in London, Paris and Milan were already climbing toward 2% in early trading, although the selloff wasn't quite as dramatic as the overnight session in Asia. Italian equities entered a bear market, however, on ongoing budget concerns and LeasePlan Group NV pulled a planned IPO.

As a result of the global rout, MSCI’s 24-country emerging market index was having its worst day since early 2016, after Wall Street’s swoon had given the 47-country world index equivalent its worst day since February.

Meanwhile, in a surprising reversal from previous routs, US futures failed to rebound as dip buyers stayed away from the E-Mini. S&P futures extended losses from Wednesday, when the Nasdaq 100 Index plunged more than 4% for its worst day in seven years.

The futures drop took place after the S&P500’s sharpest one-day fall since February wiped out around $850 billion of wealth as technology shares tumbled on fears of slowing demand. The S&P 500 ended Wednesday with down 3.29%, wiping out nearly half the year's gains in one session; the Nasdaq Composite plunged 4.08% and the Dow 2.2%.

"The latest drop is reminiscent of February’s selling, which saw its recovery assisted by positive earnings results," said Jingyi Pan, a market strategist at IG Asia Pte. “As for the upcoming earnings season commencing with major U.S. banks on Friday, the outlook is rather mixed thus adding to the uncertainty. It will be one worth watching for aid to the market given the proximity and it will be difficult to rule out further decline in the market absent positive factors.”

Investors seeking to isolate the cause of the current rout in equities have no shortage of culprits: U.S companies are increasingly fretting the impact of the burgeoning trade war, while the same concern prompted the IMF to dial down global growth expectations for the first time in 2 years. In the tech sector, which was a key driver of the rally that pushed American equities to a record just a month ago, expensive-looking companies have been roiled by a hacking scandal.

At the same time, the Federal Reserve has been trimming its balance sheet and raising interest rates which as "well below" the neutral rate of interest according to Powell, which in turn provoked the ire of President Donald Trump and helping force a repricing of riskier assets. Trump, who has claimed credit for record U.S. stock levels, said after the market closed on Wednesday that the Fed is "loco", that it is making a “mistake” and “has gone crazy.

Commenting on the recent move, Saxo Capital strategist Eleanor Creagh said that "the sharp rise in U.S. 10-year yields has caused investors to suddenly reprice the impact of moving from post-crisis low yields to a rising rate environment. We have the global growth engines, price of energy rising, price of money rising and quantity of money falling combined with the ongoing trend of de-globalization which has started to impact markets and the cracks are showing.”

Curiously, Treasuries which helped trigger the stock selloff when 10-year yields hit the highest since 2011, nudged higher after jumping on Wednesday as bonds have once again become a safe haven. It meant that as equities were caught in a global carnage, US Treasurys were oddly calm, with the 10Y generally unchanged overnight.

“The rise in Treasury yields has been the primary catalyst for the sell-off in equities, since higher yields suggest a lower present value of future dividend streams, assuming an unchanged economic outlook,” said Steven Friedman, senior economist at BNP Paribas Asset Management. “It is also possible that equity investors are growing concerned that the Federal Reserve’s projected rate path will choke off the expansion.”

Meanwhile, Italian bonds sold off again as Deputy Premier Matteo Salvini once again said the populist government will stick with its budget plan and that rating agencies "won't make us change our minds", though the country successfully sold new debt. Asked about possible downgrade by ratings agencies and concerns about spread with German bunds, Salvini said "we’ve already seen this movie in the past, it’s forced Italians to make incredible sacrifices, to have cuts on schools and reforms on health and pensions which impoverished,” adds “we will do exactly the opposite.”

“It remains to be seen whether the accelerating equity plunge is a healthy correction or the tip of the iceberg,” Commerzbank analysts said in a note. “For sure it creates a more challenging environment for today’s (Italian) auctions.”

Meanwhile, bunds and gilts led advances amid the broader risk-off mood.

The shift in yields is also sucking funds out of emerging markets, putting particular pressure on the Chinese yuan as Beijing fights a protracted trade battle with the United States. China's central bank has been allowing the yuan to gradually decline, breaking the 6.9000 barrier and allowing traders to push the dollar up to 6.9431.

China’s move has forced other emerging-market currencies to weaken to stay competitive and drawn the ire of the United States, which sees it as an unfair devaluation. “The yuan has already weakened significantly, to offset the tariffs announced so far,” said Alan Ruskin, Deutsche’s global head of G10 FX strategy. “Further weakness could exacerbate concerns of a self-fulfilling flight of capital and a loss of control.”

Still, there was little sign of panic in currencies, where the euro gained and dollar weakened versus most of its major counterparts. The Swedish krona was the standout gainer, jumping after inflation data. The Turkish lira and rand rallied, but emerging currencies overall edged lower. The euro was at $1.1550 up from a low of $1.1429 early in the week. The dollar lapsed to 112.14 yen, a retreat from last week's 114.54 peak. That left the dollar at 95.263 against a basket of currencies

Sinking global shares have raised the stakes for U.S. inflation figures due later on Thursday. High inflation would only stoke speculation of more aggressive rate hikes from the Federal Reserve.

In commodity markets, gold struggled to get any safety bid and edged down to $1,192.77. Oil prices skidded in line with U.S. equity markets, even though energy traders worried about shrinking Iranian supply from U.S. sanctions and kept an eye on Hurricane Michael, which shut down some U.S. Gulf of Mexico oil output. Brent crude fell 1.6 percent to $81.75 a barrel. U.S. crude dropped 1.5 percent to $72.07. A Bloomberg index of cryptocurrencies dropped as much as 11%.

Scheduled earnings include Walgreens and Delta Air Lines. CPI figures, jobless claims are among economic data due.

Finally, one wonders just what is it about October, when half of the biggest US market crashes have taken place.

Market Snapshot

  • &P 500 futures down 1% to 2,753.75
  • STOXX Europe 600 down 1.4% to 361.75
  • MXAP down 3.5% to 151.91
  • MXAPJ down 3.7% to 473.27
  • Nikkei down 3.9% to 22,590.86
  • Topix down 3.5% to 1,701.86
  • Hang Seng Index down 3.5% to 25,266.37
  • Shanghai Composite down 5.2% to 2,583.46
  • Sensex down 1.6% to 34,218.05
  • Australia S&P/ASX 200 down 2.7% to 5,883.76
  • Kospi down 4.4% to 2,129.67
  • German 10Y yield fell 3.9 bps to 0.513%
  • Euro up 0.2% to $1.1547
  • Brent Futures down 1.1% to $82.16/bbl
  • Italian 10Y yield rose 2.9 bps to 3.133%
  • Spanish 10Y yield rose 1.2 bps to 1.625%
  • Brent Futures down 1.1% to $82.16/bbl
  • Gold spot up 0.2% to $1,197.28
  • U.S. Dollar Index down 0.2% to 95.33

Top Overnight News from Bloomberg

  • The biggest stock sell-off since February rolled from the U.S. through Asia on Thursday, with benchmarks from Tokyo to Hong Kong seeing declines in excess of 3 percent. Some emerging- market currencies also came under pressure, with the won hitting a one-year low
  • A sell off in Hong Kong and Chinese shares deepened following a slump in U.S. equities amid concerns about a trade war
  • President Donald Trump slammed the Federal Reserve as “going loco” for its interest-rate increases this year. His latest criticism of the Fed began earlier Wednesday. “They’re so tight. I think the Fed has gone crazy,” the president said
  • Wall Street is bracing for the prospect that the U.S. uses this month’s semiannual foreign-exchange report to label China a currency manipulator. IMF Managing Director Christine Lagarde says yuan weakness has a lot to do with dollar strength
  • Brexit negotiators are edging toward a compromise on the thorniest issue in talks. The main sticking point is how to keep the Irish border open after Brexit
  • Oil extended losses as U.S. stocks tumbled on a concern over a trade war with China and Hurricane Michael threatened to slash demand in America’s southeastern fuel markets
  • Global finance chiefs including U.S. Treasury Secretary Steven Mnuchin played down the economic risks posed by the biggest U.S. stock sell-off since February, with many describing the decline as a long-awaited correction
  • Convergence to sustainable price stability in the euro area “requires significant monetary stimulus” and this calls for “prudence and for a gradual approach to monetary policy normalization,” ECB Governing Council member and Bank of Finland Governor Olli Rehn says in remarks at panel in Bali, Indonesia
  • A former UBS Group AG banker is set to testify as soon as Thursday as the U.S. government’s star witness against three British traders accused of conspiring to rig the foreign-exchange market

Asian stocks drowned in a sea of red following the battered lead from Wall St. amid a sell-off in tech stocks where the sector posted its worst day since 2011. Dow and S&P notched their biggest one-day drop since early February, while Nasdaq fell below its 200 DMA to experience its largest single-day decline since June 2016. ASX 200 (-2.5%) was dragged lower by the tech sector, closely followed by the energy names, while Nikkei 225 (-4.0%) plumbed the depths amid weakness in mining and energy names alongside currency effects. Elsewhere, Hang Seng (-3.7%) and Shanghai Comp. (-4.3%) dived deeper into bear-market territory in a continuation of the tech sell-off, with the former hitting lows last seen in February while the latter tumbled to 4-year lows.

Top Asian News

  • India’s Sensex on Verge of Losing Yearly Gain Amid Global Rout
  • Wave of Reforms Coming as Indonesia Confronts Weak Currency
  • China Urges U.S. to Address Trade Differences by Talks
  • IMF Says Pakistan Has Formally Requested Financial Assistance

Major European indices are all in the red due to the global market turmoil which began on Wednesday in U.S markets (Euro Stoxx 50: -1.3%), the cause has been quoted as a multitude of factors not limited to; US-China trade tensions, the current yield environment, the Italian political situation and suggestions that the markets were overdue a correction. However, it is yet to be seen whether this is part of a broader economic downturn as we enter into U.S earning season with a relatively solid U.S economic backdrop. All sectors are down with energy firms down by over 2% in fitting with price action in the complex. Healthcare and consumer staples are the best performing sectors as more defensive investments are sought in the risk-off environment, but are both in the red by just under 1% Dialog Semiconductor is vastly outperforming, up over 23%, following a EUR 600mln deal with Apple, which has led to the company updating their revenue outlook for the next 4 years. Ingenico are also up over 12% after confirmation that Natixis (-4.5%) are in the early stages of take over discussions. Hays Plc are at the bottom of the Stoxx 600, down by 12% after reporting a slower quarterly growth rate.

Top European News

  • London Housing Is Taking a Beating From From Brexit Uncertainty
  • Russia Targets 25% Global Energy Market Share: La Stampa
  • Merlin Says Report on El Corte Ingles Talks ‘Unfounded’
  • Semis Are Worst Hit as Tech Stock Sell-off Extends in Europe
  • Italy’s FTSE MIB Is Set to Enter Bear Market on Budget Concerns

In FX, the EUR is firmly back above 1.1500 vs the Usd and pivoting 1.1550 within a higher range flanked by hefty option expiry interest (1.8 bn at the 1.1500 strike and 2.3 bn from 1.1600-20), while also facing chart resistance in the 1.1572-91 region that houses a daily top, 55 DMA and Fib. Fundamentally, not much to glean from latest ECB comments, but the minutes may provide something to trade off. In EM, the Lira stands out amidst broad rebounds vs the Dollar across the region as Usd/Try crosses the 6.0000 handle to the downside on a combination of more concerted efforts to get runaway Turkish inflation back down towards target and a wider than forecast current account surplus. Elsewhere, the Rand and Real also have data to digest in the form of SA manufacturing production and Brazilian retail sales that might deflect some attention away from domestic politics, for a while at least. SEK - Hot on the heels of its Scandi peer, the Sek has seized pole position on the G10 grid and extended gains on the back of relatively hawkish Riksbank rhetoric, as Swedish CPI and CPIF readings also topped market expectations. In response, December rate hike odds have narrowed to better than evens, while Eur/Sek is testing psychological support circa 10.4000 ahead of the nearest downside tech level around 10.3725 (early October low)

In commodities, both WTI and Brent are down by 2% at just under USD 72/bbl and USD 82/bbl respectively with prices hampered by the risk-off environment as investors are concerned following global growth uncertainty and ongoing trade disputes. This comes alongside API’s reporting a larger than expected headline build of +9.75mln offering pressure on the fossil fuel. Supply concerns from Hurricane Michael are also easing as oil assets were likely spared significant damage from the storm. Gold is up 0.3% as investors seek safe havens from the current global dip, gold has subsequently breached USD 1200/oz to the upside. Base metals also fell again amidst the broader global risk sentiment with underperformance seen in copper.

US Event Calendar

  • 8:30am: US CPI MoM, est. 0.2%, prior 0.2%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%
  • 8:30am: US CPI YoY, est. 2.4%, prior 2.7%; CPI Ex Food and Energy YoY, est. 2.3%, prior 2.2%
  • 8:30am: Real Avg Weekly Earnings YoY, prior 0.52%; Real Avg Hourly Earning YoY, prior 0.2%
  • 8:30am: Initial Jobless Claims, est. 206,500, prior 207,000; Continuing Claims, est. 1.66m, prior 1.65m
  • 9:45am: Bloomberg Consumer Comfort, prior 61.6

DB's Jim Reid concludes the overnight wrap

Days like yesterday, although brutal, restore one’s belief that at this stage of the rate cycle things should start to get more difficult and more volatile even if the center (the US economy) is still likely to hold for now. In fact it’s been our thesis that the US economy at risk of overheating is partly what’s going to drive volatility up. So with that in mind today’s US CPI comes at a fascinating point.

Before reviewing that let’s review the wreckage from yesterday. The S&P 500 (-3.28%) and DOW (-3.15%) both had their worst days since the February market correction and the NASDAQ (-4.08%) shed the most since June 2016. The S&P 500 has now traded lower for 5 consecutive sessions, shedding -4.77% over that period, its longest such stretch since March.

Every S&P 500 sub-sector traded lower amid generalised risk-off sentiment, but the FANGs (-5.60%) continued to underperform, saw their worst day since March and are now down -17.86% from their June peak. Volatility spiked, with the VIX index up 7.01pts and closing at its highs around 22.96, a six-month high. Using another measure of vol, this year we’ve now had 6 days with the S&P 500 falling more than 2% - the most since 2011. 2017 had none. Perhaps tellingly, Treasuries yields were higher all day until a mini plunge started with 10 minutes left of US equity trading. They traded around -4.3bps lower for the day at 3.164% at the close. In Asia overnight they are at 3.147% as we type. US HY had been the most expensive part of the credit spectrum in our view and was at 9 month tights 2 weeks ago but has been selling off of late. CDX HY widened 18.1bps yesterday and is now around 46.7bps wider than the late September tights and back nearer the top end of the YTD range.

On the equity sell off the big names in the US administration had their say. US Treasury Secretary Steven Mnuchin said, “the fundamentals of the U.S. economy continue to be extremely strong, I think that’s why the stock market has performed as well as it has. The fact that there’s somewhat of a correction given how much the market has gone up is not particularly surprising” while President Trump also said that the stocks decline was “a correction that we’ve been waiting for for a long time.” However, Trump stepped up his rhetoric on Fed saying that it is making a “mistake” by raising rates and “has gone crazy” while adding that yesterday’s market plunge wasn’t because of the US trade war with China.

This morning in Asia, the risk off sentiment has continued from Wall Street with all equity indices trading in sea of red and bumping around the lows for the session as we type. The Nikkei (-4.28%), Hang Seng (-3.74%), Shanghai Comp (-4.34%), ASX (-2.40%) and Kospi (-3.61%) are all down but in these fast markets things might have changed again by the time you read this. In other markets, Taiwan’s Taiex (-6.23%), India’s Nifty (-2.78%) and Indonesia’s Jakarta Comp (-1.67%) are all heading lower. Elsewhere, futures on S&P 500 are down another -0.66%. Overnight, BoJ board member Makoto Sakurai called for the central bank to assess the sustainability of its easing policy from a much wider perspective indicating that the policy tweaks in July haven’t put to bed concerns over side effects. She said that the BoJ needed to keep in mind the risk of distortions building up in the economy and the financial sector if the easing policy is prolonged in a favorable economic environment with demand exceeding supply.

Today will be a key test for markets with US CPI set to dominate attention. The consensus doesn’t expect much to happen, but then again it rarely has for this data print over the last few years. The consensus forecast is again at +0.2% mom for the core for the 36th successive month. DB is at +0.25% mom so we think it could round up to 0.3%. Before the recent risk-off, I would have automatically said that the downside risks to the market from an upside inflation print were much larger than the upside market risks from a downside surprise. However, given the recent risk sell-off, you’d have to say that there is scope for a decent relief rally on a softer number. Medium-term though, signs of higher inflation would be much worse for risk than softer inflation would be positive.

Back to yesterday and in Europe a number of markets hit YTD lows with the DAX (-2.21%) at the lowest since February 2017 and experiencing the 5th worst day of the year. The Stoxx 600 (-1.61%) was at the lowest since March. The FTSEMIB (-1.71%) actually held in well relative to the market, though it did reach a fresh 20-month low. 10yr BTPs only rose 3.0bps and only slightly widened to Bunds (+0.5bps). The S&P fell -1.82% after Europe closed so there should be some additional catch up this morning.

On Italy, Moody’s chief economist, Mark Zandi said that it is logical that the market concerns about Italy will be reflected in ratings agencies’ upcoming reviews of the country. He added that the Italian government’s fiscal plan can be compared to gambling with the long-term fiscal and economic health of Italy. Elsewhere, Italian Deputy Premier Matteo Salvini said that he won’t go back on pension reform and tax cuts in budget plan while adding he is “absolutely sure” that the BTPs-bunds spread won’t reach 400bps. It’s hard to know how he can control for both of these. In the meantime Finance Minister Tria reiterated more of same at his parliament hearing saying “the rise in government bond yields recorded in the last few days is certainly a reason for concern, but I want to reiterate that it was an excessive reaction which is not justified by the fundamentals of Italy’s economy and public finances.”

On Brexit it was another eventful day. Media reports highlighted that the UK and EU officials engaged in talks indicated that the UK government is likely to back down on opposition to new regulatory checks on some items moving between the British mainland and Northern Ireland while, in exchange, the UK is seeking the EU to compromise and allow the whole of the UK, not just Northern Ireland, to stay in the bloc’s customs regime until a future trade deal is eventually drawn up between the two sides. The officials  indicated that the discussions over the next few days could lead to provisional agreement between the EU and the UK over the issue of the Irish backstop on Monday. The chief EU negotiator Michel Barnier confirmed this positive movement, saying "a deal is  within reach." Elsewhere, the UK Prime Minister Theresa May’s de-facto deputy, David Lidington, said in an interveiw that “we’ve got a fair way to go still. There are still differences between our position and that of the European Commission, but we’re working very hard to overcome them.”

Looking at the data releases from yesterday. In US, September PPI and core PPI both printed in line with consensus at +0.2% mom, rising for the first time in 3 months largely on the back of higher airfares (+5.5% mom; highest since 2009) and rail-transportation costs (+1.4% mom; highest since 2012). Overall, services prices increased +0.3% mom while the cost of goods fell -0.1% mom, reflecting declines in both food and energy. The core-core PPI stood at +0.4% mom (vs. +0.2% mom expected).

Across the pond in Europe, France’s August industrial production came in at +0.3% mom (vs. +0.1% mom expected) while the previous months was revised upwards to +0.8% mom from +0.7% mom and manufacturing production came in at +0.6% mom (vs. +0.1% mom expected). Industrial production also rose in Italy (+1.7% mom), Spain (+0.7%), and the Netherlands (+1.7%). These prints are likely distorted due to new regulations, but the trend signals healthy IP growth of around 1% for the euro area overall. In the UK, the August three month GDP change came in at +0.7% 3m/3m (vs. +0.6% 3m/3m expected) with August GDP remaining flat as against consensus of +0.1% mom. The UK’s August visible trade balance stood at -£11.2bn (vs.-£10.9bn expected) while the trade balance came in at -£1.3bn (vs. -£1.2bn expected). UK’s August industrial production came in at +0.2% mom (vs. +0.1% mom expected), manufacturing production at -0.2% mom (vs. +0.1% mom expected) and construction output at -0.7% mom (vs. -0.5% mom expected).

Before the US CPI print today, we'll get CPI revisions in France and Spain. Later this morning, the Bank of England will publish its latest credit conditions and bank liabilities survey. The ECB will publish the minutes of its September policy meeting this afternoon, while BoE Governor Carney will speak on a panel alongside Banque de France Governor Villeroy. Concurrent with the US CPI, the latest weekly jobless claims will print.

Published:10/11/2018 6:13:15 AM
[Markets] US Stocks Braced for More Selling as Global Markets Tumble in Wall Street's Wake Wall Street futures point to a heavy opening bell decline Thursday, with the Dow set for a 300 point slump following the biggest single-day decline for U.S. Stocks in at least eight months. European and Asia markets sold off sharply overnight, with tech stocks leading the decline, as China's Shanghai Composite fell more than 5.2% and the Stoxx 600 benchmark slipped past a 20-month low. U.S. Treasury bond yields, which sparked yesterday's accelerated sell-off, eased overnight and ahead of today's 30-year auction, but sharp Fed criticism from President Donald Trump has pressured rate hike bets for 2019. Published:10/11/2018 6:13:14 AM
[Markets] Mnuchin Says Market Rout Was "Temporary Correction" As Selloff Worsens

With global stocks locked in their most extreme bout of volatility in at least eight months, and with the situation rapidly deteriorating as US stocks looked set to drop at the open on Thursday, Treasury Secretary Steven Mnuchin is probably finding it difficult to enjoy the beaches and sights of Bali during this week's IMF/World Bank conclave. And after watching in amusement as President Trump brutally scapegoated Fed Chairman Jerome Powell for the selloff, Mnuchin convened a group of reporters from Bloomberg and a handful of other media organizations  early Thursday to assure global investors (and, more importantly, the president) that this bout of turbulence is merely a "temporary correction."

Mnuchin

While Trump laid the blame for the selloff squarely at the feet of the "loco" Fed Powell, Mnuchin cautioned that economic "fundamentals" in the US remain strong and a "correction" in stocks isn't "particularly surprising."

"The fundamentals of the US economy continue to be extremely strong, I think that's why the market has performed as well as it has. The fact that there's somewhat of a correction given how much the market has gone up is not particularly surprising," Mnuchin said.

Instead of blaming the Fed for the selloff, it would be better to frame it as a "normal correction," per CNN. Because, after all, "markets aren't efficient" and sometimes overreact - even when everything is fine.

"I don't think there was any new news that came out of the Fed today that wasn't there beforehand," Mnuchin said Thursday morning in an interview in Bali, Indonesia. He was speaking hours after the Dow and other major US indexes plunged more than 3%.

"Markets are not efficient and markets move in both directions and at times they overshoot in both directions...Markets go up. Markets go down," Mnuchin said on the sidelines of a meeting of global finance chiefs and central bankers hosted by the International Monetary Fund. "I see this as a normal correction."

Mnuchin also rejected the idea that the intensifying US-China trade war has triggered the selloff, claiming that there has been no "new" news to provoke a market panic (though this ignores the possibility that the reality is finally setting in that the trade dispute could be much more disruptive and investors had hoped, and also Mnuchin's own hints that the trade war could soon metastasize into a currency war).

"Nothing has changed on the trade side in the last 48 hours," he said.

Yet, while US and Chinese officials have insisted that there wouldn't be any trade talks during this week's meeting in Bali, it appears Mnuchin met the head of the PBOC for a quick photo op.

Christine Lagarde, who inspired a nervous shudder in markets last week when her IMF downgraded its global growth forecast, said investors shouldn't read too much into the selloff, saying "there are ups and downs, and I think it’s fair to observe that the U.S. equity markets and stock markets in general have been extremely high." However, she added, if anything was responsible for the selloff, it was tightening monetary policy (AND protectionism, of course) was responsible for the selloff (this isn't what Powell wants to hear, we imagine).

Expect more of this jawboning from Mnuchin, because if the selloff continues, an aggravated Trump will almost certainly demand a scapegoat's head. Right now, that scapegoat looks to be Powell:

Still, Trump's famously mercurial moods mean that the object of his wrath could easily shift.

Published:10/11/2018 5:45:41 AM
[Markets] Stock Market Selloff, Tech Rout, Apple and Elon Musk - 5 Things You Must Know U.S. stock futures were down sharply on Thursday, Oct. 11, and global stocks fell dramatically after the Dow Jones Industrial Average plummeted 831 points on Wednesday, Oct. 10, the S&P 500 dived 3.3% and the Nasdaq sank 4.1% in its worst day of the year after tech stocks went into a tailspin. Both the Dow and S&P 500 on Wednesday logged their largest losses on a percentage basis since Feb. 8. For the month, the Nasdaq has fallen 7.8%. Published:10/11/2018 5:45:41 AM
[Markets] Market Extra: Why the stock market tumbled Wednesday, ushering in its worst start to a quarter in about 2 years It has been an ugly stretch for U.S. stocks, which was capped by Wednesday’s more than 830-point decline for the Dow Jones Industrial Average.
Published:10/11/2018 4:43:43 AM
[Markets] These stocks in the Dow Jones Industrial Average, S&P 500 and Nasdaq declined the most today DEEP DIVE U.S. stocks suffered an unusually brutal decline Wednesday, as investors worry about interest rates rising from historical lows. The Dow Jones Industrial Average (DJIA) was down 832 points, or 3. Published:10/10/2018 10:13:38 PM
[Markets] Why the stock market tumbled Wednesday, ushering in its worst start to a quarter in about 2 years It has been an ugly stretch for U.S. stocks, which was capped by Wednesday’s more than 830-point decline for the Dow Jones Industrial Average. Published:10/10/2018 8:11:37 PM
[Markets] How to save for your kids’ college education during stock market turbulence Parents may be worried about their 529 college saving accounts as the Dow dips.
Published:10/10/2018 8:11:36 PM
[Markets] Key Words: Trump says the Fed has ‘gone crazy’ after the Dow tumbles 830 points in one day President Trump continues his complaints about the Federal Reserve policy-making after an ugly down day for stocks that saw the Dow Jones Industrial Average fall by more than 830 points.
Published:10/10/2018 7:11:30 PM
[Politics] DOWpocalypse!! Stock market COLLAPSES, and Trump knows EXACTLY who’s TO BLAME!! The Dow collapsed today, and some say its based on worries about inflation and the fed reserve choice to raise interest rates. Reuters: The Dow Jones Industrial Average fell 831.83 points, or . . . Published:10/10/2018 5:44:16 PM
[Politics] DOWpocalypse!! Stock market COLLAPSES, and Trump knows EXACTLY who’s TO BLAME!! The Dow collapsed today, and some say its based on worries about inflation and the fed reserve choice to raise interest rates. Reuters: The Dow Jones Industrial Average fell 831.83 points, or . . . Published:10/10/2018 5:44:16 PM
[Markets] Trump says the Fed has ‘gone crazy’ after the Dow tumbles 830 points in one day President Trump continues his complaints about the Federal Reserve policy-making after an ugly down day for stocks that saw the Dow Jones Industrial Average fall by more than 830 points. Published:10/10/2018 5:44:16 PM
[Markets] Dow futures tumble more than 1,000 points Wednesday evening Dow futures tumble more than 1,000 points Wednesday evening Published:10/10/2018 4:40:23 PM
[Markets] President Trump Scapegoats Powell For Market Massacre: Fed Has "Gone Crazy"

Update: After a 1000 point plunge in The Dow, President Trump has found a scapegoat.

After The White House put out the calming statement (below), he exclaimed, The Federal Reserve has “gone crazy... is too tight,” according to AP, adding that markets are "in correction... a correction we have been waiting for, for a long time."

Again we're reminded of an old friend's tweet this evening...

*  *  *

What a difference a week makes.

It was just on October 3 that Trump, gloating in the warm glow of a new all time high in the S&P tweeted that "The Stock Market just reached an All-Time High during my Administration for the 102nd Time, a presidential record, by far, for less than two years. So much potential as Trade and Military Deals are completed."

Fast forward just 1 week when things are decidedly less glowing, and on a day in which the VIX exploded, the Nasdaq tumbled 4%, the S&P slumped below all key support levels, and the Dow plunged more than 800 points, its worst day since February in a Black Wednesday for tech stocks, there is far less cause for celebration.

In fact, according to CNBC's Eamon Javers, Trump was briefed on the market sell off this afternoon. And while Trump will most likely not tweet any celebratory message today, a senior White House official give Javers the following comment: "This is a bull market correction. It’s probably healthy. This will pass and the US economy remains strong."

So who was behind the selloff: deleveraging risk parity funds? Selling CTAs? A wholesale derisking into a higher interest rate environment. Or... could it be China, with its $1.5 trillion in reserves sending Trump a clear message what could happen if Trump continues to unleash hell in Beijing's general direction?

While it is unlikely that the culprit will be revealed, there is nothing that would prevent Trump from pushing the former narrative and blaming Beijing for today's rout.

That said, there is one more person who should be rather nervous after the plunge: recall that exactly 24 hours ago Trump said that he doesn't "like what the Fed is doing." What better justification could Trump have to "push" Powell than to accuse him of the second worst selloff of 2018?

Indeed, as one notable fintwit member said, a little more downside in the S&P, "and Powell can start putting his coffee cups and pencils in a cardboard box."

Published:10/10/2018 4:40:22 PM
[Markets] Carnage Continues After-Hours - Dow Down 1000 Pts, Nasdaq Collapses 5%

After the ugliest day in years, things got uglier after-hours...

Dow futures are now down 1000 points...

The S&P is testing a critical trendline...

And Nasdaq futures down 5%!!

This is the worst day for Nasdaq Futures since 2011...

Published:10/10/2018 4:10:17 PM
[Markets] Dow industrials end down over 800 points in worst day since February Dow industrials end down over 800 points in worst day since February Published:10/10/2018 3:12:18 PM
[Markets] "Markets In Turmoil": FANG Freefall Sparks Longest Losing Streak Of Trump Era

Well that escalated quickly...

China was "stable" overnight (but won't be when it opens tonight)...

European stocks were pummeled lower today...

In Italy, Ferrari and Pirelli plunged and were halted Limit-down... with China cracking down on luxury goods and broader auto fears...

EU and US Autos have plunged...

 

 

With Ford trading with an $8 handle at its lowest since Nov 2009

 

S&P longest losing streak since Nov 2016... Nasdaq down 4% worst day since Brexit...

As Bloomberg notes, today is the fifth straight day of losses in the S&P 500. That's the longest streak of declines since President Trump was elected. Even the correction in the February and the retest in March didn't go in a straight line like this. So far, the damage hasn't been too bad, however. The S&P 500 is down only about 2.4% in those five days and only about 2.6% from its last record in September.

October...

 

Dow drops over 800 points at its lows and appears to confirm the double top...

Trannies are now red YTD...

 

Technical Levels are falling like flies...

  • Dow < 50DMA

  • S&P < 100DMA

  • Nasdaq < 200DMA

  • Small Caps < 200DMA

  • Transports < 200DMA

 

Tech stocks took in on the chin...

 

FANG was proper f++ked...

 

NFLX and FB now in bear markets (down over 20% from highs), FB down over 10% from highs...

 

Equity market breadth is a disaster...

 

VIX spiked above 22...

 

The VIX term structure is the most inverted since April...

Quite a shift in the last week...

 

Before we leave stocks - here are a few charts to help put the move in the S&P in context...

Hedge Funds...

Financials...

Semis...

Homebuilders...

Autos...

Materials...

Dr.Copper...

And the real economics PhD - Dr. Lumber...

And finally, Credit markets are starting to get monkey-hammered...

And in case you're wondering what's holding up the S&P...

 

Despite credit and equity carnage, bonds were not 'safe haven' bid as the long-end reversed yesterday's gains...but as stocks accelerated lower, bonds did catch some buying, leaving the entire curve lower in yield on the week...

 

However, we do note that today's selling pressure failed to make a new 30Y high (yield)...for the first time in 8 days

 

The yield curve reversed steeper today, erasing yesterday's flattening...

 

NOTE - 10Y Yields dropped notably in the last hour as selling accelerated in stocks...

 

The market is still not buying what The Fed is selling...

 

The Dollar Index managed a small gain on the day but had another roundtrip session...

 

Offshire Yuan tumbled...

 

Cryptos are generally unch on the week aside from Ripple's Collapse...

 

Crude and Copper were clobbered as PMs caught a safe haven bid...

 

Finally, we note that the Fear-and-Greed index has swung from the latter to the former in near record time...

Source

1987? Or The Titanic?

We give the last word to an old friend who seemed to nail things perfectly...

 

Published:10/10/2018 3:12:18 PM
[Markets] 600 and counting: The Dow continues to drop precipitously in afternoon trading 600 and counting: The Dow continues to drop precipitously in afternoon trading Published:10/10/2018 2:42:46 PM
[Markets] The Dow is now down 500 points as Wednesday's stock rout grows The Dow is now down 500 points as Wednesday's stock rout grows Published:10/10/2018 1:45:20 PM
[Markets] Support Levels to Watch in the S&P 500 as the Sell-Off Continues As of 12:30 PM EDT on October 10, the S&P 500 Index (SPY) has fallen 1.4%, the Dow Jones Industrial Average (DIA) has fallen 1.4%, and the NASDAQ Composite Index (QQQ) has fallen 2.0%. On October 4, we published our second technical outlook pointing toward a potentially steep market correction. In our first technical outlook article in August, we warned of an unfolding bearish technical pattern called the “rising wedge,” which was confirmed by the broader market weakness on October 4. Published:10/10/2018 1:45:20 PM
[Markets] Boeing stock decline accounts for about 90 of the Dow's nearly 400-point fall Boeing stock decline accounts for about 90 of the Dow's nearly 400-point fall Published:10/10/2018 1:20:24 PM
[Markets] Dow selloff gains steam and tumbles below 26,000 as blue chips threaten nearly 500-point loss The Dow Jones Industrial Average on Wednesday afternoon was on the brink of unraveling, with the blue-chip gauge falling more than 500 points and hitting fresh lows for the session. Most recently, the Dow was off 508 points, or 2%, at 25,920, poised for its ugliest day since April as Wall Street investors continued to react to a rising-rate environment that has seen the 10-year Treasury note yield 3.23%--its highest level since 2011. The S&P 500 index was down 1.9% at 2,825, while the Nasdaq Composite Index declined by 2.3% at 7,558. All three benchmarks were looking at their steepest one-day decline since April. Published:10/10/2018 1:20:24 PM
[Markets] T. Rowe Price raises Tesla stake T. Rowe Price has raised its stake in Tesla Inc. , buying 17.43 million shares of the Silicon Valley car maker, upping its stake to 10.2%, according to a filing Wednesday. The asset managing company had a 6.9% stake in the last filing period, according to FactSet. That makes T. Rowe Price Tesla's No. 2 largest institutional investor behind Fidelity Mangement & Research Co., which has a 12.1% stake, and ahead of Baillie Gifford & Co.'s 7.7% stake. According to a filing Tuesday, Baillie Gifford has taken an 11.4% stake in Chinese electric-car maker Nio Inc.. Tesla shares fell 2.5% on Wednesday after settling 4.9% higher on Tuesday and snapping a five-day losing streak. The shares have lost 18% this year, which contrasts with advances of 6% and 5.4% for the S&P 500 index and the Dow Jones Industrial Average. Published:10/10/2018 11:41:27 AM
[Markets] Seven components cling to gains as Dow decline nears 400 points Seven components cling to gains as Dow decline nears 400 points Published:10/10/2018 10:40:02 AM
[Markets] Dow down 350 points as Wednesday slide steepens Dow down 350 points as Wednesday slide steepens Published:10/10/2018 10:11:32 AM
[Markets] Dow tumbles 260 points; Nasdaq now down 5.6% in October Dow tumbles 260 points; Nasdaq now down 5.6% in October Published:10/10/2018 9:41:08 AM
[Markets] US Stocks Plunge Below Critical Support, Everything's Red In October

The Dow just tumbled back into the red for October but it is Trannies, Small Caps, and Nasdaq that are bloodbathing this month as risk-parity deleveraging slams US equity markets below critical technical levels...

The Ides of October...

 

As the major US equity indices break below critical support...

Small Caps crash below the 200DMA...

 

The S&P broke notably below its 50DMA...

 

And Nasdaq has broken significantly below its 100DMA...

With aggregate stock and bond returns now significantly negative for 5 of the last 6 days...

As Risk-Parity funds continue to delever...

 

Published:10/10/2018 9:11:23 AM
[Markets] Stocks open lower as investors continue to monitor rising bond yields Stocks traded slightly lower after the opening ball Wednesday, with investors continuing to track rising government bond yields. The S&P 500 declined 0.3% to 2,871.85 , while the Dow Jones Industrial Average was off 40.66 points, or 0.1%, at 26,389.91. The Nasdaq Composite sank 0.6% to 7,693.53. Rising long-term yields have served to dampen sentiment in October. The yield on the 10-year Treasury note rose 3 basis points to 3.236%, not far off its more-than-seven-year intraday high above 3.26% notched early Tuesday. Published:10/10/2018 8:39:41 AM
[Markets] Sears Slumps, McDonald’s Rises as Dow Drops 25 Points Stocks failed in their comeback bid Tuesday, and the market was heading lower Wednesday morning, with the Dow Jones Industrial Average slightly in the red and the Nasdaq getting hit. The Wall Street Journal reports Sears has hired advisors for a potential bankruptcy filing. S&P 500 futures have fallen 0.4%, while Dow Jones Industrial Average futures have declined 82 points, or 0.3%. Published:10/10/2018 8:11:52 AM
[Markets] Dow Drops 25 Points as Earnings Season Highlights Inflation Concerns Stocks failed in their comeback bid Tuesday, and the market was heading lower Wednesday morning, with the Dow Jones Industrial Average slightly in the red and the Nasdaq getting hit. The Wall Street Journal reports Sears has hired advisors for a potential bankruptcy filing. S&P 500 futures have fallen 0.2%, while Dow Jones Industrial Average futures have declined 25 points, or 0.1%. Published:10/10/2018 7:38:55 AM
[Markets] Global Stocks Spooked As US Treasury Yields Resume Their Ascent

Global markets entered Wednesday in tentative fashion as US Treasury yields resumed their upward march after dropping the day before ahead of a closely watched US CPI report and as the US Treasury prepared to sell more debt to fund the soaring US deficit.

The mood in stocks soured, and European equities turned lower with American futures as Asian peers erased an advance while world stocks inched off eight-week lows; market gains were checked by fears for global economic growth, greater US decoupling, escalating trade war and the possibility of an Italy-EU clash over budget spending. The result was generally a sea of red among global capital markets in early trading.

The equity rout that resulted from the global bond selloff that took bond yields to seven-year highs this week were exacerbated by continued growth concerns arising from trade conflicts and $80-per-barrel oil, with the IMF cutting its world GDP forecasts for the first time in two years.

The yield on 10-year Treasurys resumed its ascent to 3.23% from 3.20%, after falling for the first time in a week on Tuesday, putting a lid on early trader optimism.

"We are at some sort of critical moment, a crossroads, for bond and equity markets,” Marie Owens Thomsen, global head of economic research at Indosuez Wealth Management, said noting that while U.S. 10-year yields at 2% unequivocally favored equity investment, this was not so above 3%. "This January we took out the 2 percent (yield) handle and now we are wondering if we are permanently taking out the 3 percent handle as well. That makes the climate for equities much more challenging."

The MSCI world equity index rose 0.14% after four days in the red. However, while Japan’s Nikkei and MSCI’s Asia-Pacific index outside Japan rose 0.2-0.3 percent, European shares slipped 0.2 percent, undermined by more bellicose rhetoric from Italian politicians.

The Stoxx Europe 600 Index dropped as most sectors turned lower. The European basic resources index (SXPP) - which was one of the best-performing sectors since the end of August - fell as much as 2.2%, one of Wednesday’s main sector laggards, as investors rotated toward defensive sub-groups including telecoms and health care. Milan-listed stocks traded between gains and losses, rising off 18-month lows hit earlier in the week.

Europe's weakness followed a modest recovery of bullish sentiment in Asia, as shares in Japan rose after four days of losses, South Korean equities slumped as trading resumed after a holiday while those in China closed 0.2% higher after fluctuating between gains and losses before edging barely up after early gains slipped with lithium-related stocks tumbling, while Tencent suffered a record ninth day of declines in Hong Kong.

The retreat in emerging markets took a pause on Wednesday after Donald Trump said the Fed is moving too fast on rate hikes and as traders awaited U.S. inflation data before taking a stance on riskier assets. Equities slowed their drop and currencies eked out their first gain this week, led by India’s rupee

The yuan slipped against the dollar for the fifth session out of the past six to approach four-year lows hit in August, unresponsive to Mnuchin's warning on devaluation. The focus is on next week’s semi-annual U.S. report on currencies amid Treasury officials’ comments that recent yuan depreciation has raised concerns in Washington.

The backdrop to global markets is still dominated by deepening U.S.-China tensions and a surge in volatility for stock and bond markets. While the Treasury rout has eased, a glut of new U.S. debt is coming to the market this week. American producer and consumer price data is also due in the next two days, and may determine where yields go from here.

"After President Trump once again criticized the Fed for raising rates too fast and he reiterated his preference for low borrowing costs, U.S. bond yields fell from their recent highs," Rabobank strategist Piotr Matys wrote in a note. "This in turn provided the emerging-market currencies with respite. However, looking from the perspective of technical analysis the price action implies that U.S. 10-year Treasuries have entered a period of consolidation."

Italian bonds initially dropped and bear flattened beyond the belly after Deputy PMs Salvini and Di Maio said the budget plan won’t change and there’s no going back, suggesting an unwillingness to compromise. Italy’s 10y spread to Germany blew out to 305bps, after Di Maio said that "our objective is not the spread, but the citizen... We expect that the economic growth rate will be higher” with measures included in the next year’s budget plan.

However the initial weakness reversed in a repeat of Tuesday's action after Finance Minister Giovanni Tria, speaking before the parliament’s joint budget committee, pledged action to restore calm should market turbulence escalate into financial crisis. Yields slipped further after Tria said he expected “collaboration” with the EU on the budget issue, and added that "the rise in government bond yields recorded in the last few days is certainly a reason for concern, but I want to reiterate that it was an excessive reaction which is not justified by the fundamentals of Italy’s economy and public finances."

That said, markets’ pressure has not dissuaded the government from a bigger-than-expected budget deficit as ministers’ comments indicated they are prepared to defy European Union critics. The developments have raised risks of a credit ratings downgrade for the country, with a knock-on effect for Italian banks which are big holders of government bonds. However the banks’ shares received a boost after an EU official told Reuters regulators were “intensely” monitoring Italian banks’ liquidity levels but there was no cause for alarm.

“I am not saying Italy is managing the situation in an ideal fashion but at the current junction I don’t think they are anywhere near a position where they can provoke another crisis in Europe,” Owens Thomsen said.

In currencies, the dollar reversed an early decline, rising to session highs, tracking Treasury yields, while another drop in Italian bonds kept the euro under pressure. The Bloomberg Dollar Spot Index heads for its third straight weekly advance as Treasury 10-year yields hold close to cycle highs and the euro meets selling interest on rallies above 1.15.

Politics were also in focus in Britain where reports of progress between the UK and the EU in negotiating a Brexit deal pushed the pound to 3-1/2-month highs against the dollar. Analysts at Eurizon SLJ Capital said parliamentary approval looked likely for Prime Minister Theresa May’s Brexit deal. The Times newspaper reported 30-40 opposition Labour MPs would back the agreement. “Already significantly undervalued, sterling has upside risks, especially against the euro,” Eurizon SLJ told clients, arguing that $1.55 was “fair value” for the currency.

The krone led gains in G-10 on stronger Norwegian inflation. Sterling hits its strongest level in two weeks on hopes officials will reach a compromise Brexit deal that could see the U.K. remain temporarily in the EU’s customs regime; wider than forecast trade deficit data helps push the pound back toward its opening level. The South African rand dropped following Tuesday’s rally.

In geopolitics, US President Trump said a summit with North Korean leader Kim Jung Un will be after US midterm elections on November 6th. In related news, US Secretary of State Pompeo noted real progress on his trip to North Korea and sees a full path to denuclearization.

In the latest Brexit news, ITV reported that UK PM May's negotiator Robbins has made meaningful progress in talks with EU's Chief Negotiator Barnier on the Irish border backstop. The article stated, "The most important development would be that the EU seems close to agreeing that the backstop would apply to the whole UK and not just to Northern Ireland, as it originally demanded - or at least it would apply to the whole UK for customs." (ITV) In related news, UK Brexit Minister Raab said the UK will not sign up to an indefinite customs union with the backstop and negotiations with the EU have intensified, some differences on the withdrawal agreement.

In commodities, WTI slipped but was still near $75 a barrel as Hurricane Michael curtailed offshore oil production and the IEA issued a warning to the global market.

Expected data include mortgage applications, PPIs, and wholesale inventories. Fastenal is among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,885.25
  • STOXX Europe 600 down 0.3% to 371.92
  • MXAP up 0.02% to 157.41
  • MXAPJ down 0.05% to 492.53
  • Nikkei up 0.2% to 23,506.04
  • Topix up 0.2% to 1,763.86
  • Hang Seng Index up 0.08% to 26,193.07
  • Shanghai Composite up 0.2% to 2,725.84
  • Sensex up 1.3% to 34,758.76
  • Australia S&P/ASX 200 up 0.1% to 6,049.81
  • Kospi down 1.1% to 2,228.61
  • German 10Y yield rose 0.2 bps to 0.551%
  • Euro down 0.01% to $1.1490
  • Italian 10Y yield fell 9.0 bps to 3.104%
  • Spanish 10Y yield rose 1.1 bps to 1.611%
  • Brent futures down 0.2% to $84.82/bbl
  • Gold spot down 0.2% to $1,187.48
  • U.S. Dollar Index up 0.1% to 95.76

Top Overnight News from Bloomberg

  • Republican groups have been pulling back in more than a half dozen tough House races to focus their resources in districts where they see a better chance to defend against a building midterm surge by Democrats
  • China plans to increase the number of companies it deems systemically important financial institutions, people familiar with the matter said, a sign that policy makers are stepping up crisis-prevention efforts as the nation’s debt burden swells to unprecedented levels
  • Mnuchin warns China on competitive currency devaluations; Treasury has monitored currency issues "very carefully"; notes yuan has "depreciated significantly" during the year: FT
  • Italy: Finance Minister Tria says budget watchdog approved govt economic forecast, however had different view on growth targets; rise in BTP yields are an excessive reaction
  • BOE’s Haldane: risks to domestic prices are now broadly balanced; U.K. wage growth is likely to be limited and gradual
  • Brexit: a group of 30-40 Labour MPs are prepared to back Chequers deal, according to people familiar: Times
  • ECB’s Mersch: tightening labor market should support core inflation; reiterates ECB will be data dependent
  • British and European Union officials are locked in talks in Brussels over a compromise Brexit deal that could see the U.K. remain temporarily in the EU’s customs regime, people familiar with the negotiations said
  • There are growing signs China’s yuan may weaken past 7 per dollar, a key psychological level it hasn’t breached in a decade. The latest came in a China Securities Journal commentary
  • The U.S. is threatening to block the U.K. from a 46- nation public procurement agreement, a move that would deny British companies from accessing a near $2 trillion-dollar marketplace after leaving the European Union, according to two officials with knowledge of the situation
  • Federal Reserve Chairman Jerome Powell is pinning his hopes of stopping the U.S. economy from overheating on a variable that a former colleague called “the most significant unobservable of all:” inflation expectations
  • Hurricane Michael’s winds rose to Category 4 strength of 130 miles an hour as it careened toward Florida

Asia-Pacific equities traded mixed as the region mimicked the lead from Wall St. where the S&P notched its fourth day of losses while the Nasdaq snapped its three-day losing streak. The Dow closed in the red as the major indices swung between positive and negative territory throughout the day. ASX 200 (+0.3%) was supported by strength in the healthcare and consumer discretionary sectors, while Nikkei 225 (Unch) was pressured by machinery names along with Softbank after reports emerged that the company discussed investing between USD 15bln-20bln for a majority stake in WeWork, while a firmer currency only subdued the index further. Elsewhere, mixed trade in China with Hang Seng (+0.5%) supported by oil names, while Shanghai Comp. (-0.3%) gave up initial gains to trade with no firm direction for most of the session before stabilising in the red.

Top Asian News

  • China’s Banking Showdown Pits WeChat vs. 3 Million Bank Tellers
  • Rocket Scientist’s Veggie Startup Is Said Valued at $7 Billion
  • Hong Kong Bans E-Cigarettes in Latest Blow for Big Tobacco
  • SoftBank Is Said to Consider Taking a Majority Stake in WeWork
  • Luxury Shoppers in China Still Buy Bags, But Not BMWs
  • Singapore Central Banker Strikes Upbeat Tone Amid Trade Risk

Major European indices (ex-SMI) trade lower (Eurostoxx 50 -0.4%) as Italian budgetary concerns remain a key focus; SMI. The CAC 40 (-0.7%) lags its peers after being weighed on by the Luxury names after the sector was downgraded to underweight by Morgan Stanley with the US bank citing concerns about a slowdown in Chinese activity. The move by MS took the shine of LVMH's latest sales update with other Luxury names such as Kering and Burberry trading lower in sympathy. Sectors are mixed with telecom stocks leading their peers amid broad support for the sector today. Energy names are firmer by 0.7% following oil supply concerns from Hurricane Michael. Consumer discretionary is down by over 1.5% due to the aforementioned poor performance of luxury brands. Dixons is up by 3.5% after being upgraded to buy at HSBC; whilst Sage are up by 2.4% following being upgraded to Hold at Deutsche Bank.

Top European News

  • U.K. Economy Set for Best Quarter Since 2016 Despite Flat August
  • Patisserie Valerie Owner Suspends CFO Amid Accounting Probe

In FX, the Greenback has regained some composure overall after Tuesday’s rather sharp and abrupt sell-off on a degree of US Treasury yield retracement, and to a lesser extent another expression of dissent about the rate of Fed tightening from President Trump. To recap, the broad Dollar and DXY recoiled from best levels in relatively quick order, with the index down to 95.500 vs 96.000+ and circa 95.750 now, as rival currencies also derived bullish momentum on independent factors. The JPY is back below 113.00 vs the Usd and still unable to really test a key Fib level at 112.73, but perhaps drawn towards decent option interest from the big figure to 113.05 (1.2 bn) if the headline pair fails to break above 113.25. Some retracement from peaks for the Zar after a broadly positive reaction to the new SA Finance Minister appointment, while in contrast the Try has pared losses following initial disappointment over the Turkish Government’s inflation-fighting measures.

In commodities, both WTI and Brent are down just under 0.5%, trading just under USD 75/bbl and USD 85/bbl following further supply shortages from Hurricane Michael with 40% of Gulf of Mexico production now suspended in preparation. Note, APIs will be released otnight at 2130BST due to the Columbus Day holiday on Monday. Iron ore futures are up by over 0.6% following comments from Australia’s Port Hedland that Iron ore shipments to China to rise to 37.4mln tonnes. Gold is uneventful once again trading within a thin USD 5/oz range. Zinc hit a 4-month high in Shanghai overnight amid tightening supplies.

Looking ahead, in the US, focus will be on the September PPI report ahead of Thursday’s CPI, as well as August wholesale inventories data. Brexit negotiations will remain in focus, the BoE’s Chief Economist Haldane will speak in London, and regional Fed Presidents Bostic and Evans will speak on the economic outlook later in the evening.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 0.0%
  • 8:30am: PPI Final Demand MoM, est. 0.2%, prior -0.1%;
    • PPI Ex Food and Energy MoM, est. 0.2%, prior -0.1%
    • PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.1%
    • PPI Final Demand YoY, est. 2.7%, prior 2.8%
    • PPI Ex Food and Energy YoY, est. 2.5%, prior 2.3%
    • PPI Ex Food, Energy, Trade YoY, prior 2.9%
  • 10am: Wholesale Inventories MoM, est. 0.8%, prior 0.8%; Wholesale Trade Sales MoM, est. 0.5%, prior 0.0%

DB's Jim Reid concludes the overnight wrap

It was another day to wear your seatbelts if you were trading BTPs yesterday. By late morning London time 10yr yields had climbed another 14bps to 3.711%. However by the close we were almost 10bps tighter on the day at 3.476%. An impressive turnaround. Yields seemed to start to fall at the same time as the following headlines came through from Tria’s parliamentary hearing. He said that the “Government would act in case of an unexpected rise in bond spreads,” and that Italy’s current government bond yield spread is “unacceptable” and hopes to bring it down by explaining the budget measures. To be fair, this was all very vague and it’s not clear what the government could do other than reduce the budget deficit – which he hasn’t had much power over in the first place. Nevertheless the rally had started and seemed to get a further leg when headlines came through that “Conte, Tria, Salvini and Di Maio to meet at 8pm over budget.” We haven’t seen any follow through on this but Tria will address parliament at 10AM local time today.

If BTP trading required a seatbelt yesterday, Treasury and Bund markets required a small dose of motion sickness pills as 10yrs traded to both sides of a 6bp and 4bps range respectively. Given the risk off of the last few days and the weak global day for risk across the US bond market holiday on Monday, it was a bit of a surprise to see US Treasuries sell off 3bps in the morning to nearly 3.26%. However, we closed 3.0bps lower at 3.203% (3.208% in Asia). Bunds closed largely unchanged.

US equities were mixed again, though the recent underperformers bounced, with the NYFANG index up +0.63% and the NASDAQ eking out a +0.03% gain after 3 sessions of losses over which time it had shed -3.60%. The S&P 500 and DOW fell -0.14% and -0.21% respectively, while the VIX index rose as much as 1.8pts, but fell throughout the evening to close only 0.26pts higher at 15.95. That’s still a 3-month high.

This morning in Asia markets are continuing to trade mixed with the Hang Seng (+0.43%) up while the Shanghai Comp (-0.18%), Nikkei (-0.09%) and Kospi (-1.10%) are all down. Elsewhere, futures on S&P 500 (-0.15%) are pointing to a slightly softer start while EM FX is generally stronger against the greenback. On oil, IEA Executive Director Fatih Birol made a direct appeal to OPEC and other major oil producers to boost output, warning that high prices are inflicting damage on the global economy at a time when global economy is already losing growth momentum.

The pound rallied 0.41% versus the dollar yesterday on positive-sounding headlines, with Dow Jones reporting that the EU and UK will agree to a solution on the Northern Ireland issue at next week’s EU Council meeting. Separately, Brexit Secretary Raab told Parliament that the backstop for Northern Ireland will be temporary and limited. It’s hard to see how this will satisfy the EU but the headlines over the last 24 hours suggest we getting closer to a deal. The DUP’s Arlene Foster reiterated that on the Northern Ireland border issue they are trying to find a deal that works for everyone which sounded a little more dovish while the Government’s spokesman James Slack said that the UK’s new proposal for how to prevent a hard border with Ireland is coming “in due course,” signaling that the government expects the EU to flesh out how it sees UK’s future ties with the EU. In the meantime, The Times reported that the UK PM Theresa May is planning to have an extended discussion on Brexit at next Tuesday’s cabinet meeting in hopes of outlining a compromise deal on the Irish border. Overall, our strategists remain cautious, since the actual agreement of the deal will not be the key stumbling block; the real issue is if a deal can pass through Parliament. Positive movement from Labour MPs or from “hard” Brexiteers would be a more bullish catalyst for the pound. Interestingly the FT reports this morning that up to 30 Labour MPs are assessing whether they would vote against the government if it meant a no-deal.

In terms of central bank speak, the Fed’s Kaplan said on inflation that the cyclical inflation pressures are building and didn’t think that inflation is going to “run away from us” On rates he reiterated his previous view that he is comfortable hiking rates three more times till June while adding that higher productivity could lift neutral interest rates. He also added that I “don’t know the answer yet” on whether the U.S. central bank should lift interest rates past the neutral level that neither spurs nor slows growth, or “sit tight for a while.” Philadelphia Fed President Harker continued his recent hawkish shift by describing the labour market as having “very little slack left.” Overnight the Fed’s John Williams said that he expects the US economy to grow by c.3% in 2018 and 2.5% in 2019 while adding that the above trend growth should lead to decline in unemployment levels to slightly below 3.5% in 2019. On inflation he said he expects it to move a bit above 2% but doesn't see any signs of greater inflationary pressures on the horizon.

Emerging market currencies gained 0.32% yesterday, amid positive news in Turkey and South Africa. Turkey’s treasury and finance minister Berat Albayrak announced a new plan to cut inflation, including price controls/cuts and lower bank loan rates. The Turkish lira erased morning declines to close 0.26% stronger. In South Africa, Finance Minister Nene resigned after a corruption scandal and was replaced by Tito Mboweni, a former central bank governor. Mboweni has a strong reputation as an orthodox inflation hawk, and the markets greeted the new appointment with the Rand rallying 1.88% versus the dollar. The  Brazilian Real also outperformed, gaining 1.74% for its 7th consecutive day of gains. It has now appreciated every day in October, as investors anticipate a victory by rightwing candidate Bolsonaro in the October 28 runoff Presidential election.

In Europe, Germany’s August trade balance came in at €17.2bn (vs. €16.2bn expected) while the current account balance stood at €15.3bn (vs. €16.2bn expected). German exports declined -0.1% mom (vs. +0.4% mom expected) for the second month in a row, however the decline in imports was more accentuated at -2.7% mom (vs. -0.1% mom expected). In the US, the NFIB small business confidence fell modestly from its all-time high of 108.8 in August, printing at 107.9 versus expectations for 108.3.

Looking ahead to today, August industrial production will print in the UK and France. After a soft reading in Germany, the stakes are marginally higher than normal. The UK will also have its monthly GDP reading and trade balance report. In the US, focus will be on the September PPI report ahead of Thursday’s CPI, as well as August wholesale inventories data. Brexit negotiations will remain in focus, the BoE’s Chief Economist Haldane will speak in London, and regional Fed Presidents Bostic and Evans will speak on the economic outlook later in the evening.

Published:10/10/2018 6:21:52 AM
[Markets] Tech stocks prop up Wall Street amid global growth worries "Nasdaq was hit all through last week, so to see this bounce back makes sense," said Art Hogan, chief market strategist at B. Riley FBR in New York. At 12:22 p.m. ET the Dow Jones Industrial Average (.DJI) was down 2.90 points, or 0.01 percent, at 26,483.88, the S&P 500 (.SPX) was up 2.39 points, or 0.08 percent, at 2,886.82 and the Nasdaq Composite (.IXIC) was up 24.06 points, or 0.31 percent, at 7,760.01. Caterpillar (CAT.N) dropped 2.2 percent and airline stocks (.SPLRCALI) fell 1.83 percent after American Airlines' forecast. Published:10/9/2018 12:34:56 PM
[Markets] US Market Indexes Close Mostly Lower on Monday, Dow Jones Reports Gain Dow Jones closes at 26486.78 Published:10/9/2018 11:35:04 AM
[Markets] Dow Trumps Tech For 7th Straight Day Despite Beijing, Brussels Bloodbath

Bonds closed and Canadian Thanksgiving meant a big roundtrip for US stocks despite carnage around the world...

China came back from vacation, cut RRR, and dumped stocks (to catch up with last week's global weakness)...

And the Yuan...

 

Europe was a bloodbath...

All of which pushed global systemically important bank stocks to the weakest since April 2017...

But while the rest of the world was ugly, US equity markets managed to scramble back to breakeven (except Nasdaq).

The Dow outperformed Nasdaq for the 7th day in a row (longest streak since Sept 2017)

NOTE - US equity markets stopped falling when Europe's bond market closed at 12ET.

S&P bounces at its 50DMA once again...

Small Caps broke back down to their 200DMA...

Nasdaq slumped through its 50- and 100-DMA...and tried to bounce back up to its 100DMA..

 

VIX spiked today but rebounded back lower as stocks rebounded. However, Nasdaq 'VIX' is at its highest since Feb relative to Dow 'VIX'...

 

The Dow reached a 5-month  high relative to Nasdaq...

 

Value dominated growth once again...

 

US Financials saw another buying program at around 2pmET...

Tesla was a bloodbath today...

 

FANG Stocks have now gone nowhere since May...breaking below key technical levels...

 

While US cash bond markets were closed, TSY futures suggested a

 

And UK and German bond yields tumbled...

 

The Dollar Index managed to hold on to very modest gains...

 

Brazil Real soared today on first round election results...

 

Despite the Dollar's meh-ness on the day, PMs were hit early on and never recovered, copper rallied modestly after China's RRR cut...

 

China's open saw PM selling as did late Europe and once Europe closed, PMs were bid...

 

NOTE that Silver has stalled at its 50DMA each of its last five days... (same with gold)

 

Finally, as a reminder, bonds are at their cheapest relative to stocks since May 2011...

 

Published:10/8/2018 3:18:00 PM
[Markets] Dow industrials finish higher; tech shares weigh on Nasdaq Dow industrials finish higher; tech shares weigh on Nasdaq Published:10/8/2018 3:17:59 PM
[Markets] There Was Something Weird About Thursday’s Stock Market Drop FOCUSONFUNDS BLOG Thursday’s drop wasn’t just big. It was weird, too. The Dow Jones Industrial Average dropped 200.91 points, or 0.75%, to 26,627.48, while the S&P 500 fell 23.90 points, or 0.82%, to 2901. Published:10/6/2018 4:19:05 AM
[Markets] Are transportation stocks the market's canary in a coal mine? The U.S. transportation sector, which many see as a proxy indicator of the economy's health, has retreated 3.1 percent from its Sept. 14 record, hinting to some analysts that the longest bull market on record has entered its late stages. Railways, freight carriers and package deliverers get less attention than heavy-hitting momentum stocks like Apple Inc and Amazon.com, but the sector could be showing cracks in what analysts and the U.S. Federal Reserve characterize as a robust economy. Several constituents of the Dow Jones Transportation Average (DJT) have provided disappointing guidance in recent months. Published:10/5/2018 7:46:17 PM
[Markets] US Market Indexes Close Lower for a 2nd Day on Friday Dow Jones closes at 26447.05 Published:10/5/2018 6:14:50 PM
[Markets] Small Caps, Semis Smashed; Homebuilders Hammered Amid Greatest Jobs Data In 49 Years

We suspect more than a few traders will be saying this tonight...

A big week...

  • Unemployment Rate at 49 year lows

  • US Stocks - worst 2-day drop since May

  • Small Caps, Nasdaq - biggest weekly drop in 7 months

  • Small Caps - biggest 5-week drop since Nov 2016

  • China (closed) ETF - biggest weekly drop in 7 months

  • Semis - biggest weekly drop in 6 months

  • FANGs - biggest weekly drop in 7 months

  • Homebuilders - worst.losing.streak.ever...

  • USD Index - best week in 2 months

  • HY Bonds - biggest weekly price drop in 8 months

  • IG Bonds - biggest weekly drop since Nov 2016

  • Treasury Yields - biggest weekly yield spike in 8 months

  • Yield Curve - biggest weekly steepening in 8 months

  • Gold - best weekly gain in 6 weeks

Chinese stocks were closed for Golden Week but the China ETF slumped...

European Stocks tumbled on the week...

 

US Small Caps stocks were the worst - though Nasdaq was close - suffering their biggest drop since March...Even The Dow gave up early week gains...

Small Caps - down 4 of the last 5 weeks (the biggest 5-week drop since Nov 2016 - Trump Election) - broke the most below their critical technical support 50DMA since May... but bounced off its 200DMA today...

 

 

The S&P bounced off its 50DMA...

The Dow-Small Caps divergence remains yuuge... (the last 5 weeks have been the biggest divergence since Sept 2011)

Semis slaughtered...

FANGs f##ked...

Banks bid but weak...

But homebuilders are getting hammered - down 13 days in a row...lowest since April 2017.

TSLA tumbled back into the red, giving up all those post-SEC gains...

VIX exploded above 17...

And the VIX curve inverted...

 

But GE had its best week since 2009!!

 

IG and HY bond prices plunged this week...

 

But while stocks caught a lot of eyes, bonds were really where the bloodbath hit...

Don't forget Bonds are closed on Monday (Columbus Day)

Treasury volatility exploded from record lows this week...

 

Breaking bond yields to multi-year highs...

 

The yield curve exploded this week - steepening most since February...

 

The Dollar managed solid gains on the week but slipped in the latter half...

 

Cryptos ended mostly lower amid low volatility with only Ether managing very modest gains...

 

WTI and Gold managed gains on the week despite dollar strength as silver and copper slipped...

 

Gold managed to hold above $1200...and WTI above $74

 

Finally, as is increasingly occurring here, we give Gluskin Sheff's David Rosenberg the last words...

 

Published:10/5/2018 3:10:04 PM
[Markets] The "Mystery" Of America's Mounting Multiple Jobholders

After a decade of generally positive job market data (even if largely thanks to job growth among lower-wage recipients), one measure has failed to validate this narrative: multiple job holders made up 5.1% of the total employed in August, and that share of the job market has been hovering around 5% since the beginning of the "recovery" in mid-2009.

In fact, the share of multiple job holders has remained the same,  even though unemployment has fallen to 3.7%, the lowest since 1969. This 3.7% figure is also less than half the level in the immediate aftermath of the financial crisis. Monthly hiring gains are ahead of the pace they set in 2017, averaging over 200,000 in 2018.

However, wage inflation and pay gains have mostly been disappointing and employers have been reluctant to increase hours and job benefits. This is likely the key reason why many workers continue to work more than one job at a time. Ryan Sweet, head of monetary policy research at Moody’s told Bloomberg:

“The labor market is not as equally tight across the country, and the pickup in worker pay hasn’t been strong enough. At the same time, by almost every metric the labor market is really strong, which means there’s a lot more opportunity for people.”

Normally, a decline in the number of multiple jobholders would mean that people are transitioning to regular job positions with normalized schedules and better benefits. But according to Sweet, these multiple job holder numbers are capturing “something more structural”. That's a macroeconomist's way of saying that having two jobs is becoming the new normal.

There are also a litany of indications that the labor market is tightening. Openings for jobs exceeded the number of unemployed by the most on record in July of this year. Part-timers who would prefer a full-time position have fallen to a post recession low of 4.4 million. Those holding multiple jobs felt to 7.9 million people in August after a spike over 8 million in July, although it is that particular number that has failed to shrink demonstrably in the past decade.

Bloomberg tells the story of Komi Assogba, who took on a second job to support his family after moving to the United States from France. The 58 year old, a former chemistry teacher, works as both a barista for Starbucks and a bellhop at the Arlington, Virginia Crowne Plaza Hotel. He started working two jobs nearly a decade ago while his kids were growing up.

“I was looking for an opportunity for my kids. They were growing so fast, and I said, why not make the sacrifice for them?” he stated.

His kids are now grown and pursuing graduate degrees, but he still likes working two jobs. He told Bloomberg that he prefers to stay busy and that he likes the benefits. Starbucks is helping him with tuition, and he's submitting applications for a Masters degree so he can eventually return to teaching chemistry. He plans on taking classes on his only day off during the week, Saturday. 

Still, the prevalence of multiple jobholders in the US remains a bit of a mystery, at least in the face of official data.

Back in early September, after the last jobs report, we posed the question whether the U.S. job market was overheating. The report in early September showed that the Phillips curve is finally coming back to life as average hourly earnings spiked, rising by double the expected 0.2% M/M, and posting a 2.9% increase annually, the highest since the financial crisis.

We also took note of several additional trends that we will continue to watch, such as:

It currently takes 31 days to fill a vacant job, up from 23 days in 2006:

Businesses are very worried about tight labor market:

It's much harder to fill a job today than in 2005-2006:

Small business hiring plans at record highs: