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[Markets] Dow Jones Futures Fall On New Boeing 737 Max Flaw; AMD, Intel, Nvidia In Focus Dow Jones futures fell on a new Boeing 737 Max risk. Wedbush initiated AMD stock, Intel stock, Nvidia stock after a stock market rally fizzled Wednesday. Published:6/27/2019 7:01:11 AM
[Markets] Dow Jones Futures Fall On Latest Boeing 737 Max Woes; AMD, Intel, Nvidia Rise Dow futures fell on a new Boeing 737 Max risk. Wedbush initiated AMD stock, Intel stock and Nvidia stock after a stock market rally fizzled Wednesday. Published:6/27/2019 5:59:56 AM
[Markets] Futures Tumble After Beijing Reveals Demands To Agree To Trade War "Truce"

The big news overnight came from the South China Morning Post, which echoed what Bloomberg reported earlier this week, namely that the US and China have "tentatively" agreed to another truce in their trade war in order to resume talks aimed at resolving the dispute, with details of the agreement being laid out in press releases in advance of the meeting between Chinese President Xi Jinping and US President Donald Trump at the G-20 leaders summit in Osaka.

According to the report, such an agreement would avert the next round of tariffs on an additional $300 billion of Chinese imports, which if applied would extend punitive tariffs to virtually all the country’s shipments to the United States.

Citing a source, the SCMP reported that Xi’s price for holding the meeting in Osaka was that Trump delay additional tariffs, which of course is a risk: "The reality, though, is President Trump could always have a change of heart,” the source said. “But the truce cake seems to have been baked."

A senior Trump administration official told POLITICO earlier this week that it is possible that tariffs could be delayed but cautioned that “nothing is certain. Absolutely nothing.” A Washington-based source familiar with the talks said that there were “ongoing attempts to coordinate press messaging”, but added that there was no specificity yet regarding decisions on tariffs or timing within that messaging.

But while the original SCMP report helped boost risk sentiment overnight, sending futures to session highs, a subsequent report by the WSJ in turn slammed sentiment, after it detailed that the ceasefire is not unconditional but instead Chinese President Xi Jinping will present Trump with a set of terms the U.S. should meet before Beijing is ready to settle a market-rattling trade confrontation, raising fresh questions whether a ceasefire will even be implemented and the two leaders will agree to relaunch talks.

Among the preconditions noted by the WSJ, Beijing is insisting that the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei Technologies Co. Beijing also wants the U.S. to lift all punitive tariffs and drop efforts to get China to buy even more U.S. exports than Beijing said it would when the two leaders last met in December.

In short, simply to agree to a ceasefire, Beijing demands that Trump concede to many of the currently implemented steps in the ongoing trade war in return for, well, nothing.

How or why Trump will agree to any of this is unclear and is why futures stumbled immediately after the WSJ report hit...

... pushing the Dow to 10-day lows.

The offshore Yuan stumbled as well.

As the WSJ further adds, despite his preconditions, "Xi isn’t expected to take a confrontational tone with Mr. Trump, according to the Chinese officials." Rather, they say, he will sketch out what he envisions as an optimal bilateral relationship, which includes China’s help on security issues vexing to the U.S., especially Iran and North Korea.

While Xi may not be taking a confrontational tone, his twitter mouthpiece, Global Times editor Hu Xijin had no such qualms and moments after the WSJ report hit, he slammed Trump, saying that the US president "claimed to have Plan B and threatened new tariffs. This is a very unfriendly move and will have a negative impact for sure."

Of course, there was no mention that once again it is China that has the pre-conditions to a deal, which if not met will result in no "truce."

It is unclear whether Trump will give any sort of deadline for the talks to reach an agreement, as he had before. Two SCMP sources suggested a deadline of six months, which would put the deadline at the end of the year. Since the trade war started nearly a year ago, Trump has imposed 25 per cent tariffs on US$250 billion worth of Chinese goods.

Of course, if the WSJ is right and Beijing has such high-threshold conditions to even agree to a truce, it may well be that absolutely nothing is announced after the meeting between the two presidents concludes, and the market is starting to price it in.

Published:6/27/2019 5:30:21 AM
[Markets] Dow Jones Futures: AMD, Intel, Nvidia, Boeing Moving After Stock Market Rally Fizzles Dow Jones futures: After a stock market rally fizzled, Wedbush initiated coverage on AMD, Intel and Nvidia stock. The FAA has found a Boeing 737 Max "risk." Published:6/26/2019 5:27:44 PM
[Markets] S&P 500 logs longest losing skid in about 7 weeks Health care, utilities stocks fell about 1.1%, leading markets lower. Stocks closed mostly lower Wednesday, as investors grew increasingly skeptical that a U.S.-China trade deal is in the offing, though technology shares were supported by optimism related to Micron Technology’s better-than expected guidance. The Dow Jones Industrial Average (DJIA) fell 11.4 points, or less than 0.1%, to 26,536.82, but had been as high as 26,669, while the S&P 500 (SPX) fell 3.6 points, or 0.1%, to 2,913.78, representing a fourth straight decline for the index, its longest string of loses since a similar downturn ended May 9, FactSet data show. Published:6/26/2019 4:28:51 PM
[Markets] Dow industrials, S&P 500 slip, but Nasdaq snaps losing streak with Micron surge Dow industrials, S&P 500 slip, but Nasdaq snaps losing streak with Micron surge Published:6/26/2019 3:33:00 PM
[Markets] Stocks close mostly lower as S&P 500 notches fourth straight day of losses Health care, utilities stocks fell about 1.1%, leading markets lower. Stocks closed mostly lower Wednesday, as investors grew increasingly skeptical that a U.S.-China trade deal is in the offing, though technology shares were supported by optimism related to Micron Technology’s better-than expected guidance. The Dow Jones Industrial Average (DJIA) fell 11.4 points, or less than 0.1%, to 26,536.82, but had been as high as 26,669, while the S&P 500 (SPX) fell 3.6 points, or 0.1%, to 2,913.78. Published:6/26/2019 3:33:00 PM
[Markets] Rabobank: Exposing The Fed's Hypocrite-ic Oath

Authored by Michael Every via Rabobank,

The traditional form of the Hippocratic Oath that doctors of Western medicine swear starts with “First, do no harm”, or “Primum Non Nocere” as it used to be before little things like 2,500+ years of tradition went out of fashion because they were hard. It’s not bad advice: before trying to do anything to make things better, make sure you aren’t making things worse.

Yet it’s very hard advice to follow if you are looking after not just a human body, but a larger economic body. After all, who can say what the negative side-effects of any given policy will be?

For example, surely lower interest rates are good for us? They boost capital investment. They encourage spending. They ‘juice’ the economy! Well, yes. But in the same way, a shot of adrenalin can get you moving around quickly in an emergency situation - yet a long-run use of steroids is a great way to destroy one’s health. Outside you look amazing, but inside you can be in terrible condition.

Indeed, you can look at this “Disruption! Skyscrapers! 5G! Dow 2x,xxx!” global economy and see the sleek and well-oiled and muscular and bronzed parts if you want. Or you can think about the dangerous mood swings in financial markets, inequality, falling productivity, major organ damage to socio-economic stability, lethal debt levels, mostly in unproductive areas of borrowing, and the uncontrollable populist rage that flows from this all. If you opt to see the latter you would call in the doctor for your body-building friend and beg them to recall their Hippocratic Oath.

However, Fed Chair Powell spoke yesterday and suggested the Fed--like the ECB, and the RBA (etc., etc.,)--will soon be increasing the dosage of monetary-policy steroids even further. Not so much Pumping Iron as Pumping Stocks. Yet even then markets were unhappy as there was no syringe placed on the table, just a medical tool kit that might only have tiger balm for all their performance-enhancing-stimulant-addled minds know.

Ironically, in the background we also have news that the market should want to hear: the US is allegedly preparing to can-kick at the G-20. Bloomberg reports that a friend of a friend of this girl who knows a guy whose cousin works in the White House at some level has told them that the US is prepared to hold off on raising tariffs on another USD300bn of Chinese goods to 25% after this weekend’s summit. They will also agree to reopen trade talks again. However, they won’t remove any existing tariffs or commit to any other action. For its part, China has already stated it wants all tariffs removed as a precondition for restarting talks, which puts them in an interesting position of having to lose face a little. Yet that is probably achievable. So in short, we might end up with the status quo ante after the G-20. On which, several thoughts flow.

First, if I were Trump that would suit me ‘hugely’. He still has 25% tariffs on many products. He still sees Chinese supply chains shifting offshore. He still carries the threat of going ‘all in’. But he doesn’t have to actually pull that trigger ahead of the election – just the threat is enough. Please recall, as I have already written several times, that my first guess at what the US ‘should have done’ was to say “40% tariffs in 12 months from now”, forcing supply chains to move before prices were impacted.

Second, this suits Xi. China has a whole heap of problems. The demonstrations that will be held in Hong Kong during the G-20 to try to embarrass him is merely one of them. SHIBOR sub 1% and bank failures is another. So, yes, please, let’s kick that can!

Third, this is not even a Donaldtov-Xibbentrop Pact. It’s just a pause for breath as both sides focus on domestic problems for a little while.

Fourth, for global businesses it won’t mean they stop moving supply chains. Or it shouldn’t if they have any common sense. Like with Hard Brexit: do you wait for it to happen and then plan? Even Huawei is apparently trying to hive off its US business as a separate entity called ‘Futurewei’(!) I would suggest ‘Nowei’ would have been more apt unless all employees wear comedy Groucho moustache and glasses at all times so nobody notices what they are actually doing.

Fifth, for the steroid-selling Fed, what does that G-20 development mean? “Trade war”, the convenient get-out-of-jail card for everyone who didn’t see that our current economic paradigm was always going to end up in another slump and crisis, is going to be less of a threat. So how do you justify even more steroids when you don’t have the excuse of an obscenely-muscular body-building boogieman in budgie-smugglers to challenge you?

But don’t worry: at the end of the day it doesn’t matter.

The Fed are just going to let rip anyway in order to get us more ‘ripped’. Rates will be cut. QE will flow, etc. None of what the Fed, the ECB, and the RBA (etc., et.) say has to make any sense, and doesn’t...

...except to those who look at Austrian, Marxist, or other heterodox schools of economics who can interpret that central-bank speech will always translate into “lower for longer/do whatever it takes” eventually regardless.

It’s all a big Hypocrite-ic Oath.

So rip away. Until something tears.

Published:6/26/2019 2:30:33 PM
[Markets] Dow transports tumble while Dow industrials gain — 3rd time for split this month Dow transports tumble while Dow industrials gain — 3rd time for split this month Published:6/24/2019 12:41:59 PM
[Markets] Stocks Mixed as Wall Street Looks to G-20 Summit for U.S.-China Trade Talks The Dow Jones Industrial Average rose Monday as investors looked to the upcoming G-20 summit for a breakthrough in U.S.-China trade talks. agreed to buy Caesars in a $17.3 billion deal that will create the biggest U.S. gaming company. Eldorado Resorts slumped 11.2%. Published:6/24/2019 12:12:19 PM
[Markets] NewsWatch: Technical indicators are bullish as stock market benchmarks attempt new highs All eyes are on the Dow and Nasdaq after the S&P 500 sets a new record.
Published:6/24/2019 11:11:46 AM
[Markets] Dow Jones Leads Slim Stock Market Gains; FANG Stock Facebook Nears Buy Point The Dow Jones industrials led modest stock market gains early Monday. Facebook stock is approaching a potential buy point. Published:6/24/2019 9:41:37 AM
[Markets] Stock Futures Inch Up; Dow Jones, S&P 500 Aim For Record-Setting June Stock futures and oil prices edged higher, with United Technologies and Wynn Resorts rising. The Dow Jones and S&P; 500 tracked toward a record June. Published:6/24/2019 8:15:23 AM
[Markets] Why you should ‘keep your eyes open’ during this June rally The Dow Jones Industrial Average, bolstered by the Fed’s return to its easy-money mind-set, is on pace for its best June since 1938. And, the S&P 500, as of Friday’s intraday high, was up 7.7%, putting the broad-market gauge on track to be the sixth best June ever. What could possibly go wrong? Published:6/24/2019 6:41:11 AM
[Markets] S&P Futures Trade Near Record High As European Stocks, Dollar Stumble Ahead Of G20

S&P futures levitated on Monday, rising to a high of 2,962 and just shy of a new record, alongside buoyant Asian stocks while European shares slumped as the Stoxx 600 Index reversed an earlier gain following the third profit warning from Daimler, and a slump in German business confidence; the dollar dropped to three-month lows as hopes waned for progress in China-U.S. trade talks at this week’s G20 meeting, while Trump was expected to announce even harsher sanctions against Iran today. 

The European Stoxx 600 index fell 0.2%, reflecting losses in Paris and Milan. Stocks in London were little changed. Germany’s export-sensitive DAX fell 0.5% after a profit warning by Daimler caused its shares to drop nearly 5%.

Europe's woes were compounded by the latest slump in German business confidence as trade tensions weighed on manufacturers. The June Ifo Business Confidence dropped to 97.4, its lowest level since late 2014, while an index of expectations also worsened, even though the news was largely priced in and the euro barely moved on the news and was up 0.2% at $1.1392 in early trading.

“It could get worse, maybe not much worse but a little,” said Ifo President Clemens Fuest in a Bloomberg Television interview. “It’s justified to at least postpone any tightening of monetary policy. But I don’t think further easing will help very much. Mario Draghi has rightly pointed out that governments need to use other instruments.”

Earlier in the session, gains in Asia saw the MSCI regional and global stocks gauges rise again towards last week’s six-week highs. Asian stocks advanced, led by health care and consumer discretionary firms, as investors awaited possible new sanctions against Iran and gauged the probability of a U.S.-China trade deal later this week. Markets were mixed in the region, with Australia climbing and Singapore retreating. Japan's Topix reversed earlier losses to close 0.1% higher, with Sony and Daiichi Sankyo among the biggest boosts. The Shanghai Composite Index advanced 0.2% as U.S. and China trade teams prepared for a meeting between Donald Trump and Xi Jinping on the sidelines of the G-20 summit in Japan. The S&P BSE Sensex Index edged 0.2% lower, driven by Reliance Industries and Infosys, as India’s central bank deputy chief Viral Acharya asked to resign from his post

Investors are waiting to see if Presidents Donald Trump and Xi Jinping can de-escalate a trade war that is damaging the global economy and souring business confidence. The leaders will meet during a G20 summit in Japan which starts on Friday. Wall Street also looked in line for more gains after closing lower on Friday. S&P 500 e-minis pointed to a 0.2% rise at the open.

China Vice Commerce Minister Wang Shouwen said China and US trade teams are having discussions, while he added that both sides should make compromises and hopes G20 sends a clear signal on fighting against trade protectionism. At the same time, China Assistant Foreign Minister Zhang Jun said the world economy faces increasing risks and the international community recognizes harm from protectionism, while he added that G20 should ensure unity and cooperation but also stated that China will safeguard its fundamental interests and will not allow anyone to interfere with its internal affairs no matter what forum.

“G20 is turning into a high-stakes poker game for risk, and if the sideline talks between Trump and Xi fail and trigger an escalation in tariffs, the odds of a full-blown global recession increase exponentially,” said Stephen Innes, managing partner at Vanguard Markets.

On Monday, Chinese Vice Commerce Minister Wang Shouwen said China and the United States should be willing to compromise in trade talks and not insist only on what each side wants. U.S. Vice President Mike Pence’s decision on Friday to call off a planned China speech was also considered a positive sign. Pence had upset China with a fierce speech in October that laid out a litany of complaints ranging from state surveillance to human-rights abuses.

Still, virtually all analysts doubt the two sides will come to any meaningful agreement. Tensions are reaching beyond tariffs, particularly after Washington blacklisted Huawei, the world’s biggest telecoms gear maker, effectively banning U.S. companies from doing business with it.

“Any high hopes ahead of the G20 meeting may be disappointed,” said Benjamin Schroeder, senior rates strategist at ING in Amsterdam. “In the end, uncertainty will persist and central banks could still be pushed closer to invoking their contingency plans.” (For Goldman's preview of what to expect at the G-20, see this article).

Overnight, a Chinese newspaper said FedEx Corp was likely to be added to Beijing’s “unreliable entities list” following yet another delivery fiasco involving a Huawei shipment.

In FX, the dollar index slipped 0.1% lower to 96.11 after its biggest weekly drop in four months last week, when the Federal Reserve said that it may cut interest rates soon to bolster the U.S. economy.  The dollar has led a broad selloff in major currencies as global central banks signaled a dovish outlook on monetary policy amid growing signs of a weak global economy. The dollar fetched 107.39 yen, having slipped as low as 107.045 on Friday, the lowest level since its flash crash on Jan. 3.

“The market is not expecting more Fed rate cuts than it had so far, but that the reasoning behind them is being interpreted in a different manner,” Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann, wrote in a note to clients. “While for a long time the expected weakening of growth, fears of a recession and low inflation were used as reasons for rate cuts, another reason has now been added to the list: the Fed caving in to the White House.”

The euro rose to a three-month high of $1.1387 against the dollar, while the Aussie gained for a fifth day as central bank Governor Philip Lowe said there are limits to what further monetary easing can achieve. In developing markets, the Turkish lira strengthened as much as 2% after Turkey’s main opposition party won Istanbul’s re-run election for mayor, a blow to President Tayyip Erdogan.

In rates, European government bonds climbed alongside U.S. Treasuries, where 10- year yields fell 2bps to 2.03%, its first decline in two days.

In cryptos, the resurgent Bitcoin pulled back from 18-month highs after jumping more than 10% over the weekend. Analysts said the gains came amid growing optimism over the adoption of cryptocurrencies after Facebook announced its Libra digital coin.

Meanwhile, gold resumed its rise amid economic woes, looming U.S. interest rate cuts and tensions between Tehran and Washington: the precious metal stood at $1,404.79 per ounce, not far from Friday’s six-year high of $1,410.78. The rising tensions between Iran and the United States, after Iran shot down an American drone, also pushed oil prices higher. U.S. Secretary of State Mike Pompeo said “significant” sanctions on Tehran would be announced.

Brent crude futures rose 0.4% to $65.42 per barrel, near Friday’s three-week high of $65.76. U.S. crude futures were up 0.9% at $57.91, standing at its highest in over three weeks

Over the weekend, President Trump said that they are moving ahead with additional sanctions on Iran aimed at preventing it from getting a nuclear weapon and that military action is still on the table, while other reports also noted the White House is pressing for additional options including in cyberspace and other additional clandestine plans to counter Iranian aggression in the Persian Gulf. Subsequently, Iranian Navy Commander says the downing of the US Spy drone was a "firm response" and can be repeated, according to Tasmin News. Russian Deputy Foreign Minister says Russia and allies will counteract US sanctions on Iran. Additionally, Russia’s Deputy Foreign Minister stated that the US is deliberately increasing tensions with Iran.

Today's expected data include Chicago Fed National Activity Index and Dallas Fed Manufacturing Outlook. No major company is scheduled to report earnings

Market Snapshot

  • S&P 500 futures up 0.2% to 2,957.25
  • STOXX Europe 600 down 0.2% to 384.00
  • MXAP up 0.3% to 159.71
  • MXAPJ up 0.2% to 525.93
  • Nikkei up 0.1% to 21,285.99
  • Topix up 0.1% to 1,547.74
  • Hang Seng Index up 0.1% to 28,513.00
  • Shanghai Composite up 0.2% to 3,008.15
  • Sensex down 0.2% to 39,127.17
  • Australia S&P/ASX 200 up 0.2% to 6,665.44
  • Kospi up 0.03% to 2,126.33
  • German 10Y yield fell 1.0 bps to -0.295%
  • Euro up 0.2% to $1.1392
  • Italian 10Y yield rose 0.4 bps to 1.786%
  • Spanish 10Y yield fell 2.2 bps to 0.416%
  • Brent futures up 0.5% to $65.52/bbl
  • Gold spot up 0.3% to $1,404.21
  • U.S. Dollar Index down 0.2% to 96.07

Top Overnight News from Bloomberg

  • In the first signs of negotiations since talks broke down in May, U.S. and Chinese trade teams are discussing next steps after Presidents Donald Trump and Xi Jinping agreed to meet on the sidelines of the upcoming Group of 20 summit in Japan, a senior trade official said in Beijing
  • Turkish opposition candidate Ekrem Imamoglu won the redo of the Istanbul mayor’s race by a landslide on Sunday, in a stinging indictment of President Recep Tayyip Erdogan’s economic policies and his refusal to accept an earlier defeat
  • Turkish President Recep Tayyip Erdogan, weakened by an opposition party’s landslide victory in Istanbul’s repeat election, scrambled to reassert his standing as the country’s most dominant politician in half a century by refocusing attention on a crucial trip to Asia
  • Australian central bank chief Philip Lowe threw his support behind those casting doubt on how effective a new round of monetary policy easing by major economies would be in supporting global growth
  • President Trump is threatening Iran with additional sanctions as soon as Monday, but there’s not much left for the U.S. to target because most of the Islamic Republic’s economy is already crippled under the weight of financial restrictions. Oil gains on the threat of new sanctions against Iran
  • Viral Acharya, deputy governor of the Reserve Bank of India, resigned six months before his term ends, Business Standard reported, citing him
  • Boris Johnson faces mounting pressure to submit to public scrutiny, after his rival in the race to be U.K. prime minister tried to turn questions about the front-runner’s character to his advantage
  • President Trump denied that he’d threatened to demote Federal Reserve Chairman Jerome Powell but said he’d “be able to do that if I wanted”
  • President Trump sent North Korean leader Kim Jong Un a personal letter, and the U.S. is ready to restart talks with Pyongyang “at a moment’s notice,” Secretary of State Michael Pompeo said
  • New Zealand plans to introduce a bank deposit protection regime to bring it into line with other developed nations and increase public confidence in its lenders
  • A slump in German business confidence deepened in June as trade tensions weighed on manufacturers. U.S.-led protectionist threats have clouded the growth outlook in Europe’s largest economy for months, contributing to a manufacturing slump
  • The Reserve Bank of India will lose one of its most outspoken officials, further raising questions about the independence of the central bank six months after the governor resigned under a cloud. Deputy Governor Viral Acharya has asked to leave the central bank not later than July 23, 2019, citing “unavoidable personal circumstances”

Asian equity markets began the week somewhat choppy with participants tentative ahead of the Trump-Xi meeting at the G20 this week and following the mild pullback last Friday on Wall St where all majors ended slightly lower on the day, but still notched gains of more than 2% for the week. ASX 200 (+0.2%) was initially led lower by underperformance in Consumer Staples and as comments from RBA Governor Lowe appeared to question the impact easing could have on the economy, while a non-committal tone was seen in the Nikkei 225 (+0.1%) amid a mixed currency. Hang Seng (+0.2%) and Shanghai Comp. (+0.1%) were indecisive after the PBoC refrained from open market operations and as global markets await the latest developments in the trade war saga including the Trump-Xi showdown this week, while the US recently added 5 Chinese entities to its blacklist barring them from buying US parts without government approval. Finally, 10yr JGBs were subdued with after recent similar moves in T-notes and as yields bounced back from multi-year lows, while demand was also dampened after stocks in Tokyo pared opening weakness and amid the absence of the BoJ in the market.  

Top Asian News

  • India Poised to Lose Outspoken Central Banker as Acharya Resigns
  • Pakistan to Get $3b in Deposits, Investments From Qatar
  • China Is Going Bananas for Bananas as Purchases Surge to Record
  • Nostrum Oil & Gas Studies Options Including Sale of Company

A choppy day for European equities thus far [Eurostoxx 50 -0.4%] following on from a similar Asia-Pac session as markets await the Trump-Xi showdown later this week. Major bourses are mostly in the red, losses for the DAX (-0.5%) stem from declining auto names after Daimler (-4.7%) issued its third profit warning in 12 months, citing losses caused by the diesel emission scandal; hence, Volkswagen (-1.2%) and BMW (-1.2%) have fallen in sympathy. Sectors are also lower with consumer discretionary names pressured by Daimler’s profit warning. In terms of individual movers, Leonardo (+2.4%) shares spiked higher at the open amid speculation that the Co. is considering bidding for Maxar Technologies’ space robotics business, which sources state could be valued over USD 1bln. Meanwhile, Carrefour (+1.6%) shares are underpinned after it reached an agreement to sell 80% of its Chinese operations with the transaction representing an enterprise value of EUR 1.4bln. Finally, Morphosys (+7.2%) shares are bolstered amid news that a treatments primary endpoint was met.

Top European News

  • German Business Confidence Takes Another Dive as Economy Wobbles
  • Italy Wins Temporary Reprieve in Bid to Stop EU Punishment
  • Hunt Says Johnson Dodges Scrutiny as Race for U.K. PM Heats Up
  • Santander Pays Allianz $1.1b to Terminate Spanish Venture

In FX, the USD has fallen further following last week’s dovish Fed policy meeting and Friday’s relatively weak PMIs, with the DXY faltering after a fleeting attempt to pare losses and probe above 96.200. The 96.000 handle looks under threat and could be relinquished amidst strength elsewhere, with Gold edging back over Usd 1400/oz and Eur/Usd eyeing 1.1400. Note also, the pressure could build as the week unfolds with at least one currency rebalancing model flagging a strong sell signal for the end of June, Q2 and H1, not to mention the G20 where US President Trump is due to meet his Chinese counterpart Xi for extensive trade talks.

  • NZD/AUD - Perhaps surprisingly given ongoing global trade and geopolitical uncertainty, the Antipodean Dollars are outperforming major peers, or rather deriving most momentum from their US rival’s demise. The Kiwi is pivoting 0.6600 and Aussie 0.6950 ahead of this week’s RBNZ meeting on Wednesday with rates widely tipped to remain unchanged before another cut in August, while comments from RBA’s Lowe may have dampened some dovish expectations as he questioned the effectiveness of easing to support the economy in the context of moves by other Central Banks aimed at sustaining growth and reaching inflation targets.
  • CAD/EUR - The next best G10 currencies, as the Loonie consolidates recovery gains through 1.3200 after its post-Canadian retail sales wobble, with some support from firmer crude prices, and the Euro draws encouragement from the latest German Ifo survey that was not as weak as forecast overall. Moreover, the institute maintained its 2019 GDP estimate and played down the prospect of a recession even though the economy is in the doldrums, or heading that way. However, Eur/Usd has tested the 50 DMA (1.1390) after clearing 200 DMA and WMAs, but falling just short barriers at the next big figure where the top end of 2 bn option expiries lie (from 1.1390 coincidentally).
  • CHF/GBP/JPY - All narrowly mixed vs the Buck as the Franc stalls ahead of 0.9750 and Pound meets resistance above 1.2750 in the form of a 38.2% retracement of the fall from 1.3185 to 1.2506 at 1.2766. Meanwhile, the Yen has retreated a bit further from 107.00 and into a 107.29-48 band with technical support seen a fraction under (107.27 Fib) and decent expiry interest a whisker above (1.3 bn at the 107.50 strike).
  • EM - The Lira has rebounded further from recent lows and in large part on the back of a resounding result at the 2nd Istanbul election that will not be contested this time. Indeed, President Erdogan congratulated the victor after the landslide saw Imamoglu defeat ex-PM Yildirim by whopping 800k votes. Usd/Try is hovering towards the bottom of a 5.7085-8200, with additional support for the Lira from an improvement in Turkish manufacturing sentiment.

In commodities, WTI and Brent futures have retreated from highs in recent trade as the upside momentum seen in the complex somewhat wanes ahead of this week’s US-Sino meeting. Over the weekend, US President Trump announced the intention of further tariffs on Iran to stem the country’s nuclear developments, although Russia’s Deputy Foreign Minister noted that the US is deliberately raising tensions with Iran and stated that Moscow and allies will counteract US sanctions on Tehran. WTI futures hover around USD 58/bbl (having hit an intraday high of USD 58.20/bbl) whilst its Brent counterpart trades just below the USD 65.50/bbl mark and closer to the bottom of today’s range. Elsewhere, gold prices hover around 6yr highs amid dovish central banks and rising tensions in the Middle East. Meanwhile, copper prices declined back below the USD 2.7/lb level as the red metal side-lines strikes at Chile's Chuquicamata copper mine and takes the cue from the subdued risk tone heading into the G20 summit. Finally, Chinese Rebar steel traded near eight-year highs as demand picks up while output curbs have been extended in an attempt to reduce air pollution.

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, est. 0, prior -0.4
  • 10:30am: Dallas Fed Manf. Activity, est. -2, prior -5.3

DB's Jim Reid concludes the overnight wrap

Welcome to the last week of June and ever longer nights here in the northern hemisphere. Many months ago I got time off for good behaviour and booked in to play a 2 day golf tournament over this past weekend. It had a cut at the halfway stage to qualify for Sunday’s final round. However our recent weekends have been busier than anticipated and we desperately needed time to buy two sofas for the new house. After high level negotiations we agreed that if I missed the cut we’d go sofa shopping Sunday morning. If there was a greater motivation to play well then this was it. All Saturday all I could think of when I stood over the ball was that if I made a mistake then I’d have to spend hours the next day comparing different levels of cushion comforts and fabrics. Alas that pressure proved too much and Sunday was spent with scatter cushions and not scattering it around the golf course as I did on Saturday. I wonder if Rory and Tiger are under the same pressure to make the cut at the Open.

I hope there are some nice sofas in Osaka next weekend as the main event this week will be the much anticipated G-20 summit on Friday and Saturday with the Trump/Xi meeting on the sidelines of the utmost importance. It’ll also be interesting to see what global leaders make of trade tensions and the recent growth slowdown, and whether the US will sign up to the accord. Back to US/China tensions, today’s multiple times rearranged speech from VP Pence - expected to be critical of China - has again been postponed as progress seems to be being made between the two sides. So there will be hope that positivity can continue to extend after they meet. If it doesn’t the problem is that the tariffs on the last $300bn of Chinese exports into the US will be very close to being ready to be imposed. So a bit binary but the fact that they are meeting means that we’re in a better place that we were this time last week. Staying with global politics, the US/Iran relationship darkened further last week and over the weekend the US national security adviser suggested fresh sanctions could come as early as today. So another one to watch especially as it appeared that Mr Trump pulled back from planned military strikes last week. He did appear a little conciliatory over the weekend and suggested he is ready for talks. WTI crude oil price is trading up +0.66% this morning.

Just on that upcoming meeting between Trump and Xi, China’s Vice Commerce Minster Wang Shouwen said overnight that “Compromise will be on both sides. It will be a two-way street," while adding that China’s principles for the trade talks remain the same, including “mutual respect, treating each other as equals, win-win outcomes, working together and respecting the rules of the World Trade Organization.” To highlight that talks will not be easy, the Trump administration has put five more Chinese tech entities on a trade blacklist. The accompanying statement from the US Commerce Department said the new entities listed were part of China’s efforts to develop supercomputers. It said they raised national security concerns because the computers were being developed for military uses or in cooperation with the Chinese military. Companies added to the backlist included AMD’s Chinese joint-venture with partner Higon - THATIC, Sugon, Chengdu Haiguang Integrated Circuit and Chengdu Haiguang Microelectronics Technology.

Asian markets have started the week generally on a slightly firmer footing with the Nikkei (+0.19%), Hang Seng (+0.23%) and Kospi (+0.08%) all up while the Shanghai Comp (-0.09%) is down. Elsewhere futures on the S&P 500 are trading +0.32%. Elsewhere, in mayoral re-elections in Istanbul, opposition candidate Ekrem Imamoglu won 54% of the vote, with the ruling AK Party’s candidate, former Prime Minister Binali Yildirim capturing 45% (per Bloomberg). The report further added that Turkish President Erdogan, who had called for re-election post Imamoglu’s previous win, accepted the outcome of the rerun but has hinted the new mayor could run into legal problems. He suggested Imamoglu might be tried for allegedly insulting a provincial governor, and a prison sentence could lead to his ouster. The Turkish lira is trading up +0.79% this morning. Staying in Europe, the FT has reported overnight (citing sources) that the European Commission won’t formally trigger its excessive deficit procedure for Italy during a meeting tomorrow. The report also added that the Italian PM Giuseppe Conte is determined to follow EU budget rules to avoid an infringement procedure. This seems to be trying to buy both sides some time to come to an agreement.

In other news, the US President Trump continued with his attack on the Fed Chair Powell by saying in a NBC’s interview, conducted Friday and broadcast on Sunday, that “I’m not happy with his actions. No, I don’t think he’s done a good job.” He also denied that he’d threatened to demote Federal Reserve Chairman Jerome Powell but said he’d “be able to do that if I wanted.”

Moving on, in terms of key data this week, the highlights in the US this week include Durable Goods (Wednesday), final Q1 GDP revisions (Thursday) and PCE inflation (Friday). We’ll also get plenty of survey data. Fed Chair Powell will speak (Tuesday) and part two of the Fed’s stress tests results will be released (Thursday) after all passed in round one late on Friday. In US politics, on Wednesday twenty contenders for the Democratic presidential nomination are due to debate over two nights. This includes Senator Elizabeth Warren and front runner Joe Biden. In Europe today’s IFO in Germany is going to be important and given that 5yr5yr Euro inflation swaps hit record lows last week prior to Sintra, June’s CPI reports in Europe (Thursday and Friday) will be of note. The full day by day week ahead is published at the end.

After a busy week of macro news, Friday turned out to be relatively calm. For the most part, market moves were minor retracements of the week’s earlier action, with equities giving back a part of their gains, rates rising slightly after their big rally, and credit spreads widening a touch. The most noteworthy data on Friday, the flash PMIs in Germany, France, and the US, was mixed, with European readings doing better than expected but the US’s falling to a post-crisis low. The S&P 500 ended the week +2.20% (-0.13% Friday) and touched a new all-time high closing level on Thursday, while the NASDAQ and DOW made similar moves, up +3.01% and +2.41% (-0.24% and -0.13% Friday) respectively. In Europe, the STOXX index ended +1.57% (-0.36%) and Italian equities outperformed, with the FTSE MIB up +3.77% (+0.13% Friday). High yields credit spreads ended the week -16bps and -35bps tighter in the US and Europe (+1bps and -1bps Friday).

The moves in currencies continued their trends from earlier in the week, with the dollar dropping -1.40% (-0.44% Friday) and the euro gaining +1.43% (+0.66%). Oil also continued to rally, with WTI staging its strongest week since 2016 as US-Iran tensions heated up. That rally was worth +9.81% (+1.78%) for WTI, and a relatively more modest +5.40% (+1.41% Friday) for Brent. Gold advanced +4.28% (+0.77% Friday) to its highest level in five years. Energy-linked stocks performed well, with the S&P energy sector up +5.16% (+0.82% Friday), and the higher prices also sparked a move higher in inflation breakevens. Five year-five year inflation swap rates rose by +17.0bps and +6.3bps (+0.04bps and -0.8bps Friday) in the euro area and US, respectively after the central bank moves of last week. Those moves in inflation expectations added some nuance to the moves in bonds, where rises in breakevens were offset by falling real yields. Ultimately, the 10-year treasury ended -2.3bps lower (+2.9bps Friday) at 2.057% while bund yields were -3.0bps lower (+3.3bps Friday) at -0.285%. Treasuries had dipped below the 2% mark earlier in the week and bunds brushed a new all-time low. US 2s10s steepened +4.5bps (+3bps on Friday) on the week but traded in an 11.5bps range. For us the fact that the Fed went more dovish and the curve steepened was a sign that the market trusts them for now.


Published:6/24/2019 6:41:11 AM
[World] Need to Know: Why you should ‘keep your eyes open’ during this June rally The Dow Jones Industrial Average, bolstered by the Fed’s return to its easy-money mind-set, is on pace for its best June since 1938. And, the S&P 500, as of Friday’s intraday high, was up 7.7%, putting the broad-market gauge on track to be the sixth best June ever. What could possibly go wrong?
Published:6/24/2019 6:15:26 AM
[Markets] Feeling The Heat Of A Civilization On The Downside

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

An Epic Folly for the Ages

Today we begin with a list.  A partial list.  And in no particular order…

Angela Merkel. Donald Tusk. Mario Draghi. Donald Trump. Jerome Powell.  Shinzo Abe.  Haruhiko Kuroda.  Theresa May. Boris Johnson. Mark Carney. Xi Jinping.  Emmanuel Macron.  Vladimir Putin. Justin Trudeau. Juan Trump.  And many, many more…

Politicians and bureaucrats of the modern age of statism and central planning… fighting a rearguard action doomed to fail. [PT]

These central planners – though they may not know it – are facing a no-win situation. They have extrapolated the past and are attempting to preserve the status quo into the future.  Yet their efforts to perpetuate the upward growth curve of their countries and unions are useless against the relentless turn of history.

The political, financial, economic, and social foundations that have been in place over the last 75 years – and perhaps, over the last 220 years – are breaking down.  And no policy directive, no interest rate adjustment, no trade tariff, no five year plan, no extraordinary measures, no green new deal, and no technocratic prevarication is going to stop it. Big Government doesn’t stand a chance.

The entire apparatus, from social welfare programs to a ridiculously complex capital structure, is based on perpetual growth. But growth, as we are all presently discovering, is ephemeral. The rapid creation of fake money by central planners may be able to forestall the downside that follows a mega-growth cycle. But it cannot avert it.

Still, the central planners are doing anything and everything to resist the downside. They are taking emergency actions. They are employing extreme currency debasement. They are slapping price controls across the economic landscape. They are starting wars. They are harnessing populism. They are doing all of these – and more.

They are also slipping and sliding and falling and flailing.  Indeed, this is an epic folly for the ages.  With this as context, what follows are several of this week’s choice proceedings…

Perpetual Stimulus

On Tuesday, German Chancellor Angela Merkel suffered visible tremors while listening to the German national anthem.  She was standing next to Ukrainian President Volodymyr Zelensky at a welcome ceremony in Berlin when the heat and stress got to her.  Can you blame her?

Angela Merkel trembles through the national anthem [PT]

Merkel has spent 14 years in office, toiling to keep the European project from fragmenting.  That’s a long time for anyone to stare down doom on a daily basis. Fortunately, after consuming three glasses of water, Merkel was doing much better.

On the same day, European Central Bank President Mario “whatever it takes” Draghi reaffirmed his commitment to currency debasement. His objective is to, somehow,provide perpetual stimulus to the euro zone economy. Much like  Elizabeth Warren’s Economic Patriotism plan, Draghi aims to boost exports via the destruction of money.

Following Draghi’s utterances, the great European bond bubble expanded into the outer stratosphere.  The yield on the German 10-year Bund dropped to a record negative 32 basis points.  What’s more, the yield on the 10-year French OAT briefly slipped into negative territory for the first time in recorded history.  But that is not all…

Europe’s chief monetary crank Mario Draghi promises to implement an even looser monetary policy and sends German 10-year Bund yields tumbling further into the nether region of negative yields-to-maturity. This is insanity writ large. [PT]

Draghi’s utterances stimulated President Trump to fire the following Twitter shot:

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have getting away with this for years, along with China and others.”

Of course, Trump’s intended recipient of this tweet wasn’t Draghi; it was Fed Chair Jerome Powell…

Feeling the Heat of a Civilization on the Downside

On Wednesday, as fate would have it, Powell took his turn feeling the heat of a civilization on the downside.  Trump, no doubt, wants Powell to debase the dollar and engineer a cheap credit induced economic boom and stock market bubble to coincide with election day on November 3, 2020. He has been publicly ridiculing Powell’s monetary tightening policies for months.

Powell’s mandate coming out of the June FOMC meeting this week was to appease Trump while pretending the economy is doing just great. Hence, as Powell prepared to release the Fed’s FOMC statement, he registered a Pucker Factor 9 (PF9) out of 10 on the military’s Pucker Factor scale.  However, he did manage complete his task without succumbing to visible tremors.

US 10-year t-note yield – at its current level, it is trading well below the Federal Funds rate.

So far, Powell appears to have achieved his mandate.  The central planners at the Fed held their licked fingers up to the wind and concluded they’ll continue fixing the federal funds rate between 2.25 and 2.5 percent.  And to appease Trump, Powell included following in his opening remarks:

“The case for additional accommodation has strengthened.”

The credit market and the stock market both celebrated the Fed’s assurance of future currency debasement. The yield on the 10-year Treasury note fell below 2 percent.  Then, on Thursday, the S&P 500 Index clinched a new closing high of 2,954.  The Dow Jones Industrial Average also made another run at 27,000.

You see, with enough monetary gas, and misplaced confidence, financial markets can go vertical.  But what good is it if the actual economy is left behind?

The stock market is hurrying toward new all time high territory, celebrating a string of recent weak economic date releases which have kindled hopes for more monetary pumping from the Fed. Bizarrely, the Fed seems eager to oblige. If anyone had told us a year ago that the Fed would seriously contemplate rate cuts with the unemployment rate at 3.6% and the S&P 500 Index at an all time high, we would never have believed it. And yet, that is where we are now. [PT]

Remember, it takes prudence, wisdom, and industry to acquire and build wealth.  The fact that central planners are attempting to circumvent these steps by issuing gobs of fake money is confirmation of a degraded human mind.

At this point, you can practically count the days until we suffer the ruin of their folly.

Published:6/22/2019 4:00:51 PM
[Markets] "Let's Make Iran Great Again": Trump Says Iran Could Be His "Best Friend" 

Well, perhaps Trump is now realizing there was that little thing called the Joint Comprehensive Plan of Action (JCPOA), or commonly the Iran nuclear deal, which he tore up in May 2018 — and that it really wasn't so bad compared to the current array of "bad options". 

President Trump said Saturday that he would be Iran's "best friend" and that it could be a "wealthy" country if it renounced nuclear weapons, according to the AFP.

So we've gone from missiles being readied, ships about to launch, and planes in the air this week to now "we can be besties" if Tehran makes nuclear concessions (and we've definitely gone full circle from the JCPOA pullout). 

Anti-war protestors in front of the White House on Thursday. Image source: Keystone

"We're not going to have Iran have a nuclear weapon," Trump told reporters outside the White House following an immensely tense week that almost witnessed major war between the US and Iran. 

"When they agree to that, they're going to have a wealthy country. They're going to be so happy, and I'm going to be their best friend. I hope that happens," Trump said. 

And then this surprising and unprecedented statement coming less than two days after chaos in the Middle East was nearly unleashed

"Let's make Iran great again."

Trump responded to reporters' questions at the close of this week's Iran saga following the dramatic US drone shoot down by explaining: "Everyone was saying I'm a war-monger, and now they say I'm a dove," according to the AFP

"I think I am neither, if you want to know the truth. I'm a man with common sense, and that's what we need in this country, is common sense."

Indeed, though it now looks like the White House could be experiencing regrets about its unilateral pullout of the 2015 P5+1 nuclear deal, and subsequent "maximum pressure" campaign, Trump's decision to not pull the trigger Thursday night was met with a huge sigh of relief from the American people and around the globe (poll after poll has found that the vast majority of Americans do not want another US war in the Middle East).

According to Moon of Alabama blog, the US "maximum pressure" campaign has now effectively backfired, and Trump is seeking a way out as Tehran currently appears to be waging its own "counter-pressure" campaign

Trump does not want to open a military conflict with Iran. But he is already waging a brutal economic war against Iran and the country is pushing back. Trump wants negotiations with Iran without first lifting his sanctions against it. Iran rejects that.

It no longer matters what Trump wants. Iran has achieved escalation dominance. It can cause a myriad of incidents that force Trump to react. He can either launch a hot war and thereby risk his reelection bid, or he can cut back on the sanctions that hurt the Iranian people. If he does not do either, more pinpricks will follow and will over time become more costly.

But the situation looks to fester without significant alteration, perhaps building toward another near future "incident" which again brings to the two sides to the brink of war. 

“We are putting additional sanctions on Iran,” Trump said further during Saturday's press briefing. “In some cases we are going slowly, but in other cases we are moving rapidly.”

He also said military action “is always on the table” against Iran, but at the same time said he's "open" to "reversing the escalation".

Published:6/22/2019 2:01:07 PM
[Markets] Dow Ends Lower; Stocks Cap Record Week With Down Day The Dow Jones Industrial Average ended down Friday, but held onto most of the week's gains following reports that President Donald Trump ordered, but then rescinded, an airstrike on military installations in Iran. Canopy Growth is Real Money's Stock of the Day. advanced following a report in The Wall Street Journal that the company was ready to buy healthcare payments group Equian LLC for around $3.2 billion. Published:6/22/2019 11:58:56 AM
[Markets] Over 600 US Companies Sign Letter Supporting Trump Tariffs On China

A letter from over 600 US companies businesses in support of President Trump's tariffs on approximately $300 billion of Chinese imports was scheduled to be submitted on Friday before the Office of the United States Trade Representative (USTR), according to the Daily Caller, which reviewed the document. 

It is the intention of Coalition for a Prosperous America (CPA), Chief Economist, Jeff Ferry to present the letter Friday morning during his testimony to the USTR. This letter pushes back on the letter last week that asks Trump to stop the tariffs on China. Those signers were mostly big-box retailers who manufacture their products in China.

This all comes as President Donald Trump said that he is considering slapping China with more tariffs if Chinese President Xi Jinping does not meet with him during the G-20 summit in late June. Since, the warning, the two have agreed to meet. However, Trump said if Xi does not attend the event, he will immediately impose new tariffs on $300 billion in Chinese imports, including a number of consumer products. -Daily Caller

In May, Trump raised tariffs on around $200 billion of Chinese goods from 10% to 25%. Three days later, China slapped around $60 billion in US goods with reciprocal tariffs.

"The global integration project with China, through liberalized trade, has failed. The Communist Party of China has used its access to U.S. consumer and capital markets for a predatory economic strategy to grow its state-owned enterprises, finance its military build up, imprison its citizens in modern day concentration camps and challenge America’s geopolitical power," according to Coalition for a Prosperous America CEO Michael Stumo. 

"Our American companies and workers have been weakened by this failed experiment. We want it to stop," he added. 

The Automotive Parts Remanufacturing Association (APRA) president, Joe Kripli. said, “for years now the Chinese ‘knock-off’ of starters and alternators that have been entering the country at ridiculously low cost and have been hurting the small [U.S.] remanufacturer that is located in every state and has been in our communities since WWII. -Daily Caller

"Fitzgerald USA is one of the few Made in America truck conglomerates. We recently started a U.S. truck parts business as the trucking industry increasingly moves its operations to China. America needs a strong manufacturing economy for jobs and national security. We support President Trump and his use of tariffs on China," said Fitzgerald USA Director of Government Relations, Jon Toomey. 

Guess who didn't sign the letter? Apple - which is desperately trying to lobby the Trump administration to ease the tariffs - arguing this week in front of the USTR that "U.S. tariffs on Apple’s products would result in a reduction of Apple’s U.S. economic contribution," and "weigh on Apple’s global competitiveness." 

Published:6/21/2019 5:25:41 PM
[Markets] Desperate-Doves & Downed-Drones Spark Gold's Best Week In 3 Years, Stocks & Bonds Gain

Gold!!! Dramatically outperforming since The Fed capitulated...

The market's response to Powell's promises this week... It's Never Enough!!

Global stocks are pushing up near record highs once again (but BAML points out that consensus 12 month forward global EPS growth expectations has turned negative (-0.3%) for first time since Sept'16)

Big week in Chinese stocks with SHCOMP back above the crucial 3000 level (barely)...


Spain barely managed gains on the week (despite the world's central banks all promising moar) but Italy outperformed...

Global negative-yielding debt exploded this week, now at a record $13 trillion market-value...

Not surprising with so much of European sovereign debt now trading below 0...


US equity markets love war, love dismal economic data, and love Fed promises of moar liquidity - that's all there is really...Nasdaq outperformed, Trannies were the laggard but still managed decent gains.


Small Caps are unch post-Powell...

And today saw stocks peak at the European close and fade the rest of the day to all close red with Small Caps the biggest losers...weak close as quad witch volumes hit


Transactions on S&P 500 stocks spiked on the quadruple witching open, when options and futures on indexes and stocks expire.

“They amplify/exacerbate moves in the markets as institutions update large derivatives positions,” Russ Visch, a technical analyst with BMO Capital Markets.

“My general advice is to be wary of any outsized moves in quad expiry weeks because it may be nothing more than someone getting caught on the wrong side of a trade and/or unwinding a big position.”

S&P is on target for the best June since 1995

Intraday, markets surged on headlines that VP Pence would cancel his China-Bashing speech (which he already had) citing "progress" with China, but that was dismissed by Chinese media demanding all sanctions be dropped before talks could progress. Peter Navarro also took some of the shine off the week when he warned of no deal being a possibility at around 1400ET but that didn't last long. Still, given that it was a quad witch, the pinning around unchanged today was notable and then an ugly close...


The Dow broke above the Jan 2018 high level that has been resistance since...

Will it hold?

Bank Stocks are at their weakest relative to the S&P since Sept 2016...


VIX decoupled from stocks today as - odd as it may seem - some investors decided to hedge...



Global bond yields are collapsing as global stocks soar back to record highs...


Treasury yields tumbled in the middle of the week...but rebounded notably today (on thin volumes) leaving 30Y underperforming - unchanged...


10Y Yields managed to scramble back above the crucial 2.00% level today as stocks were bid...


The yield curve steepened notably on the week (which is the signal for imminent recession as the curve shifts from deep inversion to steepness once again)...


Markets are now convinced 100% that The Fed will cut in July (22% chance of 50bps cut and 78% chance of 25bps)


The Dollar (DXY) suffered its worst week since Feb 2018 (down over 1%), dumping to its lowest weekly close since March ...


But most notably, the dollar puked below its 200DMA... (this is the biggest penetration of the 200DMA since May 2017)


Yuan mirrored the USD, spiking to six-week highs before fading today...


Bloomberg's Robert Fullem notes that Chinese iron ore prices are soaring but the Australian dollar isn’t, splintering their typical relationship.


Bitcoin surged this week, nearing the $10,000 Maginot Line...

Bitcoin futures did get above $10,000 however...

More notably, all September futures have already breached $10k on the crypto native platforms.


All the major cryptos gained (shrugging off any FacebookCoin angst)...

Ethereum surged late in the day, topping $295 for the first time since Sept 2018...


A weak dollar and safe-haven flows from Iran sent all commodities higher this week...


Oil surged this week on Iran tensions, jumping 9.5% - the best weekly gain since Dec 2016 (Trump election reflation euphoria)...


Gold is up for the 5th week in a row, topping $1400 with its best week since April 2016, pushing to its highest since Sept 2013...

As Bloomberg's Ye Xie notes, Gold and real-yields have never been as tightly bound as they are now. That probably means the metal's rally has squeezed as much as it can from the bond market, which has priced in a fair amount of rate cuts. For bullion to climb further, it'll need help from the dollar. The 30-day correlation between rates on five-year linkers and gold prices reached -0.79 this week. That's even tighter than during the global financial crisis. The post-crisis average is -0.3.

The stronger correlation means that buying gold is essentially buying inflation-linked bonds. It's a bet that real yields will keep falling, which increases the appeal of assets that don't offer yield. But without a weakening dollar, there's a limit to the gold rally.

Finally, some chart food for thought...

It's all about Fun-Durr-Mentals...

Stocks are Cheap...

Because all that matters is central-bank-liquidity...


Published:6/21/2019 3:24:38 PM
[Markets] Stocks end slightly lower a day after S&P notches record close U.S. stocks ended slightly lower Friday, but locked in strong weekly gains after the Federal Reserve indicated on Wednesday it could carry out rate cuts later this year. The S&P 500 was down 0.1% to around 2,951, a day after finishing at an all-time high. The Dow Jones Industrial Average fell 34 points, or 0.1%, to 26,719. The Nasdaq Composite slipped 0.2% to 8,032. The Dow clinched its third straight weekly gain, marking its longest such streak since Feb. 22. The Nasdaq also recorded its third straight weekly rise, its longest such streak since May 3. The blue-chip Dow briefly traded above its record closing high set on Oct. 3, but drifted lower later in the session. IHS Markit said its flash manufacturing purchasing managers index in June dropped to 50.1 from 50.5 in May, the worst reading since Sept. 2009. In company news, shares of Canopy Growth slipped 8% after the marijuana company said pot sales in Canada had declined over the last quarter. Published:6/21/2019 3:24:38 PM
[Markets] Dow Jones Adds To 660-Point Gain In Past 4 Days; Will This Aerospace Stock Breakout Soar? The Dow Jones Industrial Average looks poised to finish the week strong. More stocks such as TransDigm are lifting past a proper buy point. Published:6/21/2019 12:54:35 PM
[Markets] Rabobank: "We Are On The Verge Of Lunatic Monetary Policy And Lunatic Fiscal Policy Combined"

Submitted by Michael Every of Rabobank

Ups and Downings

One Bloomberg headline says it all for markets: “All Time Highs in Everything American As Risk Rally Crescendoes” Yes, the S&P and Dow are at all-time highs and the talk is of when, not if, US bond yields hit all-time lows even before the Fed has made its first cut in this cycle. Indeed, USD Libor plunged the most in a decade yesterday and the US 10-year is flirting with below 2%, while there is chatter of both sub-1% and sub-zero. Frankly, would you rule either scenario out?

That will put even more pressure on the ECB and the BOJ and the PBOC to keep slashing rates too. Yet two of the three already have rates below zero, so what can they do? Either face a deflationary slump, or kick out the jams on fiscal policy. Of course, that takes us to lunatic monetary policy and lunatic fiscal policy combined, and a not very covert attempt at currency depreciation. Yet this was always the likely endgame in my eyes, not the recovery and rate normalisation we have been mis-sold for years. It certainly isn’t the sudden “But how did we get here?!” revelation this all seems to be for some (…he writes, thinking of that market talking-head who was speaking of 4% US 10-year yields not so very long ago.)

Meanwhile, in China it isn’t the cost of money that’s the issue, it’s the quantity – which is effectively limitless (just look at all the build-now-ask-questions-never projects permanently underway). However, money won’t flow where they want it to because China is suffering from both Soviet-itis, with its profitless look-at-me! gigantism, and New-normal-osis, where new credit can’t get to the parts of the economy which would benefit most from it.

Of course, US President Trump is not going to stand still if he sees other economies trying to do more on the monetary front when they are already below zero or providing endless free money….and that takes our problems to a whole new level. If you really understand that dynamic it isn’t an upper for equity markets, but for bond yields the path is unobstructed, fifty-feet wide, smooth as glass, and brilliantly lit. In short, I am talking about geopolitical risk, which naturally emerges when a financial and economic paradigm is no longer working – and can anyone claim that ours is working particularly well? (Besides the imminent “Dow 27,000!” baseball-cap-wearing crowd.)

Indeed, overnight we saw Iran shoot down a high-altitude US drone--or for the cynics, did America shoot down its own drone?--and an initially hawkish response from Trump that had many scrambling for cover. Fortunately, the president again then made clear he genuinely isn’t trigger-happy, suggesting Iran might have shot down the drone because of ‘fat finger’ error. Even so he laid down a clear red line: oil tankers and drones are fair game – but if one American life is lost, all bets are off.

As I tried to point out earlier this week, this drone downing is because US, and USD, hegemony is being pushed back at. The awesome power of the demand for the greenback, and for US Treasuries, is unlikely to abate in a world of trade tensions and sanctions that stifle the flow of USD to China, Iran, Russia, and North Korea while there is no alternative architecture to replace its functionality. All of these states are being stifled as a result without a shot being fired. Yet all have awesome power of their own unrelated to finance or money. The strategic imperative therefore remains for them to shift towards that other sphere, or to threaten to, especially with the US making clear even one American soldier’s life is precious.

What goes up and what goes down if the US stands up for itself? And what goes up and what goes down if the US backs down? And won’t there be continued pressing if the US does back down? Consider that dynamic--rather than baseball caps--very, very carefully. So let’s watch what China’s Xi and North Korea’s Kim have to say at the end of their two-day pow-wow; and let’s watch Turkey closely, where President Erdogan is threatening to put tariffs on the US if Washington DC sanctions it for buying Russian weapons, and to buy alternatives to the US F-35 fighter jet (from Russia or China). Unsurprisingly, it was TRY and not USD that went down 1.6% on that headline.

In a very different sphere the UK and Europe are also seeing their own ups and downings. Boris Johnson is clearly on the up, and he will now face Jeremy Hunt in a final, rolling stand-off to be the next British PM, a contest which appears merely perfunctory at this stage. His own future Chancellor, Philip Hammond, however, has come out to say he will do everything he can to thwart the Hard Brexit that Johnson is not afraid of. As a result, I suspect Hammond will be around as long as a US navy drone over the Straits of Hormuz.

Meanwhile, in Europe there is no agreement on any of the candidates for any of the top jobs (you know, the unelected positions that hold the real power). “Electing a Pope is easier,” says the Irish PM. So Europe is divided, most so on the key Franco-German axis, and has no game plan to move forwards when Brexit, Italy, Iran, China, and the threat of a slump and deflation must be dealt with. At least 10-year Greek bond yields are down to record lows of around 2.57%... though didn’t they first come up with the term Pyrrhic Victory?

Published:6/21/2019 12:24:27 PM
[Markets] Dow industrials climb more than 100 points, now on track to end at a record Dow industrials climb more than 100 points, now on track to end at a record Published:6/21/2019 10:28:17 AM
[Markets] Tesla sentiment has 'overshot to the negative,' says Baird Investor sentiment on Tesla Inc. appears to have "overshot to the negative," said analyst Ben Kallo at Baird, who said he believes there are several upcoming catalysts that could drive the electric vehicle maker's stock higher. Kallo reiterated the outperform rating he's had on Tesla for at least three years, but boosted his price target to $355 from $340. The stock, which fell 0.9% in premarket trading Friday, has tumbled 20% over the past three months through Thursday, while the Dow Jones Industrial Average has gained 3.1%. He expects the first positive catalyst to be second-quarter deliveries data, which are due out on or before July 3, as he believes the stock will react positively given low expectations. Other upcoming catalysts include a potential cash flow positive quarter, the battery and powertrain analyst gathering expected this summer, volume production from the Shanghai factory, pickup truck unveiling and announcements on strategies to expand manufacturing and battery production capacity. Published:6/21/2019 7:53:28 AM
[Markets] ‘It's Too Late to Be Bullish’: Record Stock Run Is Drawing Worriers (Bloomberg) -- The S&P 500 is up 18% and powering toward its biggest first half since 1997. For bulls, things are great. Will they get any better?To a handful of cross-asset strategists who turned skeptical on stocks before this week’s manic sessions, that’s becoming the most pressing question. Increasingly, their answer is: not likely.However spectacular the real-time reaction -- almost 90% of S&P companies are in the green and investors just pushed the index to a record -- gestures like Federal Reserve Chairman Jerome Powell’s dovish pivot don’t engender confidence for the long term, says Sophie Huynh, a cross-asset strategist at Societe Generale in London. They ring more as a warning, she says, perhaps marking the beginning of the end to economic and market cycles that have lasted a decade.“It’s too late to be bullish,” Huynh said. “The Fed starts to consider rate cuts, equities should start to reflect slower growth momentum, and investors should start to cut earnings expectations. But that hasn’t impacted equities yet.”U.S. stocks surged for a fourth day Thursday, with the S&P 500 rising 1% to its first record since April. The Dow Jones Industrial Average closed within 0.3% of its October high. Speculation the Fed and other central banks are about to add stimulus to the global economy has been a boon for financial products everywhere, with the 10-year U.S. Treasury yield dropping below 2% for the first time since November 2016.Huynh’s arguments aren’t new. She says valuations are stretched while earnings stagnate, a sign “fear of missing out” has blinded traders to deteriorating fundamentals. Her team cut its recommended global stock allocation to 35% from 40% about two weeks ago and said nothing that has happened since has altered the view.As is true for most equity bears, the relentless decline in Treasury yields provides reason enough to lighten up on stocks, pointing to gathering economic weakness. And while Powell’s dovishness has been enough to revive financial markets, expecting monetary policy to do the same for the economy is asking too much.“At this stage of the economic cycle, you’re either going to have a recession next year or a cyclical slowdown,” she said. “If the Fed cuts rates, do you think we’ll see a global growth recovery? It’s not the case.”Much of the view is shared at Deutsche Bank Securities in New York. Dokyoung Lee, who helps manage about $1.5 billion in the firm’s multi-asset portfolio in the Americas, has been trimming his overweight position in global equities since April and turned underweight equities in May. He’s now 5% underweight global stocks, while increasing his allocation to bond-like REITs and infrastructure stocks.Likewise, Lee doesn’t regret making the underweight call just before the Fed decision sent everything higher.“If you take a cold look at what’s going on and ask yourself about what exactly has changed, it’s not much. You still have a trade dispute with China and it’s not going to be easy for stocks,” Lee, head of multi-asset strategies in the Americas at Deutsche Bank Securities, said by phone from New York. “We have a lot of the same issues that we had going into yesterday. They won’t turn around on a dime.”There are the factors that won’t go away even if Donald Trump and Chinese President Xi Jinping come closer to a trade agreement at the G-20 summit next week. Economic data in the U.S. isn’t stellar, a key manufacturing gauge is in contraction in most of the regions globally, a stock market rally comes amid minuscule fund flows, which hedge funds trimming their stock allocation to the lowest level in about five years.Investors have pulled $152 billion from emerging and developed equity mutual and exchange-traded funds this year, strategists at Bank of America Corp say in citing EPFR Global data. About a third of the money was yanked from the U.S. passive and active funds.“It’s not a time to be greedy,” Lee said. “Not at all.”(Corrects to S&P 500 in fifth paragraph.)To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.netTo contact the editors responsible for this story: Jeremy Herron at, Chris NagiFor more articles like this, please visit us at©2019 Bloomberg L.P. Published:6/20/2019 6:18:52 PM
[Markets] S&P 500 ends at record as investors pencil in July rate cut U.S. stocks ended strongly higher Thursday, with the S&P 500 notching a record close, as investors penciled in a July rate cut a day after a Federal Reserve policy meeting reinforced expectations for easier monetary policy. The S&P 500 rose around 28 points, or 0.9%, to end around 2,954, according to preliminary figures, eclipsing its previous record finish of 2,945.83 set earlier this year. The Dow Jones Industrial Average advanced around 249 points, or 0.9%, to end near 26,753, while the Nasdaq Composite rose around 64 points to end near 8,051, a gain of 0.8%. Investors shrugged off escalating fears of military conflict in the Middle East after Iran shot down an unarmed U.S. military drone. Oil futures rallied sharply. Published:6/20/2019 3:20:54 PM
[Markets] Dow Jones Smokes Bears Again; Is It Time To Sell This Top Cannabis Stock? The Dow Jones Industrial Average and other key indexes are crushing market bears with decent gains. Is it time to sell cannabis stock Innovative Industrial? Published:6/20/2019 2:18:00 PM
[Markets] Dow trades off session high after Trump says 'you'll soon find out' on possible Iran strike The Dow Jones Industrial average retreated from its best levels on Thursday and haven assets surged as President Donald Trump used cryptic language to describe the possibility of increased hostilities against Iran. The Dow was most recently trading up about 120 points, or 0.4%, at 26,619, but had been at 26,761 at its intrasession peak, while the S&P 500 index was up 0.5% at 2,940 off its highs, after setting an intraday record at 2,956.20. The president was asked if the U.S. would strike back after Iran shot down a U.S. drone in its airspace. He said at a news conference with Canadian President Justin Trudeau: "you'll soon find out." Trump issued a tweet saying that Iran "made a very big mistake," which he repeated at the news conference. Markets had been more buoyant after the Federal Reserve strongly implied that a rate cut could be warranted if economic conditions worsen. Published:6/20/2019 11:47:23 AM
[Markets] "Powell Throws In The Towel": Gold, Global Stocks Soar, S&P At All Time High As Yields Tumble

Risk assets, safe havens? it doesn't matter: just buy it all as central banks enter the last stretch of the race to the (credibility) bottom.

The global dovish tsunami - still in its jawboning phase - which was started by Mario Draghi on Tuesday and escalated on Wednesday when Fed chair Powell finally threw in the towel and effectively said he would cut rates in July, has resulted in a global scramble for both risk assets and safe havens, with global equity markets a sea of green...

... and S&P500 futures at all time high, indicating a record S&P print when the cash market opens...

... even as the 10Y Treasury yield plunged overnight, dropping below 2% for the first time since November 2016 and reaching as low as 1.97% before rebounding.

Finally, the ultimate safe asset, gold, has surged 1.5% overnight, and has finally broken out above multi-year support as we noted last night.

The rest of the world joined the party, with Europe's Stoxx 600 Index boosted by gains in technology shares and carmakers. Just like in the US, European stocks and bonds rally simultaneously in the aftermath of the Fed’s dovish tilt yesterday. Euro Stoxx 50 +0.9% to highest since May 6, led by technology, autos and industrials. In rates, Euro-area yields were steady to 4bps lower across the 2-yr through 10-yr tenors, with 10-yr BTPs outperforming bunds by 6bps.

Earlier in the session, Asian stocks also climbed, heading for their best week since January. The MSCI Asia Pacific Index rose for a third day, with communications and finance among the best-performing sectors. Most markets in the region were up, as China and Hong Kong led gains. Chinese stocks rallied the most in Asia with a surge in large caps as risk appetite picked up around the world. Investors adjusted positions before FTSE Russell is set to add A shares to its global indexes for the first time. The Shanghai Composite Index closed 2.4% higher, with Kweichow Moutai and large financial firms offering the biggest boosts, after Chinese President Xi Jinping began a state visit to North Korea. A rally pushed the price of gold surged to the highest level in more than five years, sending shares of gold miners across Asia higher. The Topix gauge advanced 0.3%, driven by SoftBank and Nintendo.

In the latest central bank news:

  • Norges Bank, busy building a reputation as one of the world’s most hawkish central banks , unanimously delivered on the promised 25bps June hike, with the Key Rate now at 1.25%, as expected.” Governor Olsen highlighted that the “assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019”, with policy forecasts signalling faster rate rises in the coming years. In-fitting with some of the calls, the rate path was left unchanged from the March release. 
  • The Bank of Japan kept monetary policy unchanged Thursday,
  • Indonesia’s central bank signaled it’s ready to cut interest rates.
  • The Philippines central bank kept its key rate unchanged.
  • RBA Governor Lowe said the possibility of lower rates remain on the table and that it is not unrealistic to expect a further reduction in the Cash Rate.  RBA Governor Lowe also commented that recent data suggests we are not making any inroads into the economy's spare capacity and it is unrealistic to think one 25bps cut can alter the growth path, while he also suggested that it is important to recognize monetary policy is not the only option and that he is very hopeful we will not need to cut as far as some central banks in Europe. (Newswires)
  • The Bank of England kept rates unchanged but warned that the risk of a no-deal Brexit is rising, sending cable sliding.

In FX, the Bloomberg USD index tumbled -0.5%, its biggest drop since March 20, as a fresh round of leveraged and real money selling after the London open kept the greenback under pressure. Norway’s krone rallied as Norges Bank signaled its rate hike Thursday may be followed by a similar move later this year, while sterling rose above $1.27 before the Bank of England policy decision.

In the biggest geopolitical news of the day, the Iranian Revolutionary Guard shot down a US drone according to reports citing the state news agency, although the US military later stated that no US aircraft had operated in Iranian airspace. Iran's Revolutionary Guard Corp Top Commander Salami says the the downing of the US drone sent a clear message to Washington, according to State TV.

In commodities, both Brent ($63.26) and WTI ($55.21) rally as Mideast tensions ratchet up, with gold jumping to the highest level in more than 5 years.

Market Snapshot

  • S&P 500 futures up 0.8% to 2,957.50
  • STOXX Europe 600 up 0.7% to 387.36
  • MXAP up 1.2% to 159.89
  • MXAPJ up 1.3% to 525.59
  • Nikkei up 0.6% to 21,462.86
  • Topix up 0.3% to 1,559.90
  • Hang Seng Index up 1.2% to 28,550.43
  • Shanghai Composite up 2.4% to 2,987.12
  • Sensex up 0.7% to 39,388.97
  • Australia S&P/ASX 200 up 0.6% to 6,687.41
  • Kospi up 0.3% to 2,131.29
  • German 10Y yield fell 1.8 bps to -0.306%
  • Euro up 0.6% to $1.1290
  • Italian 10Y yield fell 0.6 bps to 1.747%
  • Spanish 10Y yield fell 2.9 bps to 0.374%
  • Brent futures up 2.6% to $63.46/bbl
  • Gold spot up 1.5% to $1,380.15
  • U.S. Dollar Index down 0.4% to 96.73

Top Overnight news

  • Fed Chairman Jerome Powell made clear that uncertainty -- primarily about the president’s trade battles -- was a major factor behind the central bank’s policy shift, along with weak inflation
  • President Trump told confidants he believes he has the authority to replace Jerome Powell as Fed chairman, according to people familiar with the matter. Powell said he intends to serve his full four-year term
  • Bank of Japan kept monetary policy unchanged, just hours after the Fed became the latest central bank to signal a willingness to cut interest rates in the face of rising threats to economic growth
  • Australia’s central bank chief Philip Lowe reiterated it was “not unrealistic” to expect a further rate cut
  • New Zealand’s economic growth held at a five- year low, leaving the door open for the central bank to cut rates again. GDP rose 2.5% from a year earlier, matching the revised pace for the fourth quarter of 2018
  • Norway’s central bank is set to raise rates again as a boom in oil wealth spending and investments put the economy at odds with a global economic cooling
  • U.K. Conservative members of Parliament will choose the final shortlist of two candidates to succeed Theresa May as prime minister Thursday, a day after the favorite Boris Johnson stretched his lead to 89 votes; U.K. Chancellor Philip Hammond will urge the Tory leadership contenders to consider holding a general election or second referendum in order to break the Brexit impasse, rather than an economically damaging no-deal exit
  • Norges Bank is busy building a reputation as one of the world’s most hawkish central banks as it delivers its third interest- rate hike since September and signals there’s more to come
  • U.K. Conservative members of Parliament will choose the final shortlist of two candidates to succeed Theresa May as prime minister, a day after the favorite, Boris Johnson, stretched his lead to 89 votes. Tory MPs are due to vote twice Thursday, each time eliminating one candidate
  • The Bank of England must decide whether to temper warnings of future interest-rate hikes as investors and other major central banks prepare for more policy easing. While the Monetary Policy Committee is expected to keep the key rate unchanged on Thursday, Citigroup predicts some votes for an immediate increase
  • Iran said it shot down a U.S. spy drone in its airspace, escalating already fierce tensions in the Persian Gulf. The reported drone downing followed a missile strike by Yemeni rebels overnight on Saudi Arabia

Asian equity markets traded mostly positive as the region digested the dovish FOMC. ASX 200 (+0.6%) was led higher by gold names after the precious metal surged to its highest since 2013 but with upside in the broader market capped by weakness in other miners including Rio Tinto after it lowered its iron ore production outlook and with Caltex heavily pressured on disappointing guidance. Nikkei 225 (+0.6%) was also supported in the aftermath of the FOMC although a firmer currency and unsurprising BoJ announcement limited the advances, while Hang Seng (+1.2%) and Shanghai Comp. (+2.4%) outperformed on optimism ahead of the US-China trade talks and as financials surged after continued liquidity efforts by the PBoC. Finally, 10yr JGBs were higher as they tracked the upside in T-notes amid a decline in global yields with the US 10yr yield below 2.00% for the first time since November 2016 and with the 30yr yield also at similar multi-year lows.

Top Asian News

  • Japan Bond Futures Climb to Record as Kuroda Signals Flexibility
  • Philippine Central Bank Holds Key Rate After Inflation Quickens
  • Bank Indonesia Cuts Reserve Ratio for Lenders to Boost Liquidity
  • Malaysia Leader Says ‘No Proof’ Russia to Blame for MH17 Downing

European equities are higher across the board [Eurostoxx 50 +0.8%] as the region carries the FOMC-spark gains from Wall Street and Asia overnight. UK’s FTSE 100 (+0.5%) marginally lags its peers as the index is pressured by a firmer Sterling ahead of the BoE Monetary Policy Meeting. Sectors are also broadly in green, albeit financial names lag amid the post-FOMC yield decline. In terms of individual movers, Dixons Carphone (-13%) sunk to the bottom of the Stoxx 600 after the Co. cut guidance. Meanwhile, Fresenius Medical Care (+2.1%) is supported by a positive Barclays broker move. Finally, more bad news for Deutsche Bank (-1.1%) after NYT reported of a criminal probe over alleged money laundering.

Top European News

  • BOJ Stands Pat as Fed and ECB Signal Possible Rate Cuts Ahead
  • Polish Judges’ Retirement-Age Cut Is Illegal, EU Court Aide Says
  • Guindos Says ECB Is Prepared to Act If Situation Deteriorates
  • Norges Bank Stuns Markets With ‘Sole Hawk in Town’ Performance

In FX, the Dollar is down across the board as the FOMC matched market expectations by shifting further towards a rate cut, while Fed chair Powell delivered an extra dovish snippet in the press conference by revealing that even those not plotting an ease are more prone towards loosening monetary policy if needed. The has now index lost grip of the 97.000 handle and extended losses towards 96.500, with chart support just below (ie the 96.459 post-NFP low) under threat ahead of weekly claims, Philly Fed and the LEI.

  • NOK/NZD/CHF - The G10 outperformers, with the Norwegian Crown benefiting from a hawkish Norges Bank hike on top of the aforementioned Greenback weakness, and also further divergence vs the ECB as the revised rate path pencils in 2 more 25 bp tightening moves (next in September 2019 and 3rd before Summer next year). Usd/Nok and Eur/Nok down to circa 8.5500 and 9.6630 respectively in response. Meanwhile, the Kiwi and Franc drew additional impetus from data in the form of NZ Q1 y/y GDP and Swiss trade, as Nzd/Usd rebounds firmly towards 0.6600 and Usd/Chf retreats sharply through 0.9900, with 0.9850 in sight.
  • EUR/AUD/CAD/GBP - The next best majors in terms of gains relative to the Buck, as the single currency tests 1.1300 and unwinds more post-Draghi declines, while the Aussie pivots 0.6900 even though RBA Governor Lowe underscores room for further OCR cuts and the CBA believes back-to-back easing is in the offing with another ¼ point reduction in July. Elsewhere, the Loonie has built on Wednesday’s strong headline Canadian CPI platform to probe 1.3200 offers and psychological resistance and the Pound has reclaimed 1.2700+ status ahead of the BoE amidst market expectations or perceptions that the outturn might be hawkish on balance – see the headline feed or Research Suite for a more detailed preview. Note, not much reaction in Cable to UK retail sales that were weak and came with back data downgrades as the ONS flagged bad weather impacting clothes and footwear in mitigation.
  • EM - Broad rallies or rebounds at the Dollar’s expense, but the Lira also gleaning impetus to breach 5.7500 via an improvement in Turkish consumer sentiment, while the Rand is testing 14.2000 in anticipation of SA President Ramaphosa’s SOTU address and the Ruble is getting an oil-related boost and rallied to 63.2400 at one stage.

In commodities, WTI and Brent futures extended on gains in early European trade as the upside seen amid the dovish FOMC was exacerbated by reports that Iran shot down a US spy drone over the Strait of Hormuz, as tensions in the region escalates. WTI futures rose to levels just shy of USD 56.00/bbl whilst its Brent counterpart ran out of steam ahead of USD 64/bbl. Both benchmarks have since come off highs but hold onto a bulk of its gains, amid light news flow in the complex. Elsewhere, gold remains closer to the 1400/oz after having experienced a post-FOMC flash spike, with some attributing the move to a breakout from a five year range. Meanwhile, copper is back above the USD 2.70/lb amid a weaker Dollar and upbeat risk sentiment around the market. Finally, Dalian iron ore hit fresh record highs after Rio Tinto yesterday lowered its Pilbara shipment guidance, suggesting that supply could remain tight despite Vale resuming operations at its Brucutu Mine.

US Event Calendar

  • 8:30am: Current Account Balance, est. $124.3b deficit, prior $134.4b deficit
  • 8:30am: Initial Jobless Claims, est. 220,000, prior 222,000, Continuing Claims, est. 1.68m, prior 1.7m
  • 8:30am: Philadelphia Fed Business Outlook, est. 10.4, prior 16.6
  • 9:45am: Bloomberg Consumer Comfort, prior 61.6
  • 10am: Leading Index, est. 0.1%, prior 0.2%

DB's Jim Reid concludes the overnight wrap

By the time you read this I’ll have just taken off on the last flight out of NY back home. The biggest thing waiting for me on my arrival will be knowing whether my 3.75yr old daughter Maisie managed to be persuaded to sleep without her dummy for the first time ever last night. The dentist last week insisted it went ASAP. As such the reason we bought the dolls house furniture earlier in the week was a bribe. When she’s ready to give the dummy to the dummy fairy, said fairy will give her the furniture. Every night this week my wife has asked her if she’s ready to leave her dummy out for the fairy and every night she’s sobbed that she’s not ready. However last night she reluctantly agreed after seeing some of the furniture. My wife said it had to last through the night for the fairy to do the swap. I’ll wait to see what happens.

In markets, the rate cut fairy arrived overnight after the market figuratively spat out its dummy over recent weeks. The Fed was certainly more dovish than prior expectations with the main manifestation being the -12.8bps drop in two year yields (-1.6bps more in Asia), taking them to a fresh 20-month low. I would say the main success story was that 10 year yields (-3.6bps) didn’t follow the move in full indicating that the market believes that the Fed can sustain the expansion with rate cuts. Had the 10y moved in tandem then it would have implied more doubts over the growth and inflation outlook even as they cut. So 2s10s steepened by +9.1bps to 28.2bps, its sharpest move up since November 9, 2016, the day after the US presidential election. Regular readers will know that I think 2s10s is the most important curve variable and if it can steepen then that’s a positive all other things being equal. It has flattened back a little to 25.9bps in Asia as 10 year yields have caught up a little (-3.9bps) and have traded below 2% for the first time since November 2016. More market reaction later.

In more details on the Fed, the language of the statement and the dot plot moved more than expected in signalling imminent rate cuts, though both stopped short of a truly explicit signal. Eight FOMC members moved their dots lower to endorse cuts this year, with 7 of those now calling for 50bps and 1 pencilling in 25bps. That leaves 8 members predicting no change to policy and just 1 one member assuming a rate hike. That leaves things finely balanced, and indeed if just one more member had moved toward cuts, the median dot would have fallen. For 2020, the median dot did fall by 50bps, to 2.125%, while the long-run forecast fell 25bps to 2.50%, a new record low. On the growth front, the median projection for 2019 stayed steady at 2.1%, while 2020 was revised up by 0.1pp to 2.0%. That likely reflects the assumed impact of rate cuts on the economy from those members who expect cuts.

The policy statement mirrored these new forecasts, highlighting “soft” business fixed investment and noting that “market-based measures of inflation compensation have declined.” They also removed the word “patient” with regards to the committee’s policy stance, and added the recent buzz-phrase that they will “act as appropriate to sustain the expansion.” They also noted that “uncertainties about this outlook have increased.” St. Louis Fed President Bullard dissented in favour of a cut, the first dissent of the Powell era, in line with his prior comments.

In the press conference, Chair Powell mostly avoided saying anything too substantive, though he did reveal that "a number of those that expected flat rates agree that the case for more accommodation has strengthened.” That suggests that even among those who did move their rate forecasts, the case for a rate cut is strengthening. On the hawkish side, he did reiterate that “the baseline outlook has been a good one” and cited the strong labour market, rising wages, and steady consumption growth as key supports for the economy. However, he also said that “the limited evidence available at this time suggests that growth in business fixed income has slowed in the second quarter,” and noted that trade uncertainty is a key factor driving this trend. When asked about planned balance sheet policy, Powell seemed to tacitly indicate that the Fed could end its runoff program at the July meeting alongside a rate cut.

Our economists published their recap of the meeting last night (available here ),where they conclude that the meeting opened the door to rate cuts as early as July, as they expected. They did note that Powell said “there was not much support” for a cut at yesterday’s meeting (excluding Bullard’s dissent), which likely means that they will need to see further deterioration in the data and/or worsening trade conflict to feel fully comfortable cutting in July. Even apart from those conditions, our econ team thinks that Powell’s comments on the ongoing Fed review, plus the persistence of inflation undershooting, potentially signal a willingness to allow for an “opportunistic reflation,” as Governor Brainard has described it. That would argue for a rate cut even if the data and trade talks do not deteriorate. Overall, our econ team expects conditions to evolve sufficiently to warrant a cut in July, and view a 25bps move as more likely than 50bps, and they continue to anticipate a total of three rate cuts this year.

As mentioned, the biggest market reaction came in rates, where short-end treasuries rallied sharply and money markets moved to price in even greater odds of Fed easing. There are now 32bps of cuts priced in for the July Fed meeting; implying a near-certainty of a 25bps cut and some additional chance of a 50bps cut. Beyond that, there are now a full 75bps priced in through end-2019 and 100bps over the next 12 months. Ten-year treasury yields fell -3.6bps even as inflation breakevens rose +4.4bps. The dollar slid -0.54%, with its losses spread evenly across high-yielding EMs (ZAR +1.38%, TRY +0.64%) and developed market havens (CHF +0.63%, EUR +0.29%). US equities had been trading flat into the Fed meeting, but rallied after the statement and dot plot was released, and continued to build on their gains during Powell’s press conference. The S&P 500 ended +0.30% higher, while the NASDAQ and DOW gained +0.42% and +0.15%. Despite the positive headline numbers, there was a defensive tinge to the sectoral moves, with materials, energy, and industrials all lagging. Banks also performed poorly, dropping -0.86% on the lower rates outlook. Despite all the excitement, volatility continued its recent slide, with the VIX down -0.8pts to 14.3.

The central bank baton passed to the BoJ this morning however it’s been much less of a spectacle with no policy announcement nor any change to forward guidance. The statement did include a reference to rising global risks however that was about the only change. Governor Kuroda is yet to speak (07:30 am London time) so it’s worth keeping an eye on his comments. As for markets, the yen is up +0.46% - although that more reflects the post Fed move - while yields on 10yr JGBs are down -1.6bps to -0.160% and the Nikkei is up +0.68%. Markets in the rest of Asia are also trading up with Chinese bourses leading the way – the CSI (+3.29%), Shanghai Comp (+2.58%) and Shenzhen Comp (+2.15%) are all up over 2% while the Hang Seng is also up +1.01% although it’s not entirely clear what is driving the big China outperformance this morning.

As for Europe yesterday prior to the Fed, the rally for rates ran out of steam with yields backing up slightly. Indeed 10y Bunds rose +3.2bps but they still remain -5.2bps down from the pre-ECB levels. OATs rose +3.9bps while BTPs closed flat. The ECB’s Rehn was fairly coy in his comments yesterday in Sintra, only reiterating that the ECB will “consider and discuss and – as appropriate – take decisions on this in our forthcoming meetings”. In equities the STOXX 600 finished flat after an intraday range of just 0.39% which is the 7th lowest this year. The DAX ended -0.19% and CAC +0.16%. HY credit spreads in Europe ended -8bps.

So, just in case you hadn’t had enough of central banks for one week, we’ve still got the BoE meeting today. No change in policy is expected, with the market similarly priced for no change. Our UK economists changed their BoE call a few weeks ago away from a hike this year with rising risks that the Bank Rate has reached its terminal point. They pointed to the deterioration in the global outlook, a demand slowdown from surveys, a longer pass through from wages into inflation and the rising risks of a no deal Brexit. More can be found in their note here .

Staying with the UK, last night’s leadership contest ended with further gains for frontrunner Boris Johnson. He amassed 143 votes in the latest round of voting, as dark horse Rory Stewart was eliminated. That leaves Jeremy Hunt, Michael Gove, and Sajid Javid as the final contenders. The list will be whittled down to the final two candidates in two more votes today. Sterling was up around +0.61% prior to the Fed before ending +0.69% stronger. It’s worth noting that the Telegraph has reported overnight that Chancellor Hammond will use his annual Mansion House speech today to warn Tory leadership contenders to "be honest with the public" and admit that Parliament is likely to reject both the Withdrawal Agreement and no deal. The report went on to add that he is likely to say that a second referendum could be a possible way to break the impasse in the parliament while adding that a general election "could put Jeremy Corbyn in Downing Street”.

It was the May inflation report in the UK yesterday which was the only real data of substance. However, there were no great surprises with the +0.3% mom headline reading matching expectations, putting the annual rate at +2.0% yoy, while the core dipped one-tenth to +1.7% yoy, albeit one-tenth above consensus. That data didn’t really move the dial for the BoE today. The other data was the June CBI survey in the UK which showed total orders of -15 compared to estimates for -11.

Looking at the day ahead, this morning we’ll get the May retail sales report prior to the BoE meeting at midday, before the US data includes jobless claims, the June Philly Fed business outlook and May’s leading index. The June consumer confidence reading for the Euro Area is also out this afternoon. Meanwhile, the ECB’s Rehn and Guindos are due to speak, while we’ve got another Conservative Party leadership ballot to look forward to, while EU heads of state gather for the start of a two-day meeting to discuss the leadership race for the commission and ECB.

Fingers crossed that’s the last of the dummy. Only the twins to deal with at some point in the future.




Published:6/20/2019 6:52:06 AM
[Markets] Dow Jones Up, Beaten By Nasdaq Again; This Sector Revs Big Gains After Fed News The Nasdaq composite rose just 0.4% on Thursday, but it beat the Dow Jones Industrial Average. This sector is helping make growth stocks look more bullish lately. Published:6/19/2019 3:48:40 PM
[Markets] Stocks Edge Up as Cautious Wall Street Awaits Fed Decision on Interest Rates The Dow Jones Industrial Average edged higher Wednesday as cautious investors awaited the Federal Reserve's decision on interest rates and hoped for fruitful U.S.-China trade talks. climbed after the San Jose, Calif.-based software company beat Wall Street's second-quarter earnings estimates. Stocks edged up Wednesday as cautious investors awaited the Federal Reserve's decision on interest rates and hoped for fruitful U.S.-China trade talks. Published:6/19/2019 11:13:29 AM
[Markets] Stocks Mixed as Cautious Wall Street Awaits Fed Decision on Interest Rates The Dow Jones Industrial Average edged higher Wednesday as cautious investors awaited the Federal Reserve's decision on interest rates and hoped for fruitful U.S.-China trade talks. climbed after the San Jose, Calif.-based software company beat Wall Street's second-quarter earnings estimates. Adobe is Real Money's Stock of the Day. Published:6/19/2019 9:44:15 AM
[Markets] Stocks Open Higher Ahead Of Fed; Boeing Leads Dow Jones Industrial Average Adobe topped the S&P; 500 and Nasdaq 100, while Boeing led the Dow Jones Industrial Average early Wednesday as markets awaited a Federal Reserve announcement. Published:6/19/2019 8:41:58 AM
[Markets] Stock Futures Lean Higher Ahead Of Fed; Boeing Leads Dow Jones Industrial Average Adobe topped the S&P; 500 and Nasdaq 100, while Boeing led the Dow Jones Industrial Average early Wednesday as markets awaited a Federal Reserve announcement. Published:6/19/2019 8:11:07 AM
[Markets] Qatar Airways orders additional 5 Boeing 777 freighters in deal valued at $1.8 billion Qatar Airways has committed to purchase an additional five Boeing 777 freighters valued at $1.8 billion at list prices, the airline announced on Wednesday. The deal was unveiled at the Paris Air Show and will increase the airline's 777 fleet by 20%, according to His Excellency Jassim Saif Ahmed Al-Sulaiti, Qatari Minister of Transport and Communications. Qatar Airways currently owns 23 freighters, 16 of which are Boeing 777 aircraft. Boeing shares were up 0.4% premarket and have gained about 8% this week as the aerospace giant has announced a flurry of deals from the Paris Air Show. The news comes after two fatal accidents involving Boeing's 737 Max aircraft shook confidence in the company. Shares have gained about 16% in 2019, while the Dow Jones Industrial Average has gained 13% and the S&P 500 has gained 16.4%. Published:6/19/2019 6:11:35 AM
[Markets] Jerome Powell and the Fed, Adobe, Viacom, U.S. Steel - 5 Things You Must Know U.S. stock futures pointed to a mixed start for Wall Street on Wednesday as equity investors were hoping to get support from global central bank easing and fruitful U.S.-China trade talks. Contracts tied to the Dow Jones Industrial Average fell 1 point, futures for the S&P 500 declined 0.50 points, and Nasdaq futures rose 4.25 points. With the Federal Reserve set to make an announcement on interest rates at 2 p.m. ET amid pressure from Donald Trump to "level the playing field" in global commerce with lower interest rates, and European Central Bank President Mario Draghi pledging to re-start the bank's €2.6 trillion bond buying program if growth and inflation continue to slow, investors have driven global stocks to multi-week highs. Published:6/19/2019 5:11:17 AM
[Markets] Stocks Near Record Highs As Xi Hope & Powell Hype Trump Global Economic Collapse

We hate to be the bearer of bad news, as stocks near record highs, bond yields hit record lows, and global macro collapses to cycle lows...BUT...


Chinese stocks missed out on today's fun (watch them catch up tonight) as they closed before Draghi rescued assets around the world and cornered Powell...


European stocks accelerated higher today after Draghi promised moarrrrr....

Sending Bund yields to new record lows...

And pushing yields on various European sovereign notes below 0 for the first time in history.


US equities surged in the pre-open on the Draghi and Trump-Xi comments...


But drifted lower after the European close with some weakness in the last 30 mins... Nasdaq was the best performer but the S&P 500 lagged...

Nevertheless, the S&P 500 is just 1.25% from its record highs, The Dow around 2% below its and Nasdaq around 3% below (with Small Caps and Trannies still down around 11% from their 52-week highs). China's Shanghai Composite is down around 12% from its 52-week highs.


BYND opened above $200, then plunged back into the red...


Notably, BofA's survey suggests market participants say that drop in the S&P to 2430 would prompt an immediate rate cut by The Fed and to 2350 would prompt Trump to do a trade deal no matter what...


Treasury yields plunged on Draghi's comments and Trump's follow up, but as the day went on, rates recovered some of the drop (though the long-end notably outperformed)...

Dramatically flattening the yield curve...

Bond yields were extremely volatile...

2Y roundtripped the entire plunge...

and 10Y traded like a penny stock after trading as low as 2.01%!!!

Breakevens continue to collapse...

European inflation forwards soared today - biggest spike since Feb 2012...

Short-dated Bills are extremely volatile - something or someone is in pain

Ahead of tomorrow's Fed statement, expectations for Fed rate cuts continue to be extremely dovish...

As the global negative debt pile is within inches of a record high...


The Dollar spiked as Draghi's comments drove the euro lower but by the close the dollar ended dovishly lower as Trump-Xi headlines hit...


EUR tumbled on the Draghi headlines...back below 1.1200...


Yuan spiked on the Trump-Xi call, hitting one-month highs against the dollar...


Cryptos slipped lower today, presumably as Facebook's Libra dominated headlines...Ripple was worst on the day

But Bitcoin held above $9000...


Commodities were all higher on the day, led by oil's gains...


Gold was slammed back below $1350 early on as the dollar spiked but rallied back into the green after Europe closed...


WTI soared today on the heels of China trade hopes...ripping off the $52 level once again.


Finally, we note that global macro data is double-dipping to cycle lows - and the longest period of negative surprises in history...

Who's right? Global Bonds, Global Stocks, or Global Macro?

So, maybe The Fed should cut rates, right? Trouble is, the market already did, sending financial conditions to near record 'easy' levels...

Does The Fed really want to be easing with financial conditions already so easy? If you ask stocks, yep!!

Published:6/18/2019 3:09:34 PM
[Markets] Dow industrials end up more than 350 points ahead of Fed decision Dow industrials end up more than 350 points ahead of Fed decision Published:6/18/2019 3:09:33 PM
[Markets] Dow Jones Rips 1,847 Points Above June Low; These Growth Stocks Show Bullish Tone The Dow Jones Industrial Average continues to show bullish action. The Nasdaq composite outperformed and easily took back its 50-day moving average. Published:6/18/2019 12:36:47 PM
[Markets] Dow Soars After Trump Says He Will Have "Extended Meeting" With Xi Next Week

The bears are suffering a trifecta of terror today.

First, Draghi threw in the towel said he would be cutting rates soon.

Second, Powell is expected to unleash the dovish floodgates tomorrow.

And finally, moments ago, Trump restored hope that a trade deal may be forthcoming at next week's G-20 when he tweeted that contrary to conventional expectations, he will be having an "extended meeting" with Xi next week..

The news sent USDJPY surging...

... the Dow soaring more than 300 points...

... and the S&P approaching all time highs.

So what does this mean for the Fed: with a glimmer of hope now appearing that trade war may be ending, and with the S&P at all time highs, just how does Powell announce a rate cut tomorrow? We'll find out in just over 24 hours.

Published:6/18/2019 9:06:59 AM
[Markets] Chip Stocks Drive Nasdaq Rally; Caterpillar, Apple Hoist Dow Jones Industrial Average Facebook, Beyond Meat and Cisco were early risers Tuesday, as stocks bolted higher and the Dow Jones Industrial Average added to its strong June advance. Published:6/18/2019 9:06:58 AM
[Markets] Libra: Facebook's Crypto Trojan Rabbit

Cryptocurrencies are winning. If you need proof look no further than Facebook’s proposed Libra stablecoin. With the release of its White Paper, Tom Luongo explains the salient point is Libra is another attempt by the current banking establishment to slow the flow into the world of hard money.

In this respect Libra is no different than Ripple or dollar-settled Bitcoin futures contracts. These are products designed to slow the exodus out of the shadow banking system. Ripple is a way to lower foreign exchange fees and off-chain futures settlement is a way to control Bitcoin prices and exacerbate volatility to slow crypto-adoption by so-called normies.

Now we have Facebook and Libra. As Caitlin Long points out in her excellent Forbes’ article, Libra will get major financial players backing it. The goal is to become a standard creator in the vein of the Dow Jones Committee or the IMF since it will determine the basket weighting of Libra.

It won’t, however, be a cryptocurrency in the traditional sense. It won’t have a limited supply, defined inflation rate or any commodity character whatsoever.

Proof-of-work? Phsaw! Every good Friedmanite knows that opportunity cost in creating new monetary units is simply wasted capital!

Only mouth-breathing rubes stuck in the 19th century think that’s important.

Instead Libra’s supply will be regulated just like every other fiat currency, by a central authority. Facebook already wants all your data, whether you’re an account holder or not.

Now they want to control your currency as well.

The Central Bank of Facebook

When you extrapolate out the power of Facebook’s platform to where this coin will be marketed to, emerging markets, Libra is looking for all the world like Facebook’s application into the cartel of price-setting central banks.

Ms. Long even hints at this in her article. In fact it’s her first of six important points about Libra.

1. Facebook’s cryptocurrency will be a powerful force for good in developing countries, which is where Facebook intends to market the product.

Why? Because central banks in developing countries are notorious for their lack of discipline in maintaining the value of their fiat currencies, which too often lose purchasing power. The best example among many is Venezuela, which is experiencing hyperinflation worse than that of Germany after World War I. By providing citizens of developing nations with access to a store-of-value that is more reliable than their government-backed currencies, Facebook’s cryptocurrency will indirectly exert fiscal and monetary discipline on developing nations—which will improve the lives of many people globally.

Leaving aside the fact that much of Venezuela’s hyperinflation stems from the U.S. sanctioning and cutting Venezuela off from the global banking system, she has a strong point.

Governments are terrible at managing the value of their currencies for all the reasons Austrian economists have laid out in painstaking detail for decades.

Think this through for five seconds and you get to the obvious conclusion. Facebook and the Wall St. banks which actually control it are creating a coin to do away with national currencies in the countries most vulnerable to the Fed’s control over the global monetary system.

This is the next step in the quest to create a world currency.

And if the current system’s long-term health is threatened by, oh I don’t know maybe, the implosion of a bunch of SIFI banks like Deutsche Bank sparking a global sovereign debt crisis, then a stablecoin like Libra to replace a discredited dollar/euro/yen/pound makes some perverse sense.

If the plan has always been, as Jim Rickards has been saying for years, that the response to a collapsing monetary system would be national currencies replaced with IMF SDR’s as the reserves of the banking system, then having a ‘cryptocurrency’ Trojan Horse to bait and switch with has to be part of the plan to maintain confidence in the institutions that fomented the crisis in the first place.

And what better platform to do that with than Orwell’s Panopticon itself, Facebook?

The Crypto-Antibody

As I pointed out at during last year’s meltdown in cryptocurrencies, Bitcoin was needed to replace these Ponzi schemes masquerading as money.

… Bitcoin was born out of the extreme fraud of the financial system under Greenspan and Bernanke.

They used leverage ratcheted up post-Y2K to levels which could only be supported through legislative fiat to wall off capital fleeing the system.

And the response was a group of folks applied the teachings of Austrian Economics and Ludwig von Mises’ Regression Theorem to create a digital asset which became more resistant to fraud the more it was adopted.

The result was Bitcoin.

Bitcoin was a catastrophic mutation.  A thing born out of necessity to free human beings from a central issuing authority of new monetary units.  That relationship needs to be broken if we are going to free ourselves from the cycle of tyranny of the few at the expense of the many

In short, Government ineptitude and/or fundamental evil created Bitcoin.

This is the essence of what Ms. Long talked about around the same time as that post in her Mises Weekend talk “Will Blockchain Free Us from Wall St.”

It’s a wonderful talk that focuses on the domestic reasons why the dollar is yet to collapse and why Bitcoin provides the framework in which we can craft money that isn’t controlled by a central issuing authority.

This is the key point that she mentions but doesn’t emphasize in her talk. For the first time in history we have been presented the option to choose money whose new units are not subject to the whims and corruption of humans.

That’s set by math. And math both determines the rate of inflation and the rate of trust developed by the money itself. This continues to be Bitcoin’s biggest advantage as long as the economic incentives to maintain the network remain positive and are not perverted.

A Farewell to Kings

It means no philosopher kings deciding the rate of inflation or deflation. It means minimizing rent-seeking behavior. It means an end to counterfeiting as we have experienced in the past.

But as I said earlier, things like off-chain settled futures contracts create ‘Paper Bitcoins’ which suppress its exchange rate versus the U.S. dollar. They are an attempt at counterfeiting through through leverage. So are stablecoins like Tether, if not managed properly and, don’t kid yourself, Libra.

Facebook and Wall St. are banking on Facebook’s pervasiveness to drive mass adoption to build an adjunct to the existing financial system which slows the growth of the real cryptocurrency marketplace.

They value blockchain to lower costs and replace antiquated clearing systems of increasingly opaque ledgers, as Ms. Long points out in her talk. But they still want to retain control over the value of the money itself and what that money represents.

They want to retain the system of perverse incentives they have created which rolls up the wealth of the world to them.

It was, as I said earlier, these perverse incentives that created Bitcoin in the first place. And with each new attempt to co-opt the technology and/or suppress its usage through ridiculous laws they validate cryptocurrencies all the more.

Which is Ms. Long’s conclusion in her recent article:

6. Facebook’s cryptocurrency will turn out, in the end, to be a Trojan horse that benefits Bitcoin.

During a period of monetary upheaval, one in which the faith in the Institutional Order tends towards zero, there will be a fundamental shift away from public-issued money as trusted media of exchange.

If Martin Armstrong is correct and we are approaching the end of a mega-cycle in Public trust and a massive shift in consciousness to Private assets as stores of wealth, then it again makes sense for the powers that be, those I like to call The Davos Crowd to create a private-in-name-only “cryptocurrency” to co-opt that shift and remain in control.

But it also means that these same people, who have fed at this trough for so long, aren’t any more capable of managing it successfully than they were the dollar and the euro.

So we really do have little to fear from Facebook and Libra in the long run, because as we know from the Trojan Rabbit, it came back to land squarely on their heads.

*  *  *

Finally, as Bloomberg points out, whether Libra will be used in commerce is very much in question. For the last decade, multiple cryptocurrencies starting with Bitcoin have tried and failed to penetrate coffee shops and retail stores. In the first four months of this year, only 1.3% of Bitcoin economic transactions came from merchants, according to researcher Chainalysis Inc. The majority of the rest related to trading, and while many digital-assets enthusiasts are now hanging their hopes on the company’s new digital coin succeeding where Bitcoin has not, there are plenty of concerns.

“While Libra might be a big step in opening up a new wave of users to the benefits of asset-backed digital money, it comes with the risks of centralized pain points and vulnerabilities,” said Joseph Lubin, a co-creator of Ethereum.

“Data silos enable incumbents to maintain pricing power, and also come with the risks of data breaches, privacy, and security issues -— problems that many have already begun to associate with Facebook.

*  *  *

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Published:6/18/2019 7:36:16 AM
[Markets] Boeing's stock climbs, after commitments for Dreamliners announced Shares of Boeing Co. rose 1.1% in premarket trading Tuesday, after the aerospace and defense giant announced a commitment from aircraft leasing company Air Lease Corp. to buy five 787-9 Dreamliners valued at $1.5 billion. "We are thrilled that ALC has decided to add more 787 Dreamliners to its elite portfolio of airplanes that they place with customers across the globe," said Ihssane Mounir, senior vice president of commercial sales and marketing at Boeing. This follows an announcement at the Paris Air Show earlier Tuesday from Boeing, Korean Air and Air Lease (ALC) that Korean Air has committed to buying 10 new 787-10s and 10 additional 787-9 airplanes valued at $6.3 billion, and will lease 10 787-10s from ALC. Boeing's stock has gained 10.1% year to date through Monday and Air Lease shares have rallied 28.0%, while the Dow Jones Industrial Average has advanced 11.9%. Published:6/18/2019 7:05:19 AM
[Markets] Stocks End Slightly Higher in Cautious Trading Ahead of Federal Reserve Meeting The Dow Jones Industrial Average ended moderately higher Monday as investors moved cautiously heading into this week's Federal Reserve meeting and weighed renewed tariff threats from the White House. Facebook is Real Money's Stock of the Day. Stocks ended slightly higher on Monday as investors adopted a cautious stance going into this week's Federal Reserve meeting and amid renewed tariff threats from the White House. Published:6/17/2019 3:35:07 PM
[Markets] Hibbett Sports stock falls after disclosing failure to file 10-Q on time Shares of Hibbett Sports Inc. tumbled 9.3% in afternoon trading Monday, after the athletic gear retailer said it would be unable to file its 10-Q quarterly report with the Securities and Exchange Commission on time, as it needs to further review its accounting. The company in a filing late Friday said the need for further review follows the recent adoption of the Financial Accounting Standards Board's new accounting standards regarding leases. The quarterly report in question is for Hibbett's fiscal first-quarter ended May 4, in which the company reported an adjusted profit, revenue and same-store sales that beat expectations, and raised its earnings and same-store sales guidance. The company does not expect any material changes in results. The stock has still climbed 8.1% over the past three months, while the SPDR S&P Retail ETF has lost 4.8% and the Dow Jones Industrial Average has gained 1.1%. Published:6/17/2019 2:31:50 PM
[Markets] Stocks Rise Modestly in Cautious Trading Ahead of Federal Reserve Meeting The Dow Jones Industrial Average rose modestly Monday as investors moved cautiously heading into this week's Federal Reserve meeting and weighed renewed tariff threats from the White House. Facebook is Real Money's Stock of the Day. Stocks rose modestly on Monday as investors adopted a cautious stance as they headed into this week's Federal Reserve meeting and weighed renewed tariff threats from the White House. Published:6/17/2019 1:31:08 PM
[Markets] Stocks Mixed in Cautious Trading Ahead of Fed Meeting The Dow Jones Industrial Average was down slightly Monday as investors moved cautiously heading into this week's Federal Reserve meeting and weighed renewed tariff threats from the White House. Facebook is Real Money's Stock of the Day. Stocks were mixed on Monday as investors adopted a cautious stance as they headed into this week's Federal Reserve meeting and weighed renewed tariff threats from the White House. Published:6/17/2019 9:05:25 AM
[Markets] Disney's stock slips after Imperial Capital downgrades, citing 'record' valuation Shares of Walt Disney Co. fell 0.4% in premarket trading Monday, after the media and entertainment giant was downgraded by Imperial Capital analyst David Miller, citing concerns over valuation after the recent run up in price. Miller cut his rating to in line, after being at outperform since November 2018, but kept his price target at $147. The stock has soared 29.2% year to date through Friday, while the SPDR Communication Services Select Sector ETF has rallied 16.6% and the Dow Jones Industrial Average has gained 11.8%; it closed at a record of $141.74 on Thursday. Miller said Disney's stock is "now trading at record multiples," with all the bullish catalysts he was expecting when he upgraded the stock in November, including the release of "Avenger's Endgame," the opening of two "Star Wars" lands, the disposal of the Regional Sports Networks and the re-financing of various 21st Century Fox debt, is now "pretty much built into the stock, in our view." He said the one bullish catalyst that hasn't yet occurred--the resumption of share buybacks--could resume as soon as about one year from now. Published:6/17/2019 8:03:01 AM
[Markets] Slow Start As Traders Brace For Huge Week For Global Markets

With the most important 2 weeks of the year looming dead ahead, on Monday U.S. equity futures drifted without conviction along with European stocks following a mixed session in Asia as a huge week for central-bank decisions and policy gets underway, to be followed by the highly anticipated G-20 meeting in Osaka at the end of the month. Treasuries and gold dropped, the dollar was steady and cryptos surged to new 2019 highs.

As the Federal Reserve prepares to signal on Wednesday whether it is readying its first interest rate cut since the financial crisis (or isn't, and sends stocks plunging as the gap between market expectations and Fed signalling is the widest it has ever been...

... and oil still choppy after last week’s Gulf tanker attacks, most markets are in a holding pattern.

The Fed’s “overall tone will be dovish but there’s a fair bit priced into the market already,” Sally Auld, senior interest-rate strategist at JPMorgan Chase & Co., told Bloomberg TV in Sydney. “It’s probably going to be hard for the Fed to exceed what is already priced in.”

For now, traders are focusing on the dollar’s surge on Friday after above-forecast U.S. industrial output and sharp upward retail sales revisions, as well as upbeat consumer confidence, pushed back futures markets expectations of any quick Fed rate cut.

“A (U.S.) rate cut this week seems extremely premature,” said Royal Bank of Canada’s Global Head of FX Strategy Elsa  Lignos. “But the Fed can make some communications tweaks that at least open up the possibility for a cut in July. The question is how flexible that messaging will be.” Traders are pricing a high probability of a July rate cut, despite there being unusually high uncertainty, particularly around trade, Lignos added. She said a G20 meeting late this month could also change the narrative again.

Futures on the S&P 500 were unchanged, while Europe's Stoxx 600 Index was little changed even as a profit warning from Germany’s Lufthansa hit airlines and canceled out a 0.8% rise in banking stocks. Deutsche Bank stock rose and boosted lenders on reports that it’s considering creating a “bad bank” to wind down legacy assets as part of a broader overhaul.

Earlier in the session, Asian equities fell 0.4% as a rebound in Hong Kong stocks failed to offset declines in Japan’s market. Japan’s Topix index dropped 0.5%, led by Ateam Inc. and Japan Communications Inc. Hong Kong’s Hang Sang Index pared earlier gains and closed 0.4% higher after the city’s chief executive suspended a controversial extradition bill. The Hang Seng fell for three sessions in a row through Friday, after the extradition bill triggered mass protests and some of the worst unrest seen in the territory since Britain handed it back to Chinese rule in 1997. Over in the Mainland, Chinese shares traded within a tight range, with the benchmark Shanghai Composite up 0.2% and the blue-chip CSI 300 barely budging.  The region’s chipmakers declined as Broadcom triggered a global sell-off after it slashed its full-year revenue forecast Friday amid escalating trade tensions.

“Last week the issue looked as if it would become another thorny point between the United States and China. As the bill is now being postponed indefinitely, things will likely calm down, which is good for markets,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

Emerging-market stocks and currencies declined for a fourth day as investors refrained from making any major judgement calls ahead of central bank meetings this week.

In rates, with long-term inflation expectations at an all-time low again, euro zone bond yields held close to their multi-year trough, despite inching fractionally higher early on. ECB board member Benoit Coeure said in an interview that the bank’s already sub-zero interest rates could be cut again if needed. It could also restart the quantitative easing program it wound down at the end of last year. In short: it can do everything - and more - that led to European inflation expectations hitting all time lows and leaving Deutsche Bank on the verge of insolvency.

“The question is not whether we have instruments; we do have instruments. We can change our guidance. We can cut rates. We can restart QE,” Coeure told the Financial Times. “The question is which instrument, or combination of instruments, would be best suited to the circumstances.”

No, the real question is when do the peasant finally rise up and put an and to the ECB. But we digress.

In FX, the dollar was steady after jumping on Friday, rising to the highest level in almost two weeks, after the U.S. retail sales data eased fears that the world’s largest economy is slowing sharply. Investors awaited clues from the Federal Reserve on the outlook for monetary policy, after solid U.S. economic data on Friday cast doubts about a more dovish position from the central bank. Asia’s currencies led declines after U.S. Commerce Secretary Wilbur Ross downplayed the prospect of a major trade deal emerging from a possible meeting between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit this month. “Weighing on investors’ collective mind is whether the Fed can live up the dovish expectations of the market, especially following firm U.S. data on Friday,” Credit Agricole SA strategists led by Valentin Marinov wrote in a report.

The Turkish lira added 0.4% to 5.87 per dollar, reversing losses of as much as 0.6%, after the Treasury and Finance Ministry said Moody’s decision to downgrade the nation’s credit rating is incompatible with fundamental indicators, adding that the country will never abandon free-market principles. The currency’s gain on Monday ends a four-day losing streak. Turkey central bank will provide Primary Dealer banks with a liquidity facility within the framework of open market operations. Russia’s ruble adds 0.1% to Friday’s gains after the central bank lowered interest rates and signaled more reductions to come.

In commodities, oil futures dipped as Saudi Arabia expressed hope that OPEC and its allies will agree to extend production cuts into the second half. Bitcoin jumped, heading toward its highest close in more than a year. Geopolitical tensions in the Middle East have added another layer of uncertainty after the United States blamed Iran for attacks on two oil tankers in the Gulf of Oman last week. U.S. Secretary of State Pompeo said Washington will take all actions necessary to guarantee safe navigation in the Middle East, though oil prices slipped again as worries about the broader slowdown in the global economy returned. Brent futures fell 25 cents, or 0.4%, to $61.76 a barrel by 0900 GMT, after gaining 1.1% on Friday while logging their fourth consecutive weekly fall. West Texas Intermediate crude futures were down 22 cents, or 0.4%, at $52.29, having firmed by 0.4% in the previous session.

“Today, oil markets will have to digest more demand concerns as India implemented retaliatory tariffs on a number of U.S. goods yesterday,” consultancy JBC Energy said in a note. Also sapping prices was the dim outlook for oil demand growth in 2019 projected by the International Energy Agency (IEA) on Friday, citing worsening prospects for global trade.

Finally, as reported over the weekend, Bitcoin jumped overnight to $9,391.85, its highest level in 13 months, as institutions are now buying the crypto according to JPM. It was last quoted at $9,195.62, up 2.4%.

Expected data include U.S. Empire State Manufacturing Survey. No major companies are scheduled to release earnings

Market Snapshot

  • S&P 500 futures up 0.2% to 2,899.75
  • STOXX Europe 600 up 0.06% to 379.05
  • MXAP down 0.4% to 154.65
  • MXAPJ down 0.3% to 504.84
  • Nikkei up 0.03% to 21,124.00
  • Topix down 0.5% to 1,539.74
  • Hang Seng Index up 0.4% to 27,227.16
  • Shanghai Composite up 0.2% to 2,887.62
  • Sensex down 0.9% to 39,080.78
  • Australia S&P/ASX 200 down 0.4% to 6,530.91
  • Kospi down 0.2% to 2,090.73
  • German 10Y yield rose 0.3 bps to -0.252%
  • Euro up 0.06% to $1.1215
  • Italian 10Y yield fell 0.8 bps to 1.981%
  • Spanish 10Y yield fell 0.2 bps to 0.498%
  • Brent futures down 0.3% to $61.83/bbl
  • Gold spot down 0.6% to $1,333.45
  • U.S. Dollar Index little changed at 97.53

Top Overnight News from Bloomberg

  • ECB Executive Board member Benoit Coeure said the European Central Bank will act if needed to support the economy and could even be facing such a decision within months
  • One of China’s biggest state-owned infrastructure companies excluded UBS Group AG from a bond deal after the bank’s global chief economist sparked a furor with his use of the phrase “Chinese pig”
  • Iran’s atomic energy agency is expected to brief reporters Monday on the next phase of its retreat from obligations under the 2015 nuclear deal, the Iranian Students’ News Agency reported, as efforts to salvage the accord falter amid rising regional tensions
  • Tory rivals battling to be the next U.K. prime minister traded insults over Brexit in the first TV debate of the party leadership contest, as front-runner Boris Johnson was mocked for refusing to take part
  • Hong Kong rose up in defiance a day after leader Carrie Lam suspended a contentious extradition bill, jamming the streets with hundreds of thousands of people and drawing a formal apology from the embattled chief executive
  • Commerce Secretary Wilbur Ross downplayed the prospect of a major trade deal emerging from a possible meeting between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit in Japan this month
  • Tory rivals battling to be the next U.K. prime minister traded insults over Brexit in the first TV debate of the party leadership contest, as front- runner Boris Johnson was mocked for refusing to take part
  • Turkey needs to work on a “new and fair” approach to managing the exchange rate that better suits the country’s economy and its people, according to a key ally of President Recep Tayyip Erdogan
  • Financial markets are signaling investors see little risk of disruption from upcoming events, despite the potential for major shifts in the course of Fed policy and U.S.-China trade negotiations

Asian equity markets began mixed with the region cautious ahead of the upcoming slate of central bank activity and after last Friday’s losses on Wall St, where the tech sector underperformed as chipmakers suffered from losses in Broadcom. ASX 200 (-0.4%) and Nikkei 225 (Unch) were varied with Australia subdued by losses in telecoms, while Tokyo trade was underpinned as exporters benefitted from a weaker JPY. Hang Seng (+0.4%) and Shanghai Comp. (+0.2%) were both positive for most of early trade after the PBoC conducted a substantial liquidity injection and as the 2nd phase of its RRR cut took effect today which releases CNY 100bln of funds. However, momentum in the mainland eventually waned while Hong Kong outperformed after Chief Executive Lam postponed the extradition bill indefinitely. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and following the bear flattening seen in US on Friday, with demand also dampened by the absence of BoJ Rinban operations in the market today.

Top Asian News

  • Huawei Warns Trump’s Ban to Wipe Out $30 Billion of Sales Growth
  • Adnoc, OCI to Form $1.7 Billion Middle East Fertilizer Giant
  • Japan Opposition Prepares No-Confidence Vote in Finance Minister

European stocks are mixed in a continuation of the cautious tone seen in Asia, ahead of the central bank-packed week. Sectors are mixed with underperformance in the energy sector amid price action in the complex, whilst financial names lead the gains as banks benefit from the higher yields. In terms of movers, airline stocks took a hit after Lufthansa (-11.3%) cut its revenue and adj. EBIT margin guidance, citing increased competition in the market, and as such, Ryanair (-5.9%), easyJet (-5.3%) and Air France (-3.6%) all slipped in tandem. Elsewhere, Airbus (+1.0%) shares are buoyed as the Paris Air Show gets underway with reports noting the Co. has won a major 100-plane order over Boeing. Finally, Deutsche Bank (+2.2%) shares are feeling some reprieve after sources stated that the bank is mulling holding EUR 50bln of assets in a “bad bank” whilst also shrinking or shutting its US equity trading business.

Top European News

  • H&M Sales Growth Decelerates in Gloomy Clothing Retail Market
  • Kier Turns to ‘Self Help’ by Shedding 1,200 Jobs, Exiting Units
  • Tories Spar Over ‘Dictator’ Brexit Plan With Johnson Absent

In FX, the Dollar has maintained its post-US data positivity and the DXY is pivoting 97.500 with resistance close by in the form of a 61.8% Fib retracement of the relatively pronounced pull-back from May 23 ytd highs of 97.373 to June 7 lows at 96.451, and support sitting around 97.457-6 where 21 and 55 DMAs converge. In terms of fundamentals, the looming FOMC will be paramount as markets widely if not unanimously anticipate another dovish shift from the Fed and signal that rates will be cut in July. However, ongoing global trade wars and geopolitical developments are propping up the Greenback and other safe-havens to varying degrees.

  • NZD/AUD - Bucking the broad consolidative G10 trend and largely rangebound Usd/major trade, the Kiwi has bounced back to straddle 0.6500 and appears to be deriving some impetus from firmer NZ inflation metrics ahead of Westpac’s Q2 consumer survey tonight. Moreover, Aud/Nzd cross-flows may be supportive as the Aussie remains depressed around 1.0550 and 0.6875 vs its US counterpart amidst more dovish RBA calls (Macquarie now expecting the OCR to decline to 0.5% by year end) in advance of June policy meeting minutes in the early hours on Tuesday.
  • EUR/CAD/JPY/GBP/CHF - As noted above, narrow parameters vs the Buck for the most part as the single currency holds within a 1.1205-25 band and just above decent option expiry interest at the 1.1200 strike (1 bn). Contacts also believe that reserve managers are lurking at the big figure on the buy-side, while nearest chart levels are seen at 1.1171 (76.4% Fib of the move from 1.1116 to 1.1348) and 1.1250 (latter more psychological than technical). Meanwhile, aside from the aforementioned Fed meet, the Euro may get some independent direction from the ECB’s annual Sintra conference that kicks off today with an opening speech from President Draghi. Elsewhere, the Loonie is also sitting tight between 1.3405-20 and awaiting a speech from BoC’s Schembri, but Deutsche Bank expects the headline pair to spike on FOMC disappointment given overly dovish expectations and some BoC catch up, targeting 1.3665 with a 1.3225 stop (recent low). The Yen is holding in a 108.43-70 range ahead of the BoJ on Friday and Cable is hovering just below 1.2600 pre-BoE, UK CPI and retail sales with Pound bears aware that 1.2560 is last month’s trend low. Finally, the Franc is holding just above parity post-last Thursday’s SNB and Eur/Chf remains confined either side of 1.1200.
  • EM - The Lira has pared some losses from 5.9250+ lows vs the Dollar after Moody’s downgraded Turkey’s credit rating deeper into junk with the aid of a much needed improvement in unemployment, while the CBRT has enhanced liquidity provisions for primary banks via a facility discounted by 1% vs the 24% benchmark rate and based on government bond holdings.

In commodities, WTI and Brent futures continue to decline ahead of a risk-packed week with a number of bearish factors looming over the complex. 1) US crude stocks have been on the rise, with inventory reports via both API and EIA printing surprise builds for two straight weeks. Traders will now be wondering whether these increases will be enough for OPEC+ to possibly revise its output cut pact, with the meeting now seemingly taking place in the first week of July according to the Saudi Energy Minister. 2) Last week saw all three monthly oil reports (EIA, OPEC, IEA) cut their respective global oil growth demand forecasts amid rising threats of trade wars, whilst hopes for a deal between China and the US at the G20 summit seem slim. 3) Last week, speculators trimmed net long positions in Brent longs (-12.3k lots), but WTI saw a more significant reduction (-53.96k lots) as speculators try to balance rising US inventories with Middle-East tensions and potential OPEC+ reaction. WTI futures are hovering just above the USD 52/bbl mark (low USD 52.07/bbl) whiles Brent futures lost the USD 62/bbl handle, albeit remain off lows (USD 61.56/bbl). Elsewhere, precious metals are subdued, potentially on some profit taking ahead of this week’s key risk events including BoJ, BoE and Fed and a slew of ECB speakers. Gold has lost further ground below the USD 1350/oz level after a failed attempt at breaching long-term resistance at USD 1358.50/bbl last week. Meanwhile, copper is little changed amid the indecisive risk tone ahead of the aforementioned risk events.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 11, prior 17.8
  • 10am: NAHB Housing Market Index, est. 67, prior 66
  • 4pm: Net Long-term TIC Flows, prior $28.4b deficit; Net TIC Flows, prior $8.1b deficit

DB's Jim Reid concludes the overnight wrap

Morning from New York. As much as it’s tough to be away from the family I must admit it was lovely watching the final round of a US golf major in a better time zone last night rather than having to go to bed just before it gets to the final stretch. I was lucky enough to play Pebble Beach last month although to be fair I’ve played it around 200 times before. Yes it was my favourite course on Tiger Woods 2001 on the PlayStation 2. Lots of weekends wasted back then!!

Central banks will be getting their drivers out this week and will try to avoid the rough. The key drive will be that from the FOMC on Wednesday in what will likely be a very narrow fairway. The BoE and BoJ also meet on Thursday with the annual ECB get together in Sintra from tonight through to Wednesday. Data is a little second tier up to the flash global PMIs on Friday. Also by Thursday night we’ll know the final two in the UK Tory party leadership race ready for the ballot of 160,000 members with the winner known by July 22nd. In the background we also have the trade dispute and the political manoeuvrings ahead of the G-20 summit in less than 2 weeks. On that Commerce Secretary Wilbur Ross has again reiterated over the weekend that the most that will come out of the G-20 is “an agreement to actively resume talks”. Our guys in Washington believe there are negotiations occurring behind the scenes to try to set up a Trump/Xi meeting or dinner at the event. It’s possible we’ll hear more on this this week. This follows news that Mr Trump has stepped in again to delay VP Pence’s supposed hawkish speech on China. So it feels like Mr Trump is treading carefully with regards to the Chinese leadership and it’s also noticeable that he’s been quiet on the ongoing situation in Hong Kong.

Staying with Asia, the Hang Seng is the biggest mover this morning following the decision to suspend the extradition bill yesterday. After advancing +1.42% at the highs following the open the index has pulled back somewhat to be +0.60%. Elsewhere in Asia, other equity markets have also pulled back somewhat from the highs, with the Nikkei (+0.09%), the Shanghai Composite (-0.05%) and the KOSPI (-0.17%) all seeing modest movements in either direction. Meanwhile, S&P 500 futures are +0.26% overnight, while there’s not much to report in FX or bond markets.

Back to this week and the Fed have a very delicate balancing act to contend with as they have a choice of endorsing current dovish market pricing and keeping things calm, or to suggest it’s gone too far too quickly and give risk assets a sharp jolt. Friday’s strong retail sales data (more later) adds to the complexity. It’s hard not to feel that they are being driven into a corner at the moment as markets are now pricing in virtually a full rate cut at the July meeting and a further 2 cuts over the next 12 months. Expectations are much lower for a cut this week, with around an 18% chance. Our US economists recently changed their Fed call and expect 3 cuts of 25bps each at the July, September and December meetings. They also lowered their 2019 growth forecast by 40bps to 1.9%. So all eyes on Wednesday.

The BoE and BoJ meetings are not expected to be game changers but the ECB Sintra meetings have provided market moving events before. Two years ago it was used to highlight the paring back of stimulus and markets then started to price the winding down of QE. Could this forum mark a firm signalling that more stimulus is planned in the autumn? For the record, Draghi is making opening remarks tonight and introductory remarks tomorrow morning, while Guindos, Praet, Lane, Lautenschlaeger and Coeure are all due to take part. The BoE's Carney also takes part in a policy panel with Draghi and former Fed Chair Yellen on Tuesday afternoon. Staying with the ECB we should note that EU leaders also gather in Luxembourg on Thursday for another round of talks about candidates for the European Commission and ECB.

As discussed it’s a fairly light week for top tier data until Friday’s global flash PMIs where we’ll get the latest chance to see how the trade war is impacting real time business sentiment and activity. The rest of the data/events/central bank activity is highlighted in the day by day week ahead at the end.

As for last week, most global equity markets ended in the red on Friday, but ultimately gained on the week, as economic data returned to focus. The S&P 500 ended +0.48% higher (-0.16% on Friday), with similar moves by the DOW and NASDAQ, which ended the week +0.41% and +0.70% (-0.07% and -0.52% Friday), respectively. In Europe, the STOXX 600 index advanced +0.35% (-0.40% Friday) with Italian equities outperforming, as the FTSE MIB gained +1.24% (-0.09% Friday). Banks underperformed in Europe, retreating -0.42% (-0.75% Friday) but outperformed in the US, gaining +1.26% (+0.43% Friday). Semiconductors lagged notably, falling -1.61% (-2.61% Friday) after Broadcom’s earnings report showed weaker than expected revenue guidance, with management citing the US-China trade war as a key headwind.

European banks were negatively impacted by sliding yields and heightened expectations for possible ECB easing, as the five year-five year inflation swap rate fell another -9.9bps (-4.8bps Friday) to a new all-time low of 1.134%. The drop in crude oil prices certainly didn’t help, as WTI crude ended the week -2.70% lower (+0.48% Friday), as continued US inventory increases drove a drop of over 6% early in the week, before geopolitical tensions near the Straits of Hormuz sparked a partial retracement. Collapsing inflation expectations also drove bunds to touch a fresh all-time low of -0.270% intraday on Friday, but they ultimately retraced a touch to end the week -2.3bps lower (-1.8bps Friday) at -0.255%. To see 5 year inflation swaps and 10 year bunds at these levels is not healthy. However can the ECB credibly persuade markets that they still have the tools to reverse these trends?

Over in the US, yields traded flat on the week (-1.2bps Friday), though under the surface there was a -10.9bps drop in the inflation breakeven rate (-4.2bps Friday) offset by a +10.4bps increase in real interest rates (+2.8bps Friday). The former was depressed by soft CPI data earlier in the week and the drop in oil prices, while the latter was supported by stronger real economic data, which turned more positive on Friday. The May retail sales report showed a 0.5% mom increase in activity, while the key “control group” reading which strips out volatile elements and is used to calculate GDP was 0.4% mom, double the 0.2% expected. The prior two months’ control group readings were revised up by 0.4pp and 0.1pp, making the positive signal even stronger. Indeed, the Atlanta Fed now forecasts second quarter real consumption growth at 3.9%, which would match the strongest print since 2014. A nice layer of complexity for the Fed to throw into the mix.

Published:6/17/2019 7:00:30 AM
[Markets] Array BioPharma's stock rockets after $11.4 billion buyout deal with Pfizer Shares of Array BioPharma Inc. rocketed 56% toward a record high in premarket trading Monday, after biopharmaceutical company developing cancer treatments agreed to be acquired by Pfizer Inc. in a deal valued at $11.4 billion. Under terms of the deal, Pfizer will pay $48 in cash for each Array shares outstanding, which is 62% above Friday's closing price of $29.59, and represents a market capitalization of $10.64 billion. Pfizer expects to fund the deal, which is expected to close in the second half of the year, mostly with debt and the balance with cash. The deal is expected to reduce Pfizer's adjusted earnings per share by 4 cents to 5 cents this yea and in 2020, be neutral in 2021 and add to EPS in 2022. "The proposed acquisition of Array strengthens our innovative biopharmaceutical business, is expected to enhance its long-term growth trajectory, and sets the stage to create a potentially industry-leading franchise for colorectal cancer alongside Pfizer's existing expertise in breast and prostate cancers," said Pfizer Chief Executive Albert Bourla. Array's stock has more than doubled (up 108%) year to date through Friday, while Pfizer shares have slipped 2.0% and the Dow Jones Industrial Average has gained 12%. Published:6/17/2019 6:06:25 AM
[Markets] Dow Jones Futures: As Stock Market Rally Aims To Advance, Watch These 5 Dow Stocks The stock market rally is drifting. But Microsoft is in a buy zone. Fellow Dow stocks Disney and Home Depot are close. Apple has a new base. Boeing is vying for orders at the Paris Air Show. Published:6/16/2019 5:59:52 PM
[Markets] Dow Jones Futures: Stock Market Rally Marks Time; Watch Dow Stocks Microsoft, Apple, Disney, Boeing, Home Depot The stock market rally is drifting. But Microsoft is in a buy zone. Fellow Dow stocks Disney and Home Depot are close. Apple has a new base. Boeing is vying for orders at the Paris Air Show. Published:6/16/2019 5:26:42 PM
[Markets] Fed Chair Powell's Plan To Pickle The Economy

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

A Loose Relationship

The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.

Since early 2018 the DJIA has gone nowhere, albeit in interesting ways… [PT]

While not always apparent, the stock market generally maintains a loose connection to the underlying economy. Over long multi-decade periods, as measured by the price-to-earnings (P/E) ratio, it will undulate between stages when it is cheap and stages when it is dear. Eventually, however, the stock market reverts towards its mean P/E ratio – always overshooting and undershooting as it cycles about.

One of the unintended consequences of fiscal and monetary intervention is that it distorts this relationship. Stimulus intended to juice the economy has the effect of juicing financial markets. Sometimes these inflationary policies have the effect of completely disconnecting the stock market from the economy.

For example, Venezuela’s Caracas Stock Exchange, Stock Market Index, has soared almost 36,000 percent in the past year alone.  Yet no one, save President Nicolás Maduro, would point to the booming Caracas Stock Exchange as an indication of a healthy and sound economy. In truth, the Caracas Stock Exchange is a barometer of the country’s insane economic policies.

Venezuela’s hyperinflation-driven stock market. Note: adjusted for the three 1 for 1,000 reverse splits of the index since early 2014, its 21st century low (established in 2002) was 0.000008 points. [PT]

While we are at it, here is the most recent update of the VEF (bolivar) to USD black (read: free) market exchange rate – this chart shows the unadjusted rate, but in August 2018 five zeros were actually shaved off (a 1 for 100,000 “reverse split” of the currency). The exchange rate is therefore actually 6,572 new bolivares per USD. If one adjusts the 2010 low of about 8 VEF per USD accordingly, it was 0.00008 VEF per USD. This is why the stock market has soared in VEF terms despite a free-fall in Venezuela’s economic output. [PT]

Hence, after a decade long bull market in U.S. stocks, one that has pushed the P/E ratio to nosebleed levels, we find comfort and relief in a sideways or falling stock market. Perhaps the U.S. stock market is not entirely rigged after all.  Perhaps it is only partially rigged.

Still, we have some reservations...

Devising a System of Chaos

When Alan Greenspan first executed the “Greenspan put” following the 1987 Black Monday crash, financial markets were well positioned for this centrally coordinated intervention. Interest rates, after peaking out in 1981, were still high. The yield on the 10-Year Treasury note was about 9 percent. There was plenty of room for borrowing costs to fall.

The mechanics of the Greenspan put are extraordinarily simple.  When the stock market drops by about 20 percent, the Fed intervenes by lowering the federal funds rate. This typically results in a negative real yield, and an abundance of cheap credit.

1987, DJIA daily and the 10-year Treasury note yield: birth of the so-called “Greenspan put” [PT]

This tactic has a twofold effect of observable market distortions. First, the burst of liquidity puts an elevated floor under how far the stock market falls – the put option effect. Second, the interest rate cuts inflate bond prices, as bond prices move inversely to interest rates.

As of the late 1980s, thanks to the Greenspan put, the Fed has been running an implicit program of counter-cyclical stock market monetary stimulus. Ben Bernanke then ratcheted up the Fed’s extreme intervention in financial markets via quantitative easing in the aftermath of the financial crisis of 2008-2009. That was when things really went nuts.

If you recall, QE involves creating money from nothing and lending it to the Treasury.  It has also involved bailing out the big banks by inter alia swapping fake money for toxic mortgage backed securities. During the next stock market crash, QE will likely involve conjuring fake money into existence and plowing it into the S&P 500 or into shares of government-preferred companies.

As you can see, U.S. financial markets have been rigged for at least three decades.  But what do you expect in a fake money system where expediency takes priority?  One expedient after another, year after year, decade after decade, has devised a system of chaos.

Fed Chair Powell’s Plan to Pickle the Economy

Ben Bernanke, and later Janet Yellen, said these unconventional QE policies were temporary; that the Fed’s massive balance sheet expansion would one day be normalized.  Similarly, when Richard Nixon suspended convertibility of the dollar into gold on August 15, 1971, he said it was a temporary measure.

But once a cucumber becomes a pickle, it can never be a cucumber again.  Indeed, financial markets have been pickled over to no end.  What’s more, Fed Chair Powell’s efforts to un-pickle QE were met with howls from the President, Wall Street, and Larry Kudlow.

Cucumbers living in jars… once pickled, they can no longer be induced to revert to their previous state. [PT]

These howls still continue even as Powell has reversed course and declared that unconventional policies are now the new normal.  Just this week, in reference to the Fed, Trump tweeted the following assessment:

“They don’t have a clue!”

Meanwhile, Powell, a man of expedience, is mixing up a new batch of brine to further pickle financial markets. A capital investment dearth?  Add more cider vinegar. Retail earnings slump? Mix in more salt.

Jerome Powell, the new pickler-in-chief [PT]

No doubt, the central planners have taken us to this place of absurdity – and when the economy cracks, and GDP dumps, and the stock market slumps, Powell, with Trump egging him on, will bathe the financial markets in brine. Remember, this is the expedient thing to do.

The ultimate result, however, is that it will pickle U.S. financial, economic, and social systems all the way over to Venezuela. By all honest accounts, we are doomed.

Published:6/15/2019 11:19:05 AM
[Markets] Microsoft's stock climbs toward a record high, and 6th-straight trillion-dollar valuation Shares of Microsoft Corp. edged up 0.4% toward a record high in afternoon trading Friday, as the software giant looks set to extend its streak as a trillion-dollar company to six sessions, to buck a decline in the broader stock market. After a single day with a trillion-dollar market capitalization on April 29, Microsoft re-claimed that territory on June 7, and has held it since. The market cap was last around $1.018 trillion, while second-place Inc. was way behind at $921.3 billion and Apple Inc. was in third at $887.3 billion. Microsoft's record gain Friday comes despite the Dow Jones Industrial Average being down 14 points, or 0.1%, and the Nasdaq Composite shedding 0.5%. Published:6/14/2019 1:48:00 PM
[Markets] Broadcom Plunges, Hurting Nasdaq And Apple; This Dow Jones Stock Is Rising The sell-off in chipmaking titan Broadcom threw a wet blanket on the new market rally. The Nasdaq and small caps led the drop. This Dow Jones stock rose. Published:6/14/2019 1:14:10 PM
[Markets] Chewy's stock indicated for big rally at the open Chewy Inc.'s stock is set to fly at the open, as market makers prepare for the pet products e-tailer to go public. The stock is indicated to open at $35.00 to $36.00, or 59% to 64% above the initial public offering price of $22. The IPO priced late Thursday above the expected range of $19 to $21, which was raised from earlier expectations of a range of $17 to $19. The stock will be listed on the NYSE under the ticker symbol "CHWY." The expected rally comes despite weakness in the broader stock market, with the Dow Jones Industrial Average's down 26 points, or 0.1%. Published:6/14/2019 10:13:21 AM
[Markets] Stocks Slip On Chips, China Data; Facebook Gets Cryptocurrency Lift Stocks fell as Broadcom tripped a chip sector sell-off. Gold miners and Facebook gained, and the Dow Jones industrial index fought to hold the week's gain. Published:6/14/2019 9:12:15 AM
[Markets] Broadcom, Oil Prices, Chewy, Trade War, Toronto Raptors - 5 Things You Must Know Contracts tied to the Dow Jones Industrial Average fell 36 points, futures for the S&P 500 were down 6.65 points, and Nasdaq futures slumped 48.25 points. "Taken as a whole, these unprovoked attacks present a clear threat to international peace and security, a blatant assault on the freedom of navigation and an unacceptable campaign of escalating tension by Iran," said U.S. Secretary of State Mike Pompeo. Oil prices were lower Friday after the International Energy Agency reduced its forecast for global oil demand for the second consecutive month, to 1.2 million barrels a day this year from 1.3 million barrels a day. Published:6/14/2019 5:16:41 AM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Minor Pivot at 26090 Controlling Short-Term Direction Based on Thursday’s close at 26117, the direction of the June E-mini Dow Jones Industrial Average futures contract early Friday is likely to be determined by trader reaction to the pivot at 26090. Published:6/13/2019 11:06:01 PM
[Markets] Dow Ends Higher; Stocks Surge at Close; Oil Spikes on Tanker Attacks The Dow Jones Industrial Average ended higher Thursday even as reports of attacks on two oil tankers sent oil prices soaring. Lululemon Athletica is Real Money's Stock of the Day. shares heated up after the meat and poultry producer said it was set to release its first set of plant-based protein meat-like products. Published:6/13/2019 4:00:55 PM
[Markets] Disney Stock Is On The Verge Of A Buy Signal After This Disney+ Forecast Disney streaming service should power future earnings at Dow Jones media giant Walt Disney as subscriber growth ramps up, Morgan Stanley said. Published:6/13/2019 12:30:15 PM
[Markets] Disney stock price target raised to $160 at Morgan Stanley Analysts at Morgan Stanley raised their price target on shares of the Walt Disney Co. to $160 from $135 on Thursday, saying the media giant's streaming service, Disney+, will rack up users more quickly than previously expected. Disney+ should bring in 130 million global subscribers by 2024, Morgan Stanley analyst Benjamin Swinburne wrote in a note to clients, reiterating his overweight rating on the stock. The streaming service's global launch is rolling out faster than he expected, Swinburne wrote, and Disney+ is backed by more intellectual property than he initially thought. "Stepping back and admittedly taking the long view, investing in Disney shares is a play on the durability of its IP," he wrote. Disney+ is set to launch in the U.S. on November 12. Shares of Disney have gained 26.5% in the year to date, while Dow Jones Industrial Average has gained 11.5%. Published:6/13/2019 10:31:00 AM
[Markets] Stocks Rise as Oil Prices Surge Following Tanker Attacks The Dow Jones Industrial Average was higher Thursday as reports of attacks on two oil tankers sent oil prices soaring. Lululemon Athletica is Real Money's Stock of the Day. shares heated up after the meat and poultry producer said it was set to release its first set of plant-based protein meat-like products. Published:6/13/2019 9:00:28 AM
[Markets] Oil Spikes, RH, Lululemon, Broadcom, St. Louis Blues - 5 Things You Must Know U.S. stock futures were higher on Thursday though sentiment was dented by doubts the U.S. and China will reach a trade agreement during the G-20 summit in Osaka, Japan, at the end of June. Contracts tied to the Dow Jones Industrial Average rose 84 points, futures for the S&P 500 gained 9.50 points, and Nasdaq futures were up 38 points. Donald Trump has said he expects to meet Chinese President Xi Jinping at the G-20 meeting on June 28-29. Published:6/13/2019 4:58:54 AM
[4551b53b-972d-530c-a513-66011e7a1568] Dershowitz, Concha slam media fueling calls for Trump's impeachment Professor Alan Dershowitz says impeachment "isn't constitutionally permissible," and members of the liberal media should stop calling for Democrats to impeach President Trump.  Published:6/12/2019 10:12:26 PM
[Markets] Bonds & Bitcoin Bid As Stocks & Commodities Skid

Weaker than expected CPI - more room for The Fed to ease right? So why didn't stocks rally as we've been trained they would?


After two days of melting-up, Chinese stocks took a breather overnight...


European stocks were lower on the day with Spain still worst on the week...


In the US, Trannies  (best) and Small Caps (barely green) outperformed, Nasdaq was the day's biggest loser (hurt by FB among others) as The Dow and S&P hovered just in the red all day...


Today seemed all about Dow 26,000 - as the market just could not stop testing it up and down...

NOTE - critically that 26k level also coincides with the 50DMA.


Futures show the crazy spike that occurred at the open, suggesting options books needed squaring dramatically




Has Elon lost his touch?


Stocks are slowly catching down to VIX...


Bonds and stocks remain in different world...


Treasury yields were generally lower but the long-end notably underperformed (30Y unch, 2Y -4.5bps)


The Dollar rallied today, helped by cable weakness (no-deal Brexit) and euro weakness (Nordstream 2 sanctions threats)...

NOT - the dollar is now higher on the week, marginally.

Cable slipped on the no-deal Brexit no-vote...


And the euro slipped on Trump's threats over sanctions...


Cryptos drifted higher (but Litecoin dropped notably intraday after a spike)...


Bitcoin back above $8,000...

Additionally, Ethereum back above $250...


Precious Metals shrugged off dollar strength but copper and crude slipped lower...


WTI tumbled back to the lowest levels for crude since early Jan (a $50 handle)...


As the price of oil slips relative to gold, we see a potential replay of 2014-2016's shift from hope to nope in the global economy...


Finally, we note that the late-day leg lower in stocks and crude seemed to coincide with Chinese media's warning that "Beijing is preparing for China-US ties getting further worsening."

And perhaps more notably, Bloomberg's David Wilson points out that commodities are trading at the lowest prices relative to U.S. stocks in half a century or more as a bear market persists.

The ratio between the S&P/GSCI Total Return Index and the S&P 500 Index dropped Monday to its lowest level since calculations of the commodity gauge begin in 1970, according to data compiled by Bloomberg. Since peaking in July 2008, the ratio has plunged as much as 91%, including a 6.2% decline for the year through Monday. This year’s slump follows losses in 10 of the past 11 years. The exception was 2016, when the S&P/GSCI -- based on 24 commodity futures -- rose 1.7% in relative terms.

And if you are still wondering what has been driving stocks higher in the last week or so - it's simple - money-printing as the global economy collapses...

Welcome to the new normal of the financialization of the global economy.

Published:6/12/2019 3:25:20 PM
[Markets] Small Caps Outperform Dow Jones, Oil Plunges; Will This Retail Industry Leader Break Out? The Dow Jones Industrial Average and the S&P 500 kept losses small. The Nasdaq 100 fell 0.5% amid big declines in chip and data storage stocks. Published:6/12/2019 12:55:31 PM
[Markets] The Dow transports are bucking overall stock weakness; airlines, truckers rise The Dow transports are bucking overall stock weakness; airlines, truckers rise Published:6/12/2019 12:25:01 PM
[Markets] Stocks waver as investors digest inflation data, eye U.S.-China trade Stocks trade mixed a day after the Dow snapped a six-day winning streak, with investors weighing a reading on May consumer inflation as they continue to eye the U.S.-China trade fight. Published:6/12/2019 8:56:43 AM
[Markets] Market Snapshot: Stock-index futures drift lower ahead of U.S. inflation reading Stock-index futures drift lower a day after the Dow snapped a six-day winning streak, with investors awaiting a reading on May consumer inflation as they continue to eye the U.S.-China trade fight.
Published:6/12/2019 6:52:35 AM
[Markets] Futures Slide As Global Rally Ends 7-Day Streak; Hong Kong Riots, Trade War Eyed

The torrid June rally finally fizzled overnight as stocks slipped around the globe on Wednesday alongside S&P futures, after a six-day rally in the S&P ended yesterday with a whimper amid signs the June revival in risk appetite may have overshot, with trade concerns returning to the fore.

The market mood soured after a protest in Hong Kong turned violent as police were unleashed to contain a "riot", compounding the negative sentiment, and Treasuries gained. An impending reading on U.S. CPI was set to further cement the Fed's decision whether to cut rates in June/July.

“I think we are in for a very nervous wait until next week’s FOMC meeting,” Saxo Bank’s head of FX strategy, John Hardy, said.

Europe’s main markets followed Asia by declining early on. London’s FTSE, the DAX in Frankfurt and CAC40 Paris were down 0.2% to 0.4% as traders trimmed some of June’s 4% gains. The Stoxx Europe 600 index headed for its first drop in four sessions.

The rebound in Asia stocks paused on Wednesday as traders stayed cautious amid lingering U.S.-China trade tensions and an escalating protest in Hong Kong. The region’s benchmark declined 0.5% snapping a three-day gain. Hong Kong was the worst-performing market in the region, with the Hang Seng Index falling as much as 2%, after thousands of demonstrators converged on the city’s legislature Wednesday and blocked roads to protest a bill that would for the first time allow extraditions to China.

“The impact was short-lived in the past,” noted Alex Wong, director at Ample Finance Group in Hong Kong. “This time people will look at how the U.S. reacts to this kind of news. The U.S. attitude towards Hong Kong and China are also not the same.”

Japanese stocks halted their three-day advance as electronics makers were the heaviest drags on the index. Trading volume for the nation’s equities dropped almost 20%. Nintendo fell after delaying the release of Animal Crossing: New Horizons. Square Enix Holdings posted its worst two-day slump as investors took profits after the company announced new games at E3. Most of other major Asia markets also declined as the cautious sentiment spreading across the region. China’s Shanghai Composite Index retreated as much as 0.8%, and Jakarta Composite index fell 0.7%.

Then there was the ongoing trade war which has no resolution in sight: President Trump said on Tuesday he was holding up a trade deal with China and had no interest in moving ahead unless Beijing agrees to four or five “major points”, which he did not specify. He said interest rates were “way too high” and the Federal Reserve had “no clue”.

And speaking of the Fed, the FOMC will meet on June 18-19. With trade tensions rising, U.S. growth slowing and hiring in May declining, markets have priced in at least two rate cuts by the end of 2019. Futures imply around an 80% chance of an easing as soon as July. That may change depending on what U.S. consumer price data show later in the session. Headline inflation is expected to slow to 1.9%, with the core rate steady at 2.1%.

In FX, the euro rebounded initially to $1.1336, just short of the recent three-month high of $1.1347, despite Trump's recent tweet slamming the Euro as "devalued." The dollar fell against the yen to 108.36 and stalled on a basket of currencies at 96.608.

“The President’s tweets on the USD have the potential to have much more lasting impact in the coming election year,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank. “Global conditions are nicely set for what has colorfully been described as a ‘currency war’ or a currency race to ‘the bottom’.”

China's yuan weakened against the dollar, a day after it climbed the most in two months following the central bank’s moves to shore up the currency. The PBOC set a slightly stronger-than-expected reference rate Wednesday, after showing the largest strong bias in its fix on Tuesday since Bloomberg began releasing fixing forecasts in 2017. The central bank on Wednesday resumed 28-day reverse repurchase agreements for the first time since January, a signal that it seeks to ensure market stability amid seasonal tightness and the aftermath of the Baoshang seizure, according to Qi Sheng, chief fixed-income analyst from Zhongtai Securities Co. In Hong Kong, stocks tumbled and the currency soared in its biggest gain in six months, as interbank interest rates jumped amid protests that closed roads in the city’s financial district.

Benchmark government bond yields fell as caution grew, with the 10Y Treasury down to 2.12%.

In commodities, oil prices dropped over 2% as concern about a global economic slowdown offset expectations that OPEC and its allies will extend their supply curbs. Hedge fund managers have been liquidating bullish oil positions at the fastest rate since late 2018 amid growing economic fears.

Economic data include mortgage applications and CPI, while Lululemon is among companies reporting earning

Market Snapshot

  • S&P 500 futures down 0.3% to 2,879.75
  • STOXX Europe 600 down 0.5% to 379.06
  • MXAP down 0.5% to 156.57
  • MXAPJ down 0.6% to 511.71
  • Nikkei down 0.4% to 21,129.72
  • Topix down 0.5% to 1,554.22
  • Hang Seng Index down 1.7% to 27,308.46
  • Shanghai Composite down 0.6% to 2,909.38
  • Sensex down 0.6% to 39,713.77
  • Australia S&P/ASX 200 down 0.04% to 6,543.74
  • Kospi down 0.1% to 2,108.75
  • German 10Y yield fell 0.2 bps to -0.234%
  • Euro up 0.09% to $1.1336
  • Brent Futures down 2.2% to $60.94/bbl
  • Italian 10Y yield rose 3.4 bps to 2.025%
  • Spanish 10Y yield rose 0.4 bps to 0.583%
  • Brent Futures down 2.2% to $60.94/bbl
  • Gold spot up 0.8% to $1,337.41
  • U.S. Dollar Index down 0.05% to 96.63

Top Overnight Highlights from Bloomberg

  • The dollar touched an eight-week low before U.S. inflation data that may back the case for Fed interest-rate cuts. The greenback is weaker against all its G-10 peers so far this month as markets have boosted pricing on Fed easing amid concern trade frictions will sap global growth.
  • The yen led gains on Wednesday, strengthening for the first time in three days against the dollar
  • The euro was little changed after Tuesday’s advance; the common currency was pressured after comments from ECB Governing Council member Francois Villeroy de Galhau who said the central bank could increase stimulus if needed
  • European bond markets traded flat ahead of a large supply slate from Germany, Portugal, Italy and Spain; U.S. Treasuries advanced for a second day, the 10-year yield dropped 2bps to 2.12%
  • U.S. index futures slipped, the Stoxx Europe 600 index opened lower for the first time in four sessions

Asian equity markets traded mostly subdued after the flat lead from Wall St where the relief rally stalled, and the major indices finished flat to snap a 5 and 6-day win streak for the S&P 500 and DJIA respectively. ASX 200 (U/C) and Nikkei 225 (-0.4%) were mixed with Australia kept afloat by mining names as iron prices in China surged to fresh record highs, while the Japanese benchmark mirrored the indecisiveness of its US peers amid a firmer JPY and with SoftBank among the laggards as a group of US states attempt to block the Sprint and T-Mobile merger. Elsewhere, Hang Seng (-1.7%) and Shanghai Comp. (-0.6%) were negative following another net liquidity drain by the PBoC and pessimism regarding the ability to reach a US-China trade deal at the G20, with underperformance in Hong Kong amid increases in money market rates and mass protests outside government buildings in opposition against the controversial extradition bill. Finally, 10yr JGBs kept rangebound with price action hampered by the indecisiveness in the region and amid a lack of BoJ presence in the market today.

Top Asia News

  • Nintendo Moves Some Switch Production Out of China: WSJ
  • Indonesia’s Jokowi Open to Gerindra Joining His New Cabinet
  • Japan to Propose TPP-Level Tariff Cut on U.S. Farm Goods: Kyodo
  • Rumors About China Military Going to HK Are Misinformation: Geng

European equities are mostly lower [Eurostoxx 50 -0.5%] in a continuation of the subdued lead from Asia in which Hong Kong’s stock index suffered heavy losses due to the mass protests against the controversial extradition bill. Sectors are mixed, with heavy underperformance across energy names (sector -1.2%) amid the slide in oil prices. Meanwhile, defensive sectors (utilities +0.3%, healthcare +0.4%) are in the green as investors flock to the ‘safer’ and more stable stocks. In terms of individual movers, shares in British American Tobacco (-6.0%) fell to the foot of the Stoxx 600 index as the cigarette maker expects global industry volume to fall by around 3.5%, although the Co. reiterated guidance despite its peer Imperial Brands (-1.8%) cutting guidance for their tobacco business yesterday. Elsewhere, shares in Axel Springer (+11.8%) rocketed after KKR’s Traviata confirmed that it is to make a takeover offer for the company for EUR 63/shr (vs. yesterday’s close at EUR 55.85/shr). Meanwhile, SMI’s LafargeHolcim (-3.1%) fell to the bottom of the index after a major shareholder cut his stake in the company.

Top European News

  • Brexit Britain Contemplates Another Foreign Central Bank Boss
  • Reckitt Benckiser Names Laxman Narasimhan as CEO From Sept. 1
  • Britain’s Banking Upstarts Vulnerable to a Downturn, BOE Finds
  • Drug to Replace Chemotherapy May Reshape Cancer Care

In FX, the Dollar is on the defensive ahead of US headline inflation data that could provide more justification for the Fed to consider a rate cut, with the index only just holding above chart support ahead of 96.500 in the form of the 200 DMA within a 96.578-722 range.

  • JPY/GBP/EUR/CHF - All taking advantage of the softer Greenback, as the Yen rebounds towards 108.00 and into decent option expiry territory with 1 bn sitting between 108.40-25 before a further 1.2 bn from 108.10 down to the big figure. Note, Usd/Jpy has also pared gains on a partial retracement in global stocks as improving risk sentiment wanes, but the Franc has not regained as much safe-haven allure given Thursday’s SNB quarterly policy review and the likelihood of more NIRP and intervention iterations – check out the headline feed or Research Suite for a detailed preview. Usd/Chf and Eur/Chf remain above 0.9900 and 1.1200 respectively, with the single currency also consolidating above 1.1300 vs the Dollar and inching closer towards last Friday’s post-NFP highs circa 1.1348 where stops are anticipated, but could be countered by hedges for a 1.2 bn expiry at the 1.1350 strike. Meanwhile, Cable has retested yesterday’s post-UK data/BoE commentary peaks just shy of 1.2750 and Eur/Gbp is pivoting 0.8900 awaiting Tory leadership front-runner BoJo’s official campaign launch.
  • NZD/CAD/AUD - Ongoing global trade concerns are undermining the non-US Dollars, as the Kiwi remains capped below 0.6600 and Loonie retreats further from best levels towards 1.3300, and perhaps takes heed of the more pronounced recoil in crude prices having decoupled somewhat in wake of supportive Canadian jobs data and the fillip from the US and Mexico clinching a deal to avert tariffs. However, the Aussie is underperforming in the run up to tomorrow’s labour report and probing key Fib support circa 0.6945.
  • EM - Usd/Try is back above 5.8000 amidst latest Turkish remonstrations about the US not adhering to the spirit of alliance on the missile front and reports that an official response to a letter from Washington is being prepared. Meanwhile, the Lira is also looking pressured ahead of the looming CBRT that could turn more dovish given recent inflation data showing a slowdown in CPI, weaker oil and Try appreciation from worst levels – for more see Ransquawk’s headline feed and/or Research Suite.

In commodities, another day of losses for the energy complex with WTI (-2.7%) and Brent (-2.8%) futures heavily pressured amid the latest surprise build in API crude stocks (+4.9mln vs. Exp. -0.5mln) coupled with risk aversion around the market, whilst the EIA’s downgrade in global oil demand forecast only adds to the bearish sentiment. WTI futures currently hover just above the USD 51.50/bbl level, having dipped below its 200 WMA (52.59) whilst its Brent counterpart briefly fell under the USD 60.50/bbl mark. News flow for the complex has been light thus far with participants now gearing up for the weekly DoEs to potentially reinforce the build in stockpiles seen in the APIs. Elsewhere, gold (+0.8%) resumes its climb as the recent relief rally dissipated. The yellow metal is comfortably above the USD 1325/oz level ahead of US CPI data. Turning to base metals, copper prices are sliding despite a weaker Buck amid the absence of risk appetite in the market, although it is worth noting from a supply point of view that Labour unions at Codelco’s Chuquicamata mine are set to reject the latest wage offer in a vote tomorrow, which could see a operations come to a halt at the largest open pit copper mine. Finally, given the recent supply-driven surge in iron ore prices, Chinese steel mills are facing a slump in profit margins and are reportedly seeking lower grade iron ore to cut costs, thus the spread between medium and low grade iron ore in China has narrowed to two-and-half year lows.

US Event Calendar

  • 7am: MBA Mortgage Applications +26.8%, prior 1.5%
  • 8:30am: US CPI MoM, est. 0.1%, prior 0.3%; CPI YoY, est. 1.9%, prior 2.0%
  • CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%; US CPI Ex Food and Energy YoY, est. 2.1%, prior 2.1%
  • Real Avg Hourly Earning YoY, prior 1.2%; Real Avg Weekly Earnings YoY, prior 0.92%
  • 2pm: Monthly Budget Statement, est. $199.5b deficit, prior $146.8b deficit

DB's Jim Reid concludes the overnight wrap

According to the Oxford English Dictionary, today I venture into middle age as I turn 45. In some ways that’s quite a relief as I just assumed I had been there for some time. I’ll find out later if my dreams have been realised and I’ll be getting an eyebrow comb for my birthday (see last week’s EMRs for an explanation) and also what the children will be buying me with my own money. Wikipedia has this entry for middle age which makes me feel great. “The body may slow down and the middle aged might become more sensitive to diet, substance abuse, stress, and rest. Chronic health problems can become an issue along with disability or disease. Approximately one centimeter of height may be lost per decade. Emotional responses and retrospection vary from person to person. Experiencing a sense of mortality, sadness, or loss is common at this age.” To commiserate my wife and I are having our first night out alone this year. Let’s hope my sensitivity to champagne hasn’t suddenly changed overnight.

The market’s champagne was put on ice last night though as a five day party that had looked likely to extend into a sixth session started to fade. Despite opening as much as +0.83% and +1.09% higher, the S&P 500 and NASDAQ both faded throughout the day to end marginally lower at -0.04% and -0.01% respectively. The trade-related rhetoric from the White House continued to be somewhat negative, as President Trump said that “it’s me right now that’s holding up the deal” and suggested that he will not back down unless China makes new concessions. Two of his main lieutenants, Commerce Secretary Ross and Acting Chief of Staff Mulvaney, both separately downplayed the odds of an agreement at this month’s G-20, though they did say that talks could get back on track if Trump and President Xi can make positive progress. Despite the continued uncertainty, some of the most trade-exposed equity sectors performed well yesterday, with autos gaining +0.56% and Apple up +1.16%, as headlines circulated indicating that they are prepared to completely adjust their supply chain to avoid manufacturing iPhones in China for the US market.

President Trump complemented his trade remarks with a fresh broadside against the Fed, saying “they don’t have a clue” and that rates are too high. He also called “very low inflation” a “beautiful thing” so we’ll see if today’s CPI report changes that dynamic at all. The PPI data – which we’ll run through below – was at the margin slightly hawkish and helped push 2y Treasury yields higher. Indeed 2y Treasuries closed +2.6bps higher at 1.93% while 10y Treasuries ended -0.5bps lower, meaning the curve flattened-3.13bps to 22.1bps, albeit still above the range for much of the year. The DOW shed -0.05%.

Apart from the political noise, there wasn’t a great deal of new news with markets initially reacting to the China infrastructure spend headlines from this time yesterday. This helped Europe with the STOXX 600 finishing +0.69%. The DAX (+0.92%) was the big out-performer having been closed on Monday, while the FTSE 100 gained +0.31% despite the pound’s +0.30% rally on strong wage data.

This morning in Asia markets are largely heading lower with the Hang Seng (-1.50%) leading the declines as locals protest ahead of a legislative council debate on a controversial bill that would allow extraditions to mainland China. The Shanghai Comp (-0.57%) and Kospi (-0.13%) are also lower while the Nikkei (+0.04%) is trading flattish. Elsewhere, futures on the S&P 500 are trading a touch lower. Crude oil prices (WTI -1.52% and Brent -1.40%) are also falling this morning as a report from the American Petroleum Institute reported that the US crude stockpiles increased by a further 4.85mn barrels last week. In terms of overnight data releases, China’s May CPI and PPI both came in line with consensus at +2.7% yoy and +0.6% yoy, respectively. We also saw Japan’s April core machine orders come in at +5.2% mom (vs. -0.8% expected), the third consecutive monthly rise thereby marking the longest sequence of such gains in the past four years, while May PPI came out in line with expectations at +0.7% yoy.

Back to the UK and yesterday saw the Labour Party table a cross-party motion to prevent a no deal Brexit. If such a bill were to pass, the tensions within Parliament would likely escalate towards a general election. On that theme, the Conservative party leadership contest kicks off with its first ballot tomorrow, where a hard Brexit-supporting candidate is likely to emerge victorious at the end of the process. This dysfunctional setup is outlined in more detail in Oliver Harvey’s latest note ( here ), which also updates his indicative probabilities of likely outcomes moving forward. He thinks the odds that a deal is successfully ratified by end-October are now 25%, while the odds of a no-deal Brexit are 25% as well. The remaining 50% is covered by his modal case for a general election, with 20% chance of a Conservative no-deal platform winning, 20% chance of a Labour/Liberal Democrat soft-Brexit platform winning, and 10% chance of no clear winner. The Brexit story and its consequences still have an enormous amount of runway to go but we are currently in the eye of the storm. This fresh parliamentary vote in a couple of weeks could shake things up again leaving a new PM little choice but to go to the country. ComRes published the first opinion poll overnight that I have seen with all the different potential Conservative leaders vs all the other parties. On this poll Boris Johnson is only one of the candidates that give the Tory’s a majority (140 seats) at the next election alongside a substantial 14% lead. He is the only candidate that reduces the Brexit party’s support enough (below 20%) to do this.

In other news from yesterday, the US May PPI report was at the margin slightly hawkish as we mentioned earlier with the ex food and energy reading printing in line at +0.2% mom but ex trade at +0.4% mom (vs. +0.2% expected). In addition, the healthcare component rose +0.25% mom which, when combined with a bounce back for the portfolio management component, suggests a stronger read-through for core PCE when we get the data at the end of this month. Holding everything else steady, today’s print implies around +7bps to the core PCE number due toward the end of this month.

That data dovetails nicely into today’s data highlight which is the CPI report in the US which should act as the next test for markets. The consensus expects a +0.2% mom core reading which would be enough to keep the annual rate at +2.1% yoy. Our US economists also expect a +0.2% mom reading and note that core goods should rebound slightly from the plunge in April which was the biggest monthly decline since 2006. That said, there are some downside risks from negative payback from shelter inflation. The data is due out at 1.30pm BST.

As for the other data yesterday, there was a decent jump in the May NFIB small business optimism reading of 1.5pts to 105.0 (vs. 102.0 expected). That reading had got as low as 101.2 back in January but has since risen every month. Meanwhile, here in the UK the latest employment data was mostly upbeat – in stark contrast to the April growth data we saw on Monday. The unemployment rate was confirmed as holding steady at 3.8% in April as expected, while 32k jobs were added which exceeded expectations. Regular wage growth also ticked up one-tenth to 3.4% compared to expectations for a small deceleration. So that keeps the hawkish labour market data versus BoE’s supply side narrative still very much intact. It’s worth noting that we heard from a couple of different BoE policy makers yesterday. Vleighe – seen as a centrist – said that “news since May has been disappointing in data and downside risks have intensified” while Broadbent said that “I am not particularly exercised that the future path of interest rates in the market should be exactly the one that is in our forecasts,” and thus made little conscious attempt to try and reprice the market.

In other news, yesterday EU officials confirmed their endorsement of the EC’s decision that Italy had failed to take the necessary steps to reduce its debt load in line with the bloc’s fiscal rules. The EU therefore confirmed that a disciplinary process is warranted. BTPs were +3.4bps higher yesterday, lagging the broader European fixed income rally. Italian politicians continued to speak positively, with Finance Minister Tria saying Italy is committed to a dialogue with the EU over the debt censure and Prime Minister Conte announcing that the leaders of the Five Star Movement and the Northern League will meet over the next few days to decide on a plan that will satisfy the Commission since “we are all determined” to avoid an EDP. That said, the market seems to be at a place where actions will speak louder than words.

To the day ahead now, which is headlined by that May CPI report in the US this afternoon. Other than that we’ll get the May monthly budget statement in the US while the European diary is particularly sparse this morning with nothing of note. Away from the data the ECB’s Draghi is due to speak this morning in Frankfurt where he is due to make welcome comments at a conference. The ECB’s Guindos will also speak.

Published:6/12/2019 6:52:35 AM
[Markets] Stock-index futures drift lower ahead of U.S. inflation reading Stock-index futures drift lower a day after the Dow snapped a six-day winning streak, with investors awaiting a reading on May consumer inflation as they continue to eye the U.S.-China trade fight. Published:6/12/2019 6:22:06 AM
[Markets] Asian markets retreat; Hang Seng sinks amid Hong Kong protests Asian markets were mostly lower in early trading Wednesday, after the Dow Jones Industrial Average snapped a six-session winning streak. Published:6/12/2019 12:53:39 AM
[Markets] Asia Markets: Asian markets retreat; Hang Seng sinks amid Hong Kong protests Asian markets were mostly lower in early trading Wednesday, after the Dow Jones Industrial Average snapped a six-session winning streak.
Published:6/11/2019 11:08:08 PM
[Markets] Dollar Dumps To 2-Mo Lows As China Trounces Kudlow's Stock Bounce

This just seemed appropriate...


China saw another epic night of buying with tech-heavy indices now up 5% this week...


European markets extended on from China's gains until US cash markets opened and then they faded...


The overnight gains in US equity futures were sold at the open, erasing the day's gains and yesterday's gains before a Kudlow-fueled bounce...


1330ET "Release The Kudlow"

1410ET Which was quickly countered by Chinese Media, stalling the Kudlow bounce: Hu Xijin

"From information I have access to, there is no sign that China is relaxing its countermeasures against US trade war. Chinese  basically have no trust in the mild signals the US side sent occasionally. Will there be a breakthrough at G20? I dare not be optimistic at this moment."

Every effort was then made to get The Dow green for the 7th day in a row (longest win streak since May 2018) BUT THAT FAILED at the last second...


Nasdaq was unable to hold above the 50DMA again and The Dow found support at that level


Another big short-squeeze at the open and another big fade after Europe closed...


It would appear the tech bulls have completely forgotten about the anti-trust issues hanging over the tech giants' heads...

As Bloomberg's Luke Kawa noted today, tech bulls might want to pay attention to remarks out today from Makan Delrahim, Assistant Attorney General for the antitrust division of the DOJ. Because that regulatory risk isn't going away. Delrahim name-dropped Google a few times, and not in a particularly favorable light.


BYND blew up - plunging 25% after JPM's downgrade slapped reality into the market


VIX continues to decouple from the underlying index...


Bonds and Stocks remain decoupled also...


Treasury yields were notably quieter today with a mixed picture (curve steeper with short-end notably underperforming the long)...


30Y Yields shifted back into their recent range...


The curve steepened but remains inverted for the 14th day in a row...


The Dollar dumped to its lowest since 6/17 - erasing gains since the April Fed Minutes - after Trump slammed the world's currency manipulators for devaluing against the dollar...


Another threat from the PBOC to Yuan shorts overnight prompted a spike in the Chinese currency... to 2-day highs...


Cryptos broadly drifted lower but Litecoin spiked once again...


Copper extended its recent gains on China "growth" measures, but WTI dipped intraday (ahead of tonight's inventory data). PMs were very modestly higher...

Gold remains above $1330...


Finally, as Bloomberg's David Wilson reports, anticipation that U.S. stocks will rise once the Federal Reserve begins reducing interest rates is at odds with recent history.

Data compiled by CFRA Inc. show the S&P 500 Index fell 12.4% in the first six months after cuts started in 2007. The drop broke a post-World War II record of 9.5% set in 2001, when the central bank’s previous series of reductions got under way. Declines in the S&P 500 also followed moves toward lower rates that began in 1960, 1968 and 1981. Another setback may happen this time “if the Fed decides to cut rates prematurely,” Sam Stovall, CFRA’s chief investment strategist, wrote Monday in a report.

Published:6/11/2019 3:17:50 PM
[Markets] Dow snaps six-day winning streak after early rally fizzles Dow snaps six-day winning streak after early rally fizzles Published:6/11/2019 3:17:50 PM
[Markets] Dow's 6-Day Win Streak at Risk as Stocks Turn Lower in Afternoon Trading The Dow Jones Industrial Average turned lower Tuesday, putting its winning streak of six straight sessions in jeopardy. tumbled after analysts at JPMorgan cut their rating on the stock amid concerns for its $10 billion valuation. shares rose after its key iPhone assembler said it can make the tech giant's flagship product outside of China, easing concerns that tariffs might disrupt its supply chain. Published:6/11/2019 2:19:02 PM
[Markets] Stocks Erase Earlier Gains, Dow's 6-Day Winning Streak Is on the Line The Dow Jones Industrial Average turned lower Tuesday, paring earlier gains as its winning streak of six straight sessions is threatened. tumbled after analysts at JPMorgan cut their rating on the stock amid concerns for its $10 billion valuation. shares rose after its key iPhone assembler said it can make the tech giant's flagship product outside of China, easing concerns that tariffs might disrupt its supply chain. Published:6/11/2019 12:20:28 PM
[Markets] Stocks Wobble, Dow Loses Momentum in Midday Trading The Dow Jones Industrial Average turned slightly lower Tuesday paring earlier gains. tumbled after analysts at JPMorgan cut their rating on the stock amid concerns for its $10 billion valuation. shares rose after its key iPhone assembler said it can make the tech giant's flagship product outside of China, easing concerns that tariffs might disrupt its supply chain. Published:6/11/2019 11:20:16 AM
[Markets] Stocks rise; look to extend win streak as China moves to bolster economy U.S. stocks rise Tuesday, with the Dow Jones Industrial Average looking to extend its winning streak to seven days, after Chinese authorities back new measures to support the economy. Published:6/11/2019 10:18:23 AM
[Markets] Market Snapshot: Stocks rise; look to extend win streak as China moves to bolster economy U.S. stocks rise Tuesday, with the Dow Jones Industrial Average looking to extend its winning streak to seven days, after Chinese authorities back new measures to support the economy.
Published:6/11/2019 10:18:23 AM
[Markets] [video]Dow Up for Seventh Day on Continued Hopes for Fed Rate Cut, Mexico Tariff Relief The Dow rises for a seventh straight day as investors continue to bet on near-term rate cuts from the Federal Reserve and react to President Donald Trump's decision to suspend tariffs on Mexico. Published:6/11/2019 10:01:50 AM
[Markets] The Charts Turn Ugly: "We’re Right In The Zone Where This Surge Should Run Out Of Steam"

As optimism over global trade (unclear why as there have been no actual positive news overnight, and on the contrary China's Foreign Ministry spokesman, Geng Shuang, said that "if the United States only wants to escalate trade frictions, we will resolutely respond and fight to the end") helps propel the S&P to day 6 of its longest rally in a year (and the Dow on day 7), some strategists are getting nervous.

While all of the major U.S. averages closed in positive territory yesterday, they ended the day well off their intraday peaks on a day that was most notable for its mediocre breadth and extremely light volume. i.e. – a continuation of what we’ve seen over the past few trading sessions according to Russ Visch.

Always the contrarian, instead of expecting further strength in the market, the bearish BMO technician who last week predicted that a retest of the December lows now appears inevitable, Visch reminds his clients that the short covering rallies that occurred last Fall averaged 7 sessions with an average trough-to-peak gain of 7.28% "so if that’s any guide we’re right in the zone where this latest surge should begin to run out of steam."

Another reason why Visch thinks its time to cash in the chips, no pun intended: "Chart-wise it makes a lot of sense too since both the S&P 500 and S&P/TSX Composite appear to have stalled at overhead resistance levels yesterday."

Finally, one other technical hint that the S&P has now gotten way ahead of itself is the following chart from Bloomberg's Ye Xie, according to which the rally in chip stocks is now way overextended is that the SOX semiconductor index has gained more than 10% since the start of June, meanwhile the latest news out of South Korea showed that semiconductor exports in the first 10 days of this month were down 31% from last year.

"Since export data tend to track the performance of the Philadelphia Semiconductor Index fairly closely, the recent divergence is becoming too big to ignore."

Published:6/11/2019 10:01:50 AM
[Markets] Dow Up for Seventh Day on Continued Hopes for Fed Rate Cut, Mexico Tariff Relief The Dow Jones Industrial Average traded higher Tuesday as investors bet on a near-term rate cut from the Federal Reserve and reacted to President Trump's decision to suspend Mexico trade tariffs. tumbled after analysts at JPMorgan cut their rating on the stock amid concerns for its $10 billion valuation. shares rose after its key iPhone assembler said it can make the tech giant's flagship product outside of China, easing concerns that tariffs might disrupt its supply chain. Published:6/11/2019 9:17:24 AM
[Markets] S&P 500 jumps at the open intraday, stands about 1.1% shy of its April 30 record The S&P 500 index opened solidly higher on Tuesday morning, with the benchmark poised to extend its rally to a fifth straight day and putting it in position to reclaim its perch at a late-April record if its rally holds. The S&P 500 most recently was up 0.7% at 2,907, but had hit an intraday high in early action at 2,913.05, placing the index about 1.1% short of its April 30 all-time closing high at 2,945.63, according to FactSet data. Gains for the S&P 500 have been supported over the month by a rally in informational technology shares and those for materials, which have climbed by at least 7% so far this month. Meanwhile, the Dow Jones Industrial Average and the Nasdaq Composite Index also were advancing firmly on Tuesday, adding to their own multiday gains. Reports of coming economic stimulus for China, the second-largest economy, and expectations of easier monetary policy from the Federal Reserve, amid strife over international tariff tensions, has helped to support appetite for stocks recently. Published:6/11/2019 8:54:22 AM
[Markets] Trader: "Stocks Won't Stay Bid On Bad News Just Because The Fed Cuts 25bps"

With The Dow on course for its longest win streak in 13 months, and Treasury yields refusing to rise, the market appears convinced that The Fed will acquiesce to its needs.

But, as former fund manager and FX trader Richard Breslow notes, as fear has turned to greed, with markets demanding ever more support from their central bank protectorate, the opportunity for dramatic disappointment abounds.

Via Bloomberg,

During a discussion about what the FOMC might say next week, an interesting point was made about the word “patient”.

When it was first used, it was part of the Committee’s move toward a more dovish policy stance. Now, given market pricing and less robust economic numbers, continuing its use is expected to be taken as hawkish. The market has the rate cut bit in its mouth and wants its central bankers to run with it. I can only imagine what futures traders would do with “transitory.”

In reality, patient is exactly what they should be. Promising to do what may become necessary is far more appropriate than effectively pre-committing to a move. If there is anything that has been learned, predicting events accurately is a lot harder than it looks. One central banker’s flip-flop is another’s staying agile.

There are so many different theories positing how the G-20 summit might turn out that, at this point, it’s all just a guessing game. Common sense would suggest some compromise would be in everyone’s best interest. But in this case, who knows? Politicians can be very base when catering to theirs.

And the argument that time is somehow of the essence because it takes time for policy changes to filter through to the economy rings hollow in a world where financial conditions are as important as the other two mandates. This being the case, monetary policy has to be reactive, not proactive. Which explains why the market insists on pricing in multiple cuts rather than just the much-hoped for “insurance cut”. Because if one is required, chances are the market will demand more. Equities won’t stay bid on bad news just because the Fed cut 25 basis points.

While we continue with the debate about how dire is the need for rate cuts, this morning the Small Business Optimism Index printed at its highest level of the year. With all eyes on whether the S&P 500 can surmount resistance which is just above 2900. In truth, if the Russell 2000 can play a little catch-up, all of the major indexes will be looking happy.

The dollar looks offered but DXY is holding well above support. Emerging market currency indexes are trying to press up against resistance levels that they have been struggling with. And WTI crude looks like it will be trapped between $55 and $50, until it isn’t
Which brings things around to rates, the driving force between the bulk of current narratives. Yields have their work cut out to stay still, but momentum to the downside has definitely petered out. Ten-year Treasuries getting back above their 2.21% breakdown level would certainly change the technical look. Or at least turn things back to a two-way conversation.

Even two-year yields have stabilized. Not at all insignificantly, they formed a double bottom low below 1.80% after the disappointing jobs report. Which raises the question, how much is too much?

Traders have been prudent to hedge the event risk in their portfolios. With the added benefit that paying up for bonds has paid off in its own right. And they are probably going to be loathe to cut out of those positions wholesale until they see how the trade fight plays out. And why would they? But while central banks need to stand at the ready and convince investors as well as themselves that they still have adequate tools to deal with trouble, it just wouldn’t pay for them to be overly preemptive. It’s a lot harder for them to stop out of a wrong decision.

Published:6/11/2019 8:18:04 AM
[Markets] Intel's Barefoot acquisition gives it a 'strong technical boost,' says Wells Fargo Intel Corp. is getting a "strong technical boost" with its recently announced acquisition of Barefoot Networks, according to Wells Fargo's Aaron Rakers. The chipmaker announced the deal for Barefoot, which specializes in Ethernet switch silicon and software, late on Monday, though the company didn't disclose monetary terms. "This acquisition represents another example of the semiconductor industry's ongoing push into programmable network silicon as workloads grow heavier and more complex," Rakers wrote. Intel shares are up 0.9% in premarket trading Tuesday, but they've dropped 0.3% so far this year as the Dow Jones Industrial Average has increased 12%. Published:6/11/2019 7:46:28 AM
[Markets] Broadcom, Caterpillar Lift Stock Futures; Mining, Steel Stocks Rally Broadcom and Caterpillar staked out early leads Tuesday as mining and steel stocks rallied and the Dow Jones indutrials eyeballed a seventh straight gain. Published:6/11/2019 7:35:15 AM
[Markets] "Beyond Our Price Target" - JPM Downgrades Beyond Meat Two Days After Upgrading It

First there was bitcoin (2017), then bud (Tilray & the other hot pot stocks that went parabolic late last year) - and now, $BYND (2019). Shares of the fake meat company have maintained the forward momentum from the day of the company's IPO (where they rallied 150%) and have continued to climb, even as the broader market endured one of its most tumultuous stretches in recent memory (the Dow logged one of its longest losing streaks in 8 years last month).

But in a sign that the tide of frothy enthusiasm for the company might finally be turning, analysts at JP Morgan late Monday downgraded the company's shares from "overweight" to "neutral" - becoming the first team of analysts at a top American investment bank to do so - just two sessions after the bank raised its price target from $97 to $120.

So what has changed? Well, fundamentally speaking, not much. But over the past two sessions, $BYND's shares have climbed 70%, which has amazed even the most bullish of $BYND evangelists, after the company reported sufficiently robust earnings.

JPM's cut appears to have impacted shares in the company's stock, with shares tumbling 14% in premarket (though we imagine another product announcement will be forthcoming to turn things around).


Though JPM's team remains extremely bullish on $BYND's long-term growth prospects, justifying its present valuation would require alterations to JPM's discounted cash flow model - namely, higher long-term revenue and gross margin growth projections - that the bank's team isn't yet comfortable making.

$168/share requires assumptions we are not yet comfortable with. For example, keeping all else equal, we could get our DCF to $168 if we assumed revenue growth rate decelerated to 35% in 2021 and then did not decelerate again until 2029. Or put more simply, we could get to $168 if we modeled $4.9B in 2029 sales, rather than the $3.5B we currently presume. Is $5B in sales in ten years out of the question? No but it’s not likely, either, in our view. Similarly, we could model the 2029 gross margin increasing to 43.3% versus the 35.5% we expect; this, too would lead to $168. But the food group’s median is only 29% – we think a ~1,500 basis point advantage is too extreme. Lastly, if we wanted to get $168 fair value, we could either lower the discount rate in our DCF to 2.5% from 6.2% or use a ~26x multiple for terminal cash flow. We could not rationalize a 2.5% discount rate in any way. 26x theoretically is justifiable – plenty of high-growth food and beverage companies trade over 20x today – but would we be okay applying 26x on all future cash flow after 2029? Not at this point.

Instead, the team believes that $BYND's "extraordinary revenue and profit potential" has finally been priced in, and that the company's shares will remain extremely vulnerable to any piece of disappointing news.

As we wrote last week, “At some point, the extraordinary revenue and profit potential embedded in BYND... will be priced in” – we think this day has arrived. Our above-the-Street estimates remain unchanged and our price target is more-or-less the same (up $1 merely to reflect lower rates – we value BYND via a DCF). In other words, this downgrade is purely a valuation call.

Although the country's largest investment bank - and one of the lead underwriters of $BYND's IPO - has come out as a bear, there's plenty of reason to suspect that the rally in the fake-meat company's shares might still have some room to run. In a report published yesterday, S3 Partners, argued that $BYND shares have hit what it called "the short-squeeze trifecta": Lending fees on $BYND shares have continued to skyrocket (they hit 134% during Monday's session), making it the most expensive major stock to short.

Overall, short interest stands at $814 million, or 5.87 million shares shorted, representing more than 50% of Beyond Meat’s float. The company is the sixth-largest short bet in the domestic packaged foods and meat sector. Those bears who have had the courage of their conviction to hold their positions even as $BYND shares have rallied 570% since the company's IPO are down nearly $600 million. But after the company's rally shifted into 'ludicrous speed' over the past two trading sessions, those margin calls might be coming.

"Beyond Meat has hit the short-squeeze trifecta, with several hundred thousand shares of recalls hitting the street; stock borrow rates solidly in the triple digits and its stock price rallying 69% in just two days," said Ihor Dusaniwsky, managing director at S3.

In other words, Monday morning's JPM-inspired hit might be more of a hiccup than an inflection point. But as a gentle reminder to all of those who don't see any bubbles in the broader economy.

Published:6/11/2019 6:50:33 AM
[Markets] Stock-index futures point to positive start as China moves to bolster economy Stock-index futures point to a higher start Tuesday, with the Dow Jones Industrial Average looking to extend its winning streak to seven days, after Chinese authorities back new measures to support the economy. Published:6/11/2019 6:28:10 AM
[Markets] Nasdaq Outmatches Dow Jones In Broad Rally; Can These 2 Tech Groups Lead In June? The Nasdaq, getting a boost from tech, internet and consumer names, had a strong day right after the key follow-through Friday. The Dow Jones lagged. Published:6/10/2019 8:19:29 PM
[Markets] Morning Market Melt-Up Momentum Fades But Bonds & Bullion Slide

Powell to markets - "Never gonna let you down"...


Chinese markets rallied overnight, but faded in the afternoon session...


European markets also extended last week's gains...


US Equity markets continued to rise today (Dow up for the sixth straight day higher - longest streak since May 2018) following the US-Mexico deal (buy the news?)...but no closing melt-up today

NOTE - the Nasdaq was up over 2% around the European close but stocks faded from that point.

Nasdaq broke above its 50DMA today, but was unable to hold it...

NOTE - The Dow and S&P held above their 50DMA but Small Caps were unable to break the highly clustered DMAs...


But notably, the market is shifting very modestly more hawkish as stocks rebound...


And bonds refuse to play along...


Notably, the initial momentum-ignition short-squeeze faded after Europe closed...


And then there's BYND!! Now up 600% from its IPO price...


VIX and stocks are decoupled for the second day in a row...


Treasury yields rose notably on the day...


But if we pull back a little, they merely tested the upper range of the last few days trading...


And no follow-through in the 2Y Yield...


The Dollar Index ended the day almost unchanged after a small roundtrip higher overnight ...


Yuan tested down towards 7 month lows


The peso erased last week's losses, perfectly retracing the post-Trump-traiff threat drop...


Bitcoin managed to hold gains as Litecoin jumped and Ripple dumped...


With Bitcoin hovering around $8000...


After 8 weeks lower, copper was up today as PMs and crude slipped lower...


Gold was down today, breaking its longest win streak since 2010


WTI was unable to hold the $54 print...


Finally, the share prices of the world's most systemically-important banks are not suggesting all is well...


Published:6/10/2019 3:18:56 PM
[Markets] Dow industrials extend winning streak to sixth session Dow industrials extend winning streak to sixth session Published:6/10/2019 3:18:56 PM
[Markets] Dow reclaims 26,000, logs longest win streak in more than a year as tech stocks rally U.S. stock indexes finished solidly higher Monday, but off their best levels of the session, as gains in information technology and consumer-discretionary shares helped to extend the market's multiday rally. The Dow Jones Industrial Average closed up 77 points, or 0.3%, at 26,062, marking its sixth consecutive gain, which represents its longest win streak since an eight-session period ended May 14, according to FactSet data. The blue-chip gauge had hit highs at 26,210 in midday trade before paring gains. The S&P 500 index closed 0.5% higher at 2,886, reaching within 45 points of its April 30 all-time high at one point Monday, while the Nasdaq Composite Index finished the day up 1.1% at 7,823. Gains on the day were widely attributed to relief over the White House's decision to drop a threat to hit Mexico with tariffs on billions of dollars of goods. Investors also are hoping that the Federal Reserve signals that it will ease monetary policy when it concludes it two-day meeting on June 19. In corporate news, among the best performers of the day was meat-substitute company Beyond Meat Inc. , which soared 21% on Monday, climbing 154% over the past 30-day period. Shares of United Technologies Corp. and Raytheon Co. after the two defense contractors announced a massive all-stock merger. Published:6/10/2019 3:18:56 PM
[Markets] US STOCKS-Wall Street adds to recent rally on Mexico relief, deal optimism U.S. stocks extended their recent climb on Monday, with the Dow on track for a 6th straight day of gains after the United States dropped plans to impose tariffs on Mexican goods and after a couple of multibillion-dollar deals. The recent gains put the S&P 500 index roughly 2% shy of its early May record high, while the Dow was set to register its longest winning streak in about 13 months. Published:6/10/2019 2:47:05 PM
[Markets] Schiff: "Everything The Fed Said About Normalizing Rates Was A Lie"


Last week was a good one for the stock market. Peter Schiff raised an important question in his latest podcast: why?

Answer: it’s all about the Fed.

Everybody is giddy because they think the central bank is going to save the day once again. In this podcast, Peter explains why they are wrong.

Last week, the Dow gained 4.7% and other stock indices followed the upward trend, snapping a six-week losing streak. So, what drove the market up? Was it great earnings reports?

Not really. There were a few companies that posted solid earnings reports, but nothing earthshaking.

Was it good economic data?

Nope. In fact, most of the news was bad. Most significantly, the non-farm payroll number for May came in at just 75,000 jobs. The projections had been for about 180,000 jobs.  Peter pointed out that if you average the last three months, job growth comes to about 150,000 jobs per month.

Pretty anemic job growth, especially if you’re claiming you’re the jobs president and we have the strongest economy in the history of the country.”

Peter also noted that the economy is creating the same type of lousy part-time and low-paying jobs it was creating when Obama was president.

Meanwhile, the New York Fed lowered its GDP growth estimate both for Q2 and Q3.

The bottom line is we got much weaker than expected jobs growth. We got weaker economic data. We have downward revisions to GDP growth from the New York Fed. Yet the US stock market is soaring. Why?”

One thing has happened. That’s the Fed.

The Federal Reserve has changed on a dime and has done what I’ve been saying they would do for years. In fact, I said they would do this from the very beginning. And that is they have completely abandoned any pretense of normalizing interest rates or shrinking their balance sheet. The Fed is about to cut interest rates again.”

Consider this. That would mean the peak of this interest rate cycle was 2.5%.

That’s not exactly “normal.”

Why is the Fed going to have to cut interest rates? To prevent the bubble from deflating, to prevent the bubble economy from returning to recession.”

And this is exactly why we saw this boost in the stock market last week. The addict is giddy at the mere thought of a fix.

It’s only because the Fed is going to give the heroin addicts on Wall Street more of the heroin, this is why the market is going up. That is why the bond market is going up. That is why rates are falling, because the bond market thinks the Fed is going to work its magic one more time. It’s going to slash interest rates. It’s going to force-feed cheap money into the economy. It’s going to do quantitative easing. And it’s going to be a party in the bond market. It’s going to be a party on Wall Street. Except inflation is going to crash that party. A dollar collapse is going to crash that party.

Peter said the only reason all of this monetary stimulus worked the last time was because everybody believed it was an emergency measure, that it was temporary, that it would be undone, that there was an exit strategy.

Everything the Fed has been saying for the past 10 years about its exit strategy, about its ability to normalize interest rates — everything they said was a lie.”

The Fed continues to insist that the economy is strong, but Peter said you need to keep your focus on what the central bank is actually doing.

The fact that they’re about to cut interest rates proves beyond a shadow of a doubt that the economy is weak, that any strength is artificial. It’s a result of the cheap money and they need more cheap money to maintain the illusion of economic growth.”

Peter has always said that levering up the economy is the easy part.

If you can’t remove the policy without the economy relapsing into recession, then the economy was a failure...

The easy thing to do was to get hooked on drugs. The hard part, or the impossible part, was kicking the habit. That’s what the Fed can’t do.”

Published:6/10/2019 2:47:04 PM
[Markets] The Tell: ‘Full-scale bear market’ for stocks is among 3 scenarios Citi analysts predict amid trade tensions Wall Street investors enjoy a multiday rally on Monday, with the Dow Jones Industrial Average poised for a six-session advance, but strategists at Citigroup say looming trade tensions still make a bear-market a possibility if the Trump administration’s tariff disputes aren’t resolved favorably.
Published:6/10/2019 2:17:10 PM
[Markets] Stocks Rise on Mexico Tariff Relief, Mega-Mergers The Dow Jones Industrial Average traded higher Monday following President Donald Trump's "indefinite" suspension of tariffs on Mexican goods that were expected to go into effect Monday. United Technologies is Real Money's Stock of the Day. Stocks rose Monday following President Donald Trump's "indefinite" suspension of tariffs planned on goods imported from Mexico and after the announcement of mega-mergers in the defense and tech sectors. Published:6/10/2019 2:17:10 PM
[Markets] Stocks Rise as Trump Suspends Mexico Tariffs, Mega-Mergers Boost Sentiment The Dow Jones Industrial Average traded higher Monday following President Donald Trump's "indefinite" suspension of tariffs on Mexican goods that were expected to go into effect Monday. United Technologies is Real Money's Stock of the Day. Stocks rose Monday following President Donald Trump's "indefinite" suspension of tariffs planned on goods imported from Mexico and mega-mergers in the defense and tech sectors. Published:6/10/2019 12:15:01 PM
[Markets] ‘Full-scale bear market’ for stocks is among 3 scenarios Citi analysts predict amid trade tensions Wall Street investors enjoy a multiday rally on Monday, with the Dow Jones Industrial Average poised for a six-session advance, but strategists at Citigroup say looming trade tensions still make a bear-market a possibility if the Trump administration’s tariff disputes aren’t resolved favorably. Published:6/10/2019 11:54:57 AM
[Markets] The Dow Is Up Because There Won’t Be a Trade War With Mexico SECTORFOCUS BLOG Monday Motivation. Stocks are starting the week on an upbeat note, with the Dow Jones Industrial Average rising 0.7%, the S&P 500 up 0.9%, and the Nasdaq Composite ahead 1.8% at recent check. Published:6/10/2019 11:13:32 AM
[Markets] Energy Dominance Or Flatulence? Shale Drillers Bleed Cash

Authored by Tom Luongo,

All of President Trump’s foreign policy can be summed up by two themes, making the world safe for Israel and controlling the price of energy.

He calls the latter “Energy Dominance.” And to those who still believe Trump has a plan, these two things are the only ones consistently in evidence.

His reactions to things contrary to his plan, however, are purely limbic.

These two themes converge completely with Iran. Trump wants Iran neutered to force Jared Kushner’s now-delayed again, “Deal of the Century” onto the Palestinians while also taking Iran’s oil off the market to support surging U.S. domestic production in the hopes of taking market share permanently.

Everything Trump does is in support of these two themes while throwing some red meat at his base over China, Mexico and the border.

It was never his intention to leave Syria back in December, really. Look how easy was it for John Bolton and the Joint Chiefs to convince him to stay because how else would we cut Iran’s exports to zero if we didn’t stop the land route through Iraq?

This is why we’re still harboring ISIS cells in the desert crossing around Al-Tanf at the Jordan/Iraq/Syria border, to stop Iranian oil from coming into the country.

This feeds right into hurting all of Syria’s allies to strengthen Israel’s position.

To paraphrase the song from Aladdin, “It’s stupid, but hey, it’s home.”

If the average Trump voter truly understood the lengths we are going to starve the Syrian army from having enough energy to finish wiping out the Al-Qaeda-linked groups in Idlib and Homs provinces they would burn their MAGA hats and stay home next November.

But they don’t so Trump’s approval rating keeps climbing.

On the other hand, people mostly understand exactly what the “Bay of Fat Pigs” operation in Venezuela was all about, protecting domestic oil production and getting control of Venezuela’s.

The sad truth is that many Americans consider this comeuppance for being stupid enough to elect Nicolas Maduro President.

But this is the guts of Trump’s “Energy Dominance” policy. Use tariffs, sanctions, threats and hybrid warfare to destroy the competition and therefore MAGA.

It would be sad if it wasn’t so pathetic.

And the irony is that the whole plan is predicated on sustainable and nigh-exponential growth of U.S. domestic production.

There’s only one problem with that. It’s completely unsustainable.

The greatness of the U.S. production story is evident if you only look at the number of barrels produced. But that story turns into a nightmare the minute you look one inch deeper to see what the cost of those barrels are and what profit, if any, they produce.

From Zerohedge via Nick Cunningham at comes this beauty of an image:

Heading into 2019, the industry promised to stake out a renewed focus on capital discipline and shareholder returns. But that vow is now in danger of becoming yet another in a long line of unmet goals.

“Another quarter, another gusher of red ink,” the Institute for Energy Economics and Financial Analysis, along with the Sightline Institute, wrote in a joint report on the first quarter earnings of the shale industry.

The report studied 29 North American shale companies and found a combined $2.5 billion in negative free cash flow in the first quarter. That was a deterioration from the $2.1 billion in negative cash flow from the fourth quarter of 2018. “This dismal cash flow performance came despite a 16 percent quarter-over-quarter decline in capital expenditures,” the report’s authors concluded.

So, higher cash burn rates at high sale prices (remember Q1 here) and lower capex costs as the rig count hits a fifteen-month low.

You can’t hide a lack of profitability forever with financial engineering folks. Even Elon Musk is beginning to figure this out. And, once that reaches critical mass, to quote one of my favorite philosophers, The Tick, “Gravity is a harsh mistress.”

What was that old joke?

“So if we’re selling dollars for ninety-cents how do we make money?”


If that doesn’t sum up where we are today in the energy space I don’t know what does.

All of this is a product of the Fed’s ridiculous zero-bound interest rate policy allowing energy drillers to issue obscene amounts of low-quality shares and lower-quality debt packaged in such a way to yield the magic 7.5% most pension funds need to maintain their defined benefit payouts without going broke.

This cycle is only partially derailed by the Fed raising rates a couple of points to 2.75%.

All Trump cares about is getting a 4% GDP print before next year’s election to prove his critics wrong. This is why he wants the Fed to lower rates.

It will keep the shale boom going pumping massive amounts of oil which we can’t ship to the coasts to sell to people who don’t want it.

And even if all of the new pipeline capacity alleviates the internal glut that doesn’t mean there’s a market for more of it. Remember, shale produces ultra light sweet crude which most refiners have to blend with heavier feedstock so there really is an upper limit as to how much of this stuff the market wants.

The current and persistent discount of West Texas to Brent, which is still over $9 per barrel is a measure of this since most oil is priced in relation to Brent, even heavy sour grades like Russian Urals, which we’re importing more of to feed domestic refineries strapped for stock now that we’ve embargoes Venezuelan oil.

If the shale boom is so sustainable why are frackers flaring off obscene amounts of natural gas that comes along with it? Why are they wasting what should be salable energy? Maybe because there’s no market for it?

Rystad puts it into context, noting that the most productive gas facility in the U.S. Gulf of Mexico – Shell’s Mars-Ursa complex – produces about 260 to 270 MMcfd of gross natural gas. In other words, the most productive gas project in the Gulf of Mexico only produces about 40 percent of the volume of gas that is being flared and vented in West Texas and New Mexico every single day.

Given this situation I think we’ve reached that part of the story where someone just let a really big one rip and no one is willing to acknowledge it.

Dood… Natural Gas is Awesome!

This is classic overproduction based on time-preference mis-coordinating the use of capital due to artificially-low interest rates. It has nothing to do with a normally functioning market.

But this situation can go on a lot longer thanks to the realities outside of the U.S. shale industry.

When the Fed finally does lower interest rates it won’t be to save the energy producers in North Dakota. It will be to save the banking system from a dollar liquidity shock that will implode Europe.

The market’s reaction to Friday’s horrific jobs report was pure front-running that rate cut mixed with safe-haven behavior knowing that the global growth story is dead.

The U.S. yield curve imploded another 6 basis points. Gold popped to a 2019 high, the Dow put in a major reversal and the euro rallied after a massive run-up in euro-bonds before the New York open reversed some of that.

And there’s Trump demanding lower oil prices on Twitter which is just feeding the problems of the shale drillers already underwater. Rock meet hard place.

Dollars for eight-five cents? MOAR volume!

So Trump has gotten what he wants but not for the reasons he wants it. With growth dying thanks, in part, to his random acts of financial terror, oil prices are now in free fall.

I identified the signals for my Patrons in a Market Report on May 26th, noting a back-to-back-to-back set of reversals I deemed “hugely bearish.” Sometimes, it’s just that easy. More often than not the market is telling you what you need to know, if you would only turn off the spin-machines and read the tape.

But the sad truth is that once the Fed lowers rates the drillers will be encouraged to go back to the credit well one more time because there will be even more demand for their crappy paper. In a yield-starved world everyone is trying to stave off the day of reckoning for as long as possible.

And right now, U.S. pension managers are a shale drillers’ best friend. And so is an ECB trapped like an egg in a vice between a faltering German economy and political system undermining what’s left of growth across Europe.

But not a U.S. President intent on creating a world few want and fewer benefit from while wasting a precious energy by the cubic shit load for a couple hundred thousand votes more than a year from now.

MAGA bitchez.

*  *  *

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Published:6/10/2019 10:10:22 AM
[Markets] The Dow has climbed about 1,340 points in the past 6 sessions--marking its best point gain of 2019 The Dow Jones Industrial Average on Monday has been on a tear over the past several sessions, with the current string of six straight gains putting blue chips on pace for the best point accumulation this year. According to Dow Jones Market Data, the Dow's current streak, 6 straight sessions, would represent the best point tally (1,340 points) over the same series of days, since Dec. 3, 2018 and the best percentage climb thus far, about 5.4%, since Jan. 11. Gains have been supported, at least partly, by expectations that the Federal Reserve will easy monetary policy this year. Monday's early climb for the price-weighted Dow was also buttressed by gains in Goldman Sachs Group Inc. and Apple Inc. . Published:6/10/2019 9:10:57 AM
[Markets] Dow industrials on their best six-day run of the year Dow industrials on their best six-day run of the year Published:6/10/2019 9:10:56 AM
[Markets] Stock Futures Climb: Raytheon, Tableau Spike: Dow Jones Industrials Aim For Six United Technologies, Raytheon and Tableau Software boosted the young stock market rally Monday as the Dow Jones indutrials eyed a sixth straight gain. Published:6/10/2019 7:40:31 AM
[Markets] Merck to buy cancer-treatment biotech Tilos Therapeutics for up to $773 million Merck & Co. Inc. said Monday it was buying privately held biopharmaceutical company Tilos Therapeutics, in a deal that could be valued at up to $773 million. The deal includes an upfront payment and contingent milestone payments. Tilos targets therapeutics for the treatment of cancer, fibrosis and autoimmune diseases. "Tilos has developed a compelling portfolio of candidates that employ a novel approach to modulating the potent signaling molecule TGFß by binding to latency-associated peptide, with potential applications across a range of disease indications," said Dean Li, senior vice president, discovery and translational medicine, Merck Research Laboratories. Merck's stock has gained 7.9% year to date, while the SPDR Health Care Select Sector ETF has tacked on 5.2% and the Dow Jones Industrial Average has advanced 11.4%. Published:6/10/2019 6:11:40 AM
[Markets] The Dow’s Big Rally Was Scary. And Not in a Good Way. THE TRADER It has been a while since a massive stock market rally has frightened us this much. On first glance, there seems no reason to be scared. The Dow Jones Industrial Average gained 1,168.90 points, or 4. Published:6/7/2019 9:01:02 PM
[Markets] The Dow Jumped 263 Points Because Bad Jobs Data May Be Good for a Rate Cut The Dow Jones Industrial Average rose 1.02% to close at 25,983.94. The S&P 500 gained 1.05% to end at 2873.34, and the Nasdaq Composite rose 1.66% to close at 7742.10. Published:6/7/2019 4:24:34 PM
[Markets] Dow Jones On Track For 1,200 Point Weekly Gain As Stocks Surge The Dow Jones industrials looked set to deliver a 1,200-plus point gain for the week as the major indexes surged in today's stock market. Published:6/7/2019 2:23:02 PM
[Markets] BofA: Why If The Fed Cuts Now, It Would Be A "Huge Risk"

After today's dismal payrolls report, which sent bond yield plunging and stocks surging, the market's verdict is in: a Fed rate cut in July is now the base case, with odds of 76% (and even a June cut is possible, with odds of 25%).

And while a rate cut would be delight to President Trump, who earlier today proclaimed that had rates been lower the Dow would be "10,000 higher", there a far greater, potentially existential threat, to the Fed should it proceed with a rate cut according to Bank of America.

In his latest Flow Show report, Bank of America CIO Michael Hartnett presents several reasons why - despite today's payrolls print - the market does not a rate cut, among which:

Positioning: investors are extremely bearish, with the BofAML Bull & Bear Indicator plunging to 2.5, a fraction away from "buy" signal level of 2.0; and equity investors very bearish - as the latest BofA FMS survey revealed, investors are most hedged since Jan 3rd equity lows. The weekly flow data suggests the same: $17.5bn into bonds (2nd biggest week of inflows ever) offset by $10.3bn out of equities; YTD $183bn into bonds, $155bn out of equities as nobody wants to have anything to do with stocks (despite the S&P being just shy of all time highs again).

Profits are about to trough: the Global PMI (highly correlated with global EPS) was 49.8 in May, i.e. on "boom-bust" border; makes stocks a one-decision market…"sell" if PMI heads toward 45, and "buy" if PMI heads toward 55. However, providing a somewhat bullish take on this series, is the ratio of orders/inventories which leads PMI by 2-months and has turned higher. At the same time, US/China financial conditions are easing via liquidity/lower yields/lower oil, and assuming no material escalation of trade war, BofA thinks that PMI troughs next 3 months, resulting in a rebound in EPS as well.

Monetary policy is already max bullish and exhibits clear parallels to the Shanghai Accord '16, ahead of the Osaka G20 meeting. As a reminder, the Shanghai Accord saw global coordinated policy easing coinciding with extreme pessimism & trough in profit expectations. In its aftermath, the S&P500 & ACWI multiple jumped 1.5-2x in next 3 months. Fast forward to today, when in the run-up to Osaka G20 big global monetary ease underway, investor sentiment is likewise plunging. At the same time, a key catalyst is already in play - there is a big global monetary ease underway for 1st time since Q2'17 as 9 central banks cutting rates and Fed/PBoC/ECB/BoE are all turning dovish while there are rate cuts in Malaysia, New Zealand, India, Philippines, Australia; additionally if Trump changes his mind and there is no U.S. imposition of 25% tariffs on remaining $300bn of Chinese goods policy will be max bullish for risk in H2; however, the narrative can quickly flip to trade war, leading to 2019 playing out like Asia crisis '98.

In other words, all else equal, the foundations for the S&P rising to 3,000 in the summer - which is BofA's base case (before the S&P slides back down in the second half) are already there. In light of this, the risk is that the Fed does precisely what the market now expects with certainy, that it cuts rates as soon as July.

This is shown in the chart below, when in the aftermath of the Asian crisis of 1998, the Fed cut rates only to cause the dot com bubble... and its subsequent bursting and the plunge in rates from 6%+ to just 1% as the first 21st century bubble popped. 

It is this risk that threatens markets now as well: an overly easy Fed cutting rates, only to create a historic meltup just ahead of the 2020 election, and eventually bursting the biggest asset bubble in history.

There's more: the Fed could cut and join the ECB and BOJ among those central banks that are losing credibility, as a result of it "patiently" flipping from hikes to cuts with no material change in macro: after all, in the past 6 months US CPI is unchanged, and, as BofA notes, the US unemployment rate down.

* * *

Two more points from Hartnett: he notes that according to client feedback, most are bearish on global macro and thus  hedged; have been waiting for SPX 2650 entry point and also looking to short rally (hence the recent furious short squeeze); meanwhile the long-onlies are paralyzed by recession risk from yield curve, but missed Jan-Apr rip so inclined to buy weakness; private clients totally unfazed, conservatively positioned.

The final point: Risks, two of them.

  • Risk 1 Tariff Man = recession: tariffs not yet leading to rise in unemployment in key battleground states for Trump re-election (Chart 10); BofA assumes "Trump would rather campaign as the Jobs President rather than Tariffs President"; but trade war escalation via full US tariffs on China & Mexico, China offensive via rare-earth embargo & CNY devaluation, tech wars via market access embargoes.

  • Risk 2 Powell pushing-on-a-string: if and when the Fed does cut, the tell will be that credit spreads widen, indicating that Fed has joined the BoJ & ECB in monetary policy impotence.

If that is what happens, then sell and don't look back, as the worst-case scenario recently proposed by Pimco, in which the Fed loses control of the market, will then be in play.

Published:6/7/2019 11:16:23 AM
[Markets] The Dow Is Up 329 Points Because Jobs Data Make the Rate Cut Look More Likely The Dow Jones Industrial Average rose 329.10 points, or 1.3%, to 26,049.76. The S&P 500 gained 33.70 points, or 1.2%, to 2877.19, and the Nasdaq Composite rose 136.44 points, or 1.8%, to 7752. Published:6/7/2019 10:15:55 AM
[Markets] Stocks Rise as Weak Jobs Report Drives Hopes for Fed Rate Cut The Dow Jones Industrial Average rose Friday as weak job numbers lifted hopes for a interest rate cut from the Federal Reserve. surged after posting stronger-than-expected first-quarter profit in its first-ever report as a public company. Zoom Video is Real Money's Stock of the Day. Published:6/7/2019 9:45:24 AM
[Markets] Stocks Jump As Dow Jones Leans Toward Biggest Week Of 2019 IPOs Beyond Meat and Zoom Video surged, despite a weak May payrolls report Friday, and Nike led the the Dow Jones index toward its strongest week this year. Published:6/7/2019 9:13:52 AM
[Markets] Stocks open higher after weak jobs report boosts rate-cut hopes Stocks opened higher Friday after a much weaker-than-expected May jobs report, with support attributed to expectations the soft data will help push the Federal Reserve toward delivering a rate cut in coming months. The Dow Jones Industrial Average rose 88 points or 0.3%, to 25,808, while the S&P 500 advanced 0.4% to 2,853.51. The Nasdaq Composite rallied 35 points, or 0.5%, to 7,651. Published:6/7/2019 8:42:52 AM
[Markets] Stock futures pare gains after jobs report shows weaker-than-expected 75,000 jobs in May Stock-index futures on Friday trimmed gains after the jobs report showed that the U.S. created 75,000 jobs in May, much weaker than estimates and a reading likely to make the Federal Reserve consider reducing rates, according to market participants. Futures for the Dow Jones Industrial Average were up 30 points, or 0.1%, at 25,775 , while those for the S&P 500 index advanced 3.80 points, or 0.1%, at 2,849.25 , while Nasdaq-100 futures were 14.50 points higher at 7,296.50, rising 0.2%. The nonfarm payrolls report showed and increase in new jobs was way below the 185,000 MarketWatch forecast.The unemployment rate was flat at 3.6%. The average wage paid to American workers rose 6 cents to $27.83 an hour. Yet the 12-month rate of hourly wage gains slowed to 3.1% from 3.2%. The economy likely added 185,000 new jobs in May, keeping the U.S. unemployment rate at nearly 50-year low of 3.6%, according to economists polled by MarketWatch. Published:6/7/2019 7:45:49 AM
[Markets] Chinese Yuan Tumbles After PBOC Governor Says There Is No Redline

After a period of unnatural stability, in which the offshore Yuan traded in a tight range of 6.90 and 6.95 since May 13 the Yuan finally broke out of the channel and tumbled 0.5%, the most in three weeks to at low as 6.9625 vs the dollar, the lowest level since November 2018, after the chief of China’s central bank said Beijing has “tremendous” room to adjust monetary policy if the trade war with the U.S. deepens, and hinted there’s no line in the sand for the currency, meaning the key "psychological" level of 7 does not exist in times of trade war.

The yuan had stabilized in recent weeks as authorities voiced support for the currency, following a rout in early May that pushed it near 7 per dollar level not breached since the global financial crisis. It still lost about 2.5% in May, among the worst in Asia.

“We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous," PBOC governor Yi Gang in an interview with Bloomberg in Beijing.

When asked if his upcoming meeting with Steven Mnuchin this weekend would get negotiations with the U.S. back on track, Yi said it would probably be a “productive talk, as always,” though the topic of the trade war would be “uncertain and difficult.” The two are scheduled to meet on the sidelines of the G-20 meeting in Japan. This is the first publicly announced meeting since the trade talks fell apart last month and could pave the way for a meeting between Presidents Donald Trump and Xi Jinping, who will likely be in Japan at the end of the month for the G-20 leaders’ summit.

Commenting on the recent yuan move, Yi  said that “recently, it’s a little bit weaker, because the tremendous pressure from the U.S. side.” When asked if there’s a red line for the exchange rate, Yi said no number is more important than another.

That was all FX traders needed to hear to start selling the yuan.

“The trade war would have a temporary depreciation pressure on renminbi, but you see, after the noise, renminbi will continue to be very stable and relatively strong compared to emerging market currencies, even compared to convertible currencies,” Yi said, using the yuan’s official name. “I’m very confident renminbi will continue to be stable at a more or less equilibrium level.”

“A little bit of flexibility of renminbi is good for the Chinese economy and for the global economy because it provides an automatic stabilizer for the economy,” he said. "The central bank of China is pretty much not intervening in the foreign-exchange market for a long time, and I hope that this situation will continue, not intervening."

A growing number of economists predict that the worsening trade war and job market outlook could prompt the central bank to take bolder easing steps.

“Looking forward, our base case is that an escalating trade war will push key gauges below the PBOC’s tolerance threshold, triggering 50 basis points of rate cuts and another 150-200 bps of reserve requirement cuts by year-end,” David Qu, an economist with Bloomberg Economics in Hong Kong, wrote in a recent report. That would most likely send the yuan below 7.00 for the first time in years and provoke a furious response from the White House.

In his Bloomberg interview, Yi gave no indication that the government was considering more fiscal stimulus now to counteract the effect of the trade war.

“Our fiscal policy this year is probably the largest and strongest fiscal reform package, in terms of the tax cuts, and also in terms of having more efficient fiscal resources allocation between the central government and the local government,” Yi said. “The current package is able to cover the cases where the situation is getting a little bit worse, but of course, if the situation gets tremendously worse, they will open the discussion. But right now they haven’t discussed that scenario yet.”

Discussing the plunge in the yuan, Bloomberg's Benjamin Dow writes this morning that "Yi's failure to set a red line is rightly scaring money out of the CNH, but it should come as no surprise. 7/$ was already in view back in 1Q before the market became overly optimistic about a U.S.-China trade deal, and little has changed since then." He then explains China's strategy in terms of the Russian response to Western sanctions:

The calculus the PBOC and other policymakers can employ is redolent of what the Russian government did earlier this decade amid the oil crash and Western sanctions -- let the ruble slide to help exports, and also stretch forex reserves that come from dollar-priced commodities and energy sales. China's forex pile in the form of U.S. Treasuries and other reserves play a similar role for Beijing, and that means a chance for weaker local currency in order to stretch that stimulus.

And so with China one step closer to allowing the yuan to slide below 7, one can be sure it won't go unnoticed by the White House, BBG's Richard Jones writes. And, "as much as the U.S. administration has been waging war by using tariffs, don't be surprised if the White House starts trying to jawbone the USD lower too."

Published:6/7/2019 5:55:47 AM
[Markets] Paul Craig Roberts: "That America" Is Gone

Authored by Paul Craig Roberts,

The story line is going out that the economic boom is weakening and the Federal Reserve has to get the printing press running again.  The Fed uses the money to purchase bonds, which drives up the prices of bonds and lowers the interest rate.  The theory is that the lower interest rate encourages consumer spending and business investment and that this increase in consumer and business spending results in more output and employment.

The Federal Reserve, European Central Bank, and Bank of England have been wedded to this policy for a decade, and the Japanese for longer, without stimulating business investment.  Rather than borrowing at low interest rates in order to invest more, corporations borrowed in order to buy back their stock.  In other words, some corporations after using all their profits to buy back their own stock went into debt in order to further reduce their market capitalization!  

Far from stimulating business investment, the liquidity supplied by the Federal Reserve drove up stock and bond prices and spilled over into real estate.  The fact that corporations used their profits to buy back their shares rather than to invest in new capacity means that the corporations  did not experience a booming economy with good investment opportunities. It is a poor economy when the best investment for a company is to repurchase its own shares.

Consumers, devoid of real income growth, maintained their living standards by going deeper into debt.  This process was aided, for example, by stretching out car payments from three years to six and seven years, with the result that loan balances exceed the value of the vehicles.  Many households live on credit cards by paying the minimum amount, with the result that their indebtedness grows by the month. The Federal Reserve’s low interest rates are not reciprocated by the high credit card interest rate on outstanding balances.

Some European countries now have negative interest rates, which means that the bank does not pay you interest on your deposit, but charges you a fee for holding your money.  In other words, you are charged an interest rate for having money in a bank.  One reason for this is the belief of neoliberal economists that consumers would prefer to spend their money than to watch it gradually wither away and that the spending will drive the economy to higher growth.

What is the growth rate of the economy?  It is difficult to know, because the measures of inflation have been tampered with in order to avoid cost-of-living adjustments for Social Security recipients and the payment of COLA adjustments in contracts. The consumer price index is a basket of goods that represents an average household’s expenditures.  The weights of the items in the index are estimates of the percentage of the household budget that is spent on those items.  A rise in the prices of items in the index would raise the index by the weight of those items, and this was the measure of inflation.

Changes were made that reduced the inflation that the index measured.  One change was to substitute a lower price alternative when an item in the index rose in price.  Another was to designate a rise in price of an item as a quality improvement and not count it as inflation. 

Something similar was done to the producer price index which is used to deflate nominal GDP in order to measure real economic growth.  GDP is measured in terms of money, and some of the growth in the measure is due to price increases rather than to more output of goods and services.  In order to have a good estimate of how much real output has increased, it is necessary to deflate the nominal measure of GDP by taking out the price rises.  If inflation is underestimated, then real GDP will be overestimated. When John Williams of Shadowstats adjusts the real GDP measure for what he calculates is a two-percentage point understatement of annual inflation, there has been very little economic growth since 2009 when a recovery allegedly began, and the economy remains far below its pre-recession level in 2008.

In other words, the belief that the US has had a decade long economic recovery is likely to be an illusion produced by underestimating  inflation.  Indeed, every day experience with the prices of food, clothing, household goods, and services indicates a higher rate of inflation than is officially reported.

The low unemployment rate that is reported is also an illusion.  The government achieves the low rate by not counting the unemployed.  The economic and psychological cost of searching for a job are high.  There are the economic costs of a presentable appearance and transport to the interview. For a person without a pay check, these costs rapidly mount.  The psychological costs of failure to find a job time after time also mount.  People become discouraged and cease looking.  The government treats discouraged workers who cannot find jobs as no longer being in the work force and omits them from the measure of unemployment.  John Williams estimates that the real rate of US unemployment is 20%, not 3.5%

The decline in the labor force participation rate supports Williams’ conclusion.  Normally, a booming economy, which is what 3.5% unemployment represents, would have a rising labor force participation rate as people enter the work force to take advantage of the employment opportunities.  However, during the alleged ten year boom, the participation rate has fallen, an indication of poor job opportunities.

The government measures jobs in two ways: the payroll jobs report that seeks to measure the new jobs created each month (which is not a measure of employment as a person may hold two or more jobs)  and the household survey that seeks to measure employment. The results are usually at odds and cannot be reconciled. What does seem to emerge is that the new jobs reported are for the most part low productivity, low value-added, lowly paid jobs. Another conclusion is that the number of full time jobs with benefits are declining and the number of part-time jobs are rising. 

A case could be made that US living standards have declined since the 1950s when one income was sufficient to support a family.  The husband took the slings and arrows of the work experience, and the wife provided household services such as home cooked nutritious meals, child care, clean clothes, and an orderly existence.  Today most households require two earners to make ends meet and then only barely.  Saving is a declining option.  A Federal Reserve report a couple of years ago concluded that about half of American households could not produce $400 cash unless personal possessions were sold.

As the Federal Reserve’s low interest rate policy has not served ordinary Americans or spurred investment in new plant and equipment, who has it served? The answer is corporate executives and shareholders.  As the liquidity supplied by the Federal Reserve has gone mainly into the prices of financial assets, it is the owners of these assets who have benefited from the Federal Reserve’s policy.  Years ago Congress in its unwisdom capped the amount of executive pay that could be deducted as a business expense at one million dollars unless performance related.  What “performance related” means is a rise in profits and share price.  Corporate boards and executives achieved “performance” by reducing labor costs by moving jobs offshore and by using profits and borrowing in order to buy back the company’s shares, thus driving up the price.

In other words, corporate leaders and owners benefited by harming the US economy, the careers and livelihoods of the American work force, and their own companies.

This is the reason for the extraordinary worsening of the income and wealth distribution in the United States that is polarizing the US into a handful of mega-rich and a multitude of have-nots.

The America I grew up in was an opportunity society.  There were ladders of upward mobility that could be climbed on merit alone without requiring family status or social and political connections.  Instate college tuition was low.  Most families could manage it, and the students of those families that could not afford the cost worked their way through university with part time jobs. Student loans were unknown.

That America is gone.

The few economists capable of thought wonder about the high price/earnings ratios of US stocks and the 26,000 Dow Jones when stock buy-backs indicate that US corporations see no investment opportunities.  How can stock prices be so high when corporations see no growth in US consumer income that would justify investment in the US? 

When President Reagan’s supply-side economic policy got the Dow Jones up to 1,000 the US still had a real economy. How can it be that today with America’s economy hollowed out the Dow Jones is 25 or 26 times higher?  Manipulation plays a role in the answer. In Reagan’s last year in office, the George H.W. Bush forces created the Working Group on Financial Markets, otherwise known as the “plunge protection team,” the purpose of which was to prevent a stock market fall that would deny Bush the Republican nomination and the presidency as Reagan’s successor.  The Bush people did not want any replay of October 1987. 

The plunge protection team brought together the Federal Reserve, Treasury, and Securities and Exchange Commission in a format that could intervene in the stock market to prevent a fall. The easiest way to do this is, when faced with falling stock prices, to step in and purchase S&P futures. Hedge funds follow the leader and the market decline is arrested.

The Federal Reserve now has the ability to intervene in any financial market.  Dave Kranzler and I have shown repeatedly how the Federal Reserve or its proxies intervene in the gold market to support the value of the excessively-supplied US dollar by printing naked gold contracts to drop on the gold futures market in order to knock down the price of gold. A rising gold price would show that the dollar support arrangements that the Federal Reserve has with other central banks to maintain the illusion of a strong dollar is a contrived arrangement rejected by the gold market.

What few, if any, economists and financial market commentators understand is that today all markets are rigged by the plunge protection team.  For at least a decade it has not been possible to evaluate the financial situation by relying on traditional thinking and methods.  Rigged markets do not respond in the way that competitive markets respond.  This is the explanation why companies that see no investment opportunities for their profits better than the repurchase of their own shares can have high price/earnings ratios.  This is the explanation why the market’s effort to bring stock prices in line with realistic price/earnings ratios is unsuccessful.

As far as I can surmise, the Federal Reserve and plunge protection team can continue to rig the financial markets for the mega-rich until the US dollar loses its role as world reserve currency.

*  *  *

We live in a Matrix of Lies in which our awareness is controlled by the explanations we are given.  The control exercised over our awareness is universal.  It applies to every aspect of our existence.  In the article above I showed that not only is our understanding of the economy controlled by manipulation of our minds, but also the markets themselves are controlled by official intervention. In brief, you can believe nothing that you are officially told.  If you desire truth, you must support the websites that are committed to truth.

Published:6/6/2019 9:47:42 PM
[Markets] The Dow Added 181 Points Because Mexican Tariffs Might Be Delayed The Dow Jones Industrial Average rose 0.71% to 25720.66. The S&P 500 added 0.61% to 2843.49 and the Nasdaq Composite climbed 0.53% to 7615.55. Published:6/6/2019 4:39:42 PM
[Markets] Blain: "In 35 Years Of Markets, This Is The Stupidest Moment I’ve Ever Seen"

Blain's Morning Porridge, submitted by Bill Blain

“It is up to all of us to fight our unrelenting enemies – complacency, overconfidence and conceit…”

US employment is at a high, the labour market is tightening, there is minimal real inflation and the stock market is off to the races because the Fed says its ready to ease if trade tensions impact the stock market economy.

In 35 years of markets, this is perhaps the stupidest moment I’ve ever seen.

On Friday we’re likely to see another decent US employment number – which should give lie to the illusion the US needs zero rates. But a strong US jobs report will cause the spoilt brat of a stock market to wail, in fear it might not get another lollipop of easing…

If I had any hair left to tear out, would.

There is a danger Powell et al seem are confusing the Dow and S&P for the health of the economy, thereby making the Fed complicit in the ultimate market distortion that’s being going on since someone dreamt up QE. The World’s most important central bank is missing the point completely, and more or less promising to bail out stock markets if Trade Tension causes them to weaken. That is an open check.

Memo to Powell:

Dear Chairman

The Stock Market is not a driver of growth – it is the price investors are willing to pay for their perceptions of future value of stock market assets, a price which is relative to other assets, including factories, property, intellectual capital and infrastructure. Do not confuse the stock market with the economy. “Trade war” weakness may worry investors about the value of their stocks, but, should equally cause investors to finance and build new economic assets (ie factories, farms, infrastructure, schools, etc) to benefit from the opportunities “trade war” opens long term to the US economy.

While reducing rates to near zero levels to finance a Trade War with China may seem a logical decision, experience shows the unintended consequences of zero rates will achieve sub-optimal results. Since 2009 “lower for longer” rates have not caused a regeneration of manufacturing, infrastructure or other productive assets. Instead, low rates have encouraged corporates to buy back their own stock, pay their owners larger bonuses and dividends, and fooled investors to buy these same stocks as the most attractive relative asset – which is distortion.

A second unintended consequence is burdening the economy with unproductive assets and obsolete capital assets. Corporate borrowing to convert equity into debt raises systemic weakness across the economy. The Darwinian Selection process which drives growth and causes firms rise and fall according to their ability to manage themselves becomes distorted and lose momentum, leading to too many weak zombie indebted going-nowhere companies to block market niches more nimble new firms could more profitably fill. The long-term consequences are long-term rentier behaviour by owners, and declining real wages (and rising income inequality) as productivity across the nation slides as capital assets are not replaced and upgraded.

Long term, investment in replacing obsolete infrastructure, and the normalisation of interest rates to levels that create real returns to encourage real investments (into productive capital projects) rather than unproductive financial investments (such as already distorted stocks), would benefit the economy.

There is, however, a strong argument that 10-years of financial distortion through low interest rates, and the deliberate transfer of risk assets from the now heavily regulated banking sector into the more diverse investment management sector, now leaves the pension savings of millions of American’s vulnerable in the case of a stock market downturn.

This is an issue for the committee to determine…   
The fact The Fed is feeding the stock markets addiction to low rates will also play to Trumps re-election is irrelevant(ish).

I composed the above while cycling into the office this morning. It was a bit of a struggle. I didn’t realize till I got to The Tower of London that my back tire was flat! Short comment this morning as I’ve got to run to a meeting in West End.

Published:6/5/2019 6:47:53 AM
[Markets] Dow poised to extend powerful rally driven by hope for Fed interest-rate cuts Dow poised to extend powerful rally driven by hope for Fed interest-rate cuts Published:6/5/2019 6:47:53 AM
[Markets] Dow zooms 500 points higher as stocks embrace dovish words from Fed's Powell Dow zooms 500 points higher as stocks embrace dovish words from Fed's Powell Published:6/4/2019 3:33:37 PM
[Markets] Dow Ends Up More Than 500 on Positive Rate Cute and Trade Signals; Tech Rebounds The Dow Jones Industrial Average rose more than 500 points Tuesday on signs the Federal Reserve is at least considering a rate cut and on positive comments about trade from Chinese officials. shares rose as investors reacted to a series of analysts' recommendations for the ride-sharing company following its $82 billion listing on the New York Stock Exchange last month. beat Wall Street's first-quarter earnings expectations, but same-store sales fell sharply amid a "dramatic" decline in foreign tourist spending. Published:6/4/2019 3:33:37 PM
[Markets] Stocks Climb on Positive Trade Signals, Tech Sector Rebound The Dow Jones Industrial Average rose Tuesday on signs the Federal Reserve was at least considering a rate cut and positive comments on trade form from Chinese officials. shares rose as investors reacted to a series of analysts' recommendations for the ride-sharing company following its $82 billion listing on the New York Stock Exchange last month. beat Wall Street's first-quarter earnings expectations, but same-store sales fell sharply amid a "dramatic" decline in foreign tourist spending. Published:6/4/2019 10:29:45 AM
[Markets] Stocks are extending their strong gains Tuesday, with the Dow now up 400 points Stocks are extending their strong gains Tuesday, with the Dow now up 400 points Published:6/4/2019 10:29:44 AM
[Markets] Dow Jones Leads Stock Market Rally; Uber Called Most Attractive Internet IPO The Dow Jones industrials rallied more than 200 points early Tuesday. Hot IPO Uber stock advanced after a number of analyst calls. Published:6/4/2019 9:57:24 AM
[Markets] Navistar beats profit and revenue expectations by wide margins, lifts outlook Navistar International Corp. reported Tuesday fiscal second-quarter earnings and revenue that rose above expectations, and lifted its full-year outlook. The stock was still inactive in premarket trade. For the quarter to April 30, the maker of commercial and military trucks and diesel engines swung to a net loss of $48 million, or 48 cents a share, from a profit of $55 million, or 55 cents a share, in the year-ago period. Excluding non-recurring items, such as a one-time charge of $159 million to address a legal class action settlement, adjusted net income rose to $105 million from $67 million, which based on 99.2 million weighted average diluted shares outstanding equates to earnings per share of $1.06. The FactSet EPS consensus was 69 cents. Revenue rose 24% to $3.00 billion, above the FactSet consensus of $2.70 billion, as truck sales grew 35% to $2.3 billion and parts sales slipped 4% to $579 million. For fiscal 2019, the company raised its revenue guidance range to $11.25 billion to $11.75 billion from $10.75 billion to $11.25 billion, which compares with current expectations of $10.98 billion. The stock has rallied 19.9% year to date, while the Dow Jones Industrial Average has gained 6.4%. Published:6/4/2019 5:58:06 AM
[Markets] Gold Makes Its Grievances Heard

Authored by Tom Luongo,

Gold is getting its revenge. Try as he might Mr. Tariff Man can’t dominate all the headlines all the time. Everyone once in a while something more important than the Trump Man-Baby Show should take center stage.

Gold has moved more than $50 in just under three trading sessions, blowing past near term resistance and, more importantly, reminding everyone just how quickly the reserve asset of the world economy can call bullshit on the proclamations and machinations of the morons who think they run the world.

You always know when you’re reaching the end of a bear market.

Last week I tweeted out:

When an analyst at Wells is looking at the day-to-day ticker of gold looking for silly and binary safe haven arguments to warn people off of gold, I know we’re nearly there.

This isn’t a complacent market. In fact, as I’ve pointed out in the past, it’s an incredibly volatile one.

You don’t have to be a whiz with numbers, or worse a quant working for a central bank, to see the differences here.

And the reason for this massive increase in volatility across all asset classes is Trump’s insistence on tariffs being the cure all for what ails America’s trade ‘imbalances.’

Not convinced by the Dow? How about the change in the U.S. Yield Curve over the past year.

Ain’t convexity a bitch?

For months gold has bided its time, building a stronger and stronger base that, frankly, bad analysts refuse to see. Gold is trapped between falling dollar liquidity and rising distrust of government institutions to contain the chaos.

All of the correlations between gold and interest rates, money supply figures and the rest only function within the parameters of a market convinced of future political stability. Once that future stability begins getting deep discounts by markets and those relationships falter, gold consolidates, bides its time and then pops spectacularly.

It’s pretty simple. U.S. bonds and U.S. stocks have preferentially seen safe haveninflows as traders look for yield in a world of exploding negative yielding debt.

So now, with more than $10 trillion in debt yielding less than gold’s zero percent is it any wonder we’re seeing a move into gold?

This is the gold’s big grievance it has with central bankers. They have tried to maintain confidence for so long by suppressing interest rates and injecting liquidity that doesn’t circulate that its creating the mother of all bases from which gold will break out of soon.

All it took was one economic retard with bad hair and a massive insecurity complex to finally wake the market up to the reality of our predicament.

The Post-Brexit high of $1375 is still in place but look at the defining pattern of this chart… a succession of higher lows with falling volatility. Each bearish impulse is met with more bulls pushing back at higher prices.

2019’s Spring breakdown was only good for around $90 and just over three months. This latest up move may take a while to resolve above that central banker Maginot Line, but it’s coming as surely as Trump will tariff someone else after his twelfth Diet Coke.

Don’t tell me you haven’t been warned.

*  *  *

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Published:6/4/2019 4:29:33 AM
[Markets] Tech Wreck Trumps Bullard Bounce; Dollar Dumps As Bonds & Bullion Jump

Did anyone else see an analogy for the world in this?


China opened optimistically, but faded soon after the open, only to flatline during the afternoon session...


European markets were the opposite, opening down hard then ramping all day long..


A double-whammy from Bullard boosted stocks briefly (but battered bond yields and the dollar)



But tech-probe trouble trumped the Fed Put today...(Dow ended unch, S&P red and Nasdaq clubbed like a baby seal)

The reaction to the news that the DoJ is considering an antitrust investigation into Google parent Alphabet and an FTC probe of Facebook has been dramatic and justifiable in tech shares, with the Nasdaq 100 down hard today. But the reality is FAANG stocks have been in trouble for a while...

Today's bloodbath sent the Nasdaq back into correction territory (down 10.8% from highs)...


Credit markets are starting to crack more systemically...


Flashing very bright warning lights to stocks...


Bond yields continued to collapse, this time led by the short-end...


Yields are utterly collapsing...


Dramatically inverting the front-end of the curve...

And 3M-2Y is at 2007 crisis lows...

Which won't end well...

The entire curve is underwater now out to beyond the 20Y...

The Dollar tumbled on the day, accelerating lower after Bullard hinted at rate-cuts soon...


With DXY breaking down to the 97.00 Maginot Line...


Bitcoin is unchanged, Ripple higher...


PMs and copper gained as the dollar dropped but early gains for oil were eviscerated...


Despite dollar weakness, oil tumbled once again - now down almost 22% from April highs...


Gold extended its recent surge...


Pushing to almost 90.0x ratio with Silver...


And notably gold is dramatically outperforming Yuan reaching near 6-year highs...


Finally, the market is pricing in 3 rate-cuts by the end of 2020...

Is that really a good reason to buy stocks?


Published:6/3/2019 3:22:14 PM
[Markets] Dow Jones Outperforms Hard-Hit Nasdaq; This Leading Tech Stock Issues A Sell Signal The Dow Jones Industrial Average and small cap equity indexes are beating the hard-hit Nasdaq composite in stocks today. Microsoft sold off. Published:6/3/2019 2:23:10 PM
[Markets] Apple announces new iOS with sign-in upgrades, photo tools Apple Inc. announced its newest version of the iOS mobile operating system at its WWDC developer event on Monday. The company once again emphasized its stance on privacy, taking aim at buttons that let users sign in with either Facebook and Google when registering accounts. In iOS 13, Apple will begin letting users "sign in with Apple," which the company said wouldn't subject users to tracking the way the other options may. The company will also give users the ability to generate a random email address for account sign-ups that will auto-forward to users' real email addresses. Apple announced enhancements to its photo and video tools as well. iOS 13 will give users new portrait-lighting and photo-grouping options, in addition to the ability to rotate videos. Apple have turned negative and are now down 0.6% after a Reuters report said that the Justice Department has jurisdiction for a possible antitrust probe of the company. Shares have risen 10% so far this year, as the Dow Jones Industrial Average has gained 7%. Published:6/3/2019 1:20:51 PM
[Markets] Dow Jones Holds Up Best, As Apple Pops 1.2% Dow Jones index holds up as a delegation from Mexico is set to begin trade talks with the U.S. Trump says Mexico must do more to curb migration. Published:6/3/2019 11:23:03 AM
[Markets] The Dow has reversed course again and is now up more than 100 points The Dow has reversed course again and is now up more than 100 points Published:6/3/2019 9:52:40 AM
[Markets] Dow shrugs off weakness in futures trading to open higher Monday Dow shrugs off weakness in futures trading to open higher Monday Published:6/3/2019 8:50:15 AM
[Markets] Altria invests $372 million for stake in oral nicotine pouch 'on!' maker Burger Group Altria Group Inc. said Monday it reached a deal to invest $372 million to acquire 80% ownership of certain companies of Switzerland-based Burger Sohne Holding AG that will commercialize the oral tobacco-derived nicotine (TDN) pouch product "on!" Altria expects the deal to close in the second half of 2019. Altria formed a new subsidiary, Helix Innovations LLC, that will be the parent of the Burger Group subsidiaries making and selling "on!" Sales of on! products reached $60 million in the U.S. in 2018, up 250% from 2017, according to IRI, Altria said. On!'s portfolio consists of seven flavors and five nicotine strengths, which became available for sale in the U.S. in August 2016. "We're excited to add on! to our companies' terrific non-combustible portfolio," said Altria Chief Executive Howard Willard. Altria's stock has lost 0.7% year to date, while the Dow Jones Industrial Average has gained 6.4%. Published:6/3/2019 7:19:18 AM
[Markets] The Dow Is Dropping Because the Trade War Looks Built to Last STOCKSTOWATCHTODAY BLOG 7:15 a.m. The Dow Jones Industrial Average looks set for another lower open as the continues to slide after China released a white paper outlining its stand on the trade war. Published:6/3/2019 6:49:25 AM
[Markets] "Sea Of Red" For Global Markets As Traders Brace For Recession Amid Global Trade War

Global stocks continued to slide and investors sought the safety of government bonds, the yen, the Swiss franc and gold on the first trading day of June as rising trade tensions sparked fears of an upcoming recession (which according to Morgan Stanley will hit in 3 quarters or less, while JPMorgan said the probability of a U.S. recession in the second half of 2019 had risen to 40% from 25% a month ago) denting stocks again...

... sending the 10Y TSY yield as low as 2.07%, the lowest level in almost 21 months, after JPMorgan said it now expects the 10Y yield to drop to 1.75% by year end...

... pushing the inversion between the 3M and 10Y yield to a whopping 28 bps...

... and sending oil sliding close to bear market territory.

With no improvement in tone or sentiment between the US and China, and in fact with China striking a combative tone on Sunday, blaming the U.S. for the collapse in trade talks and saying it won’t be pressured into concessions after the White House rattled markets Friday by announcing tariffs on Mexican goods, the worsening trade and broader economic backdrop made for a jarring start to June after a torrid May that wiped $3 trillion off global equities.

Also over the weekend, China’s Defence Minister Wei Fenghe warned the United States not to meddle in security disputes over Taiwan and the South China Sea, after acting U.S. Defence Secretary Patrick Shanahan said Washington would no longer “tiptoe” around Chinese behaviour in Asia.

“We’re in a phase of brinkmanship -- it’ll be a difficult month,” Rob Mumford, an emerging market portfolio manager at GAM Investments, said at a roundtable in Hong Kong. “We’re at the maximum pressure.”

US equity index futures all pointed to a drop at the open, though losses were pared modestly from earlier in the session. In Europe, the Stoxx 600 Index also came off its lows, with gains in food and healthcare shares offsetting declines in banks. European shares fell further and the Swiss franc jumped to a two-year high as Beijing sent another shot across Washington’s bows on trade and then euro zone data came in weak though the main groundswell was in bonds.

“No one now thinks a deal would be possible at the G20. It is going to be a prolonged battle. Investors are rushing to the safe assets,” Mitsubishi’s Fujito said.

German government bond yields dropped to a new record all-time lows of -0.219%, while those on two-year U.S. Treasuries were seeing their biggest two-day fall since early October 2008, when the global financial crisis was kicking off.

“Bonds are more or less on fire and I think we are going to spend the week with trade dominating everything else,” said SocGen fx strategist Kit Juckes. With German and UK political concerns and worries about Italy’s finances resurfacing too, “it is hard to think the yen is not going to be at least one of the winners this week."

There was not flight to safety for Deutsche Bank, whose stock dropped to a new all time low, sliding below €6.00 for the first time ever after JPMorgan said DB's issue is not about capital or liquidity but about poor operating profitability and it needs to stop "tinkering with its restructuring efforts." The German bank "needs to make objective decisions about what business and/or asset can be closed or reduced", JPM's Kian Abouhossein and Amit Ranjan wrote, adding that CEO Sewing is “up to the challenge” to take action against status quo as he is over-delivering on cost targets. One look at the chart below suggests the market disagrees.

Asian stocks reversed an earlier decline as utilities and IT stocks boosted the regional index. Markets in the region were mixed. South Korea’s Kospi index and India’s S&P BSE Sensex Index rose, while Japan’s Topix index and Australia’s S&P/ASX 200 fell. The MSCI Asia Pacific Index climbed 0.2% in Hong Kong. The Kospi closed 1.3% higher, with Chasys Co. and Heung-A Shipping Co Ltd leading gains. India’s S&P BSE Sensex Index advanced 1.2%, led by basic materials and technology shares. Chinese shares ended little changed though the yuan faced pressure.

A private survey of China’s manufacturing sector published on Monday suggested a modest expansion in activity as export orders bounced from a contraction. In contrast to the fall in NBS manufacturing PMI, the Caixin manufacturing PMI was unchanged in May at 50.2, and above the 50.0 expected, although sub-indexes suggested weaker production, higher inventories and stronger new orders. Business confidence appeared to have deteriorated in light of lingering trade tension with the US.

Additionally, economists noted increases in new export orders pointed to possible front-loading of U.S.-bound shipments to avoid potential tariff hikes that U.S. President Donald Trump - who kicked off a potentially confrontational state visit to Britain on Monday - had threatened to slap on another $300 billion of Chinese goods. “Chinese companies probably see the current export conditions as severe as during the China shock in 2015,” said Wang Shenshen, economist at Tokai Tokyo Research Center.

And speaking of economic headwinds, with the bitter trade weighing, factory activity contracted in most Asian countries and the euro zone last month, the latest PMI surveys showed. The eurozone’s slowdown was for the fourth month running, and at an accelerating pace, as slumping automotive demand, Brexit and wider political uncertainty took their toll. "The sector remains in its toughest spell since 2013,” said Chris Williamson, chief business economist at IHS Markit." The UK mfg PMI also dipped below 50, indicating contraction.

Elsewhere, Emerging market stocks and currencies were heading for their biggest 3-day gain in two months as bets a sell-off last month had gone too far outweighed falling oil prices and renewed trade tensions. The MSCI Emerging Markets Index of stocks climbed to a two week high, while its currency counterpart traded above its 200-day moving average.

"Why should emerging markets sell off just because the U.S. is shooting itself in the head?” said Jan Dehn, Ashmore Group’s head of research based in London. “I can understand why Mexico sold off, but this is a policy mistake, which will hurt America. So it is only right that America is sold, not emerging markets."

Asian currencies led by South Korea’s won were the best performers, while Chinese telecom stocks rallied after a report Beijing will issue commercial licenses for fifth-generation telecommunication services.  The Yen rose, as did Europe's go-to safety play, the Swiss franc, which rallied to its highest in nearly two years against the euro. The euro hovered at $1.1171 having been stuck in one of its tightest ranges ever against the dollar.

Brent crude fell for a fourth day, tumbling as much as 1.8% to $60.86 per barrel. Oil has dropped almost 20% since April, approaching a bear market. WTI futures dropped 1.3% too to below $53 a barrel for the first time since mid-February. Copper futures in Shanghai fell 0.5% to two-year lows while safe-haven gold jumped as much as 0.5% to a 10-week high of $1,312.4 per ounce.

Expected data include PMIs and construction spending. Box and Coupa Software are reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.4% to 2,742.00
  • STOXX Europe 600 down 0.7% to 366.56
  • MXAP up 0.2% to 152.60
  • MXAPJ up 0.5% to 500.95
  • Nikkei down 0.9% to 20,410.88
  • Topix down 0.9% to 1,498.96
  • Hang Seng Index down 0.03% to 26,893.86
  • Shanghai Composite down 0.3% to 2,890.08
  • Sensex up 1% to 40,124.89
  • Australia S&P/ASX 200 down 1.2% to 6,320.55
  • Kospi up 1.3% to 2,067.85
  • German 10Y yield fell 1.1 bps to -0.213%
  • Euro up 0.03% to $1.1172
  • Italian 10Y yield rose 1.4 bps to 2.297%
  • Spanish 10Y yield fell 2.7 bps to 0.688%
  • Brent futures down 3.8% to $62.05/bbl
  • Gold spot up 0.7% to $1,315.17
  • U.S. Dollar Index little changed at 97.71

Top Overnight News from Bloomberg

  • Trump landed in the U.K. for a three-day state visit at a sensitive time for the country’s ruling Conservative Party. Rival candidates are jostling to replace outgoing Prime Minister Theresa May, and the president has already weighed in with his own opinions on the contenders
  • Trump opened another potential front in his trade war, terminating India’s designation as a developing nation and thereby eliminating an exception that allowed the country to export nearly 2,000 products to the U.S. duty-free. Meanwhile China was planning retaliatory trade measures against the U.S.
  • China’s government says it’s willing to work with the U.S. to end an escalating trade war but blames President Donald Trump’s administration for the collapse in talks and won’t be pressured into concessions
  • “We don’t have plans to change our inflation target, but are looking at our framework more broadly,” San Francisco Fed President Mary Daly says in reply to question after speech in Singapore
  • President Trump on Saturday defended his decisions to impose or raise levies against imports from Mexico and China, respectively, saying “companies are moving to the U.S.” to avoid paying the levies
  • Trump downplayed the chance he would impose tariffs on Australia, a top U.S. ally, after the New York Times reported his administration considered doing so last week
  • With U.K. Prime Minister Theresa May about to hand over the reins of power, candidates to succeed her now feel free to speak out on issues such as Huawei Technologies Co. Ltd.’s role in the country’s 5G telecoms infrastructure
  • The Social Democrats, the junior coalition partner in Germany’s government, will begin searching for an interim chief after Andrea Nahles said she lost the support of her party
  • Factory output in the euro area fell close to a six-year low in May, with slumping orders and declining workforces signaling a bleak outlook for demand. The data underscores a picture of an economy that is struggling to emerge from a slowdown that has lasted more than a year
  • Britain’s manufacturing sector unexpectedly shrank in May for the first time since the direct aftermath of the 2016 Brexit referendum. IHS Markit’s manufacturing PMI dropped to 49.4 from 53.1 in April as factories unwound Brexit preparations when the departure date was pushed back. The reading was weaker than the 52 forecast
  • Deutsche Bank AG and UniCredit SpA moved some of their swaps trades from London to Frankfurt in May as banks used a lull in the ongoing Brexit drama to prepare for the worst

Asian equity markets traded negatively with risk appetite subdued as the US faces a 2-front trade war against China and Mexico, although stronger than expected Caixin PMI data helped limit losses in China. Nonetheless, a risk averse tone was seen from the reopen after China released a white paper that blamed the US for the setback of trade talks which pressured US equity futures to extend on the losses from Wall St’s worst May performance since 2010. ASX 200 (-1.2%) and Nikkei 225 (-0.9%) declined with the energy sector the underperformer in Australia after the recent oil slump, while safe-haven currency flows weighed on Tokyo stocks and with weakness in SoftBank exacerbated on reports of funding difficulties for its next USD 100bln tech fund. Hang Seng (U/C) and Shanghai Comp. (-0.3%) were initially higher after the PBoC maintained net liquidity through CNY 80bln of reverse repos and after Chinese Caixin Manufacturing topped estimates, although the gains were short-lived as trade concerns remained heavily in focus with China playing the blame game, while it is also set to draft its own blacklist of 'unreliable' entities and probe FedEx over possible infringement of Huawei’s legal rights regarding rerouted packages. Finally, 10yr JGBs were steady with only marginal gains seen despite the widespread risk aversion and the BoJ presence in the market for JPY 800bln in up to 5yr JGBs.

Top Asian News

  • Bank of Jinzhou Auditors Resign Citing Loan Inconsistencies
  • China’s Top Courier Gains as FedEx Targeted in U.S. Trade War
  • SpiceJet Has ‘Offers’ for Stake in Indian Budget Airline
  • Turkish Inflation Slows Again as Food Prices Bring Relief

Major European indices began the week lower in continuation from the Asia-Pac session which was weighed on by China releasing a white-paper blaming the US for the set back in trade talks and are to draft a ‘black-list’ of unreliable entities. Throughout the mornings trade bourses have been grinding higher but are still in negative territory [Euro Stoxx 50 -0.1%]; sectors are mixed on the day with some moderate outperformance seen in Utilities, which Nomura Quants note is not sufficient to trigger an excessive volatility shock as the sell-off in cyclicals in minimal compared with prior selloffs. Notable movers this morning include Infineon (-6.4%) who are near the bottom of the Stoxx 600 after it was reported that they are to acquire Cypress Semiconductors for an enterprise value of EUR 8bln; Co’s boards have already consented to this acquisition. Elsewhere, airline names are somewhat subdued after reports that the global airline industry is to record its lowest profit in five-years, particularly easyJet (-2.1%) which is also weighed on following reports that the Co. are this week to drop out of the FTSE 100 (-0.4%). At the other end of the Stoxx, and topping the DAX are Wirecard (+2.3%) following the CEO stating they expect an outstanding H1.

Top European News

  • Euro-Area Manufacturing Remained Stuck in Its Slump in May
  • U.K. Manufacturing Slips Into Contraction After Brexit Delay
  • Danske Moves Toward Total Baltic Exit Amid Laundering Saga
  • One Man’s $75 Million Perk Triggers Indignation in Denmark
  • Glencore’s Executive Departures Hasten as Oil Chief Leaves

In FX, the dollar was little changed on the day thus far, following on from a relatively subdued session overnight as the index remains sub-98.00 ahead of this week’s key risk events which includes US ISM manufacturing PMI, ECB’s monetary policy meeting and US jobs data. The index remains near the middle of the intraday 97.57-80 range with gains capped by bleeding US yields.

  • EUR/GBP - Hardly fazed on manufacturing PMI day in which the EZ number was unrevised (as expected) whilst UK’s manufacturing sector slipped into contraction, with new orders and employment both declining whilst stockpiling paused following the Brexit delay. Sterling remains dedicated to Brexit related development as new members line up for the Tory leadership, with the latest from Environmental Sectary Gove, a front runner, reportedly considering a further extension beyond October 31st, whilst leading candidate Johnson said that if he is elected, the UK will leave the bloc with or without a deal on Brexit day. EUR/USD remains within a relatively tight 1.1157-90 range with clean air to the upside until the 1.1200 handle. Beyond that, the pair’s 50 DMA resides around 1.1208 with resistance seen at 1.1264 (May high). Meanwhile, Cable hovers around the 1.2650 mark with little seen to the upside by way of near-term tech levels.
  • CHF/JPY - Both firmer on the day, albeit the Yen to a lesser extent, in a continuation of the Trump triggered risk-off mood around the market. USD/JPY fell to whisker away from the 108.00 level (low 108.08) whilst its Franc counterpart slipped further below parity vs. the Greenback. Deutsche Bank recommends “good news rallies should be sold as trade tensions may get relief rallies” as the JPY-crosses “should remain under pressure”. It’s worth keeping in mind USD/JPY sees almost 1bln in option expiries at 108.00-15 ahead of supports at 107.77 and 107.27 (Jan 10 low and 61.8% Fib respectively) whilst USD/CHF sees its 200 DMA at 0.9959 (having already tested the level) ahead of its 200 WMA at 0.9847.
  • AUD/NZD - Marginally firmer in the aftermath of optimistic China Caixin manufacturing data which provided the antipodeans with some relief following last week’s losses. AUD/USD hovers around the 0.6950 mark (high 0.6960, low 0.6928) despite a looming RBA rate cut, with participants on the look-out for guidance into the aggressiveness of the much-anticipated easing cycle. Meanwhile, its antipodean counterpart seems to be benefiting more as the AUD/NZD cross breached its 200 DMA (1.0624) as it tests the 1.0600 level ahead of its 50 DMA (1.0571)

In commodities, WTI and Brent futures are recovering off Asia-Pac lows with the former back above the 53.00/bbl handle and climbing towards the next round figure, whilst the latter is attempting to turn positive on the day having already dipped below the 61.00/bbl figure overnight. The weekend saw the release of Russian May crude production which stood at an 11-month low at 11.11mln BPD, down from last month’s 11.24mln BPD, although this was mainly due closures from the Druzbha pipeline due to oil contamination. Elsewhere, Saudi reported a M/M decline in oil output to 9.65mln BPD from the prior 10.05mln BPD, whilst the Kingdom’s energy minister stated that Saudi is committed to do whatever is required to stabilise the oil market. GS takes into account the supply/demand side concerns and net-net expects prices to remain volatile in the coming months, albeit around current levels. Turning to OPEC, the bank sees higher production from Saudi, Russia, UAE and Kuwait to offset Iranian and Venezuelan shortfalls. Thus, GS expects backwardation to persist in the coming months, whilst also revising lower its Q2 Brent forecast to 65.50/bbl from 72.50/bbl, also citing spare capacity created by a new Permian pipeline. Elsewhere, gold (+0.7%) benefits from its safe haven characteristics and extends gains above its 1300/oz level whilst copper prices are seeing some reprieve following last week’s slump as the red metal was underpinned by optimistic Caixin manufacturing data from China.

Goldman Sachs suggest that oil prices may recover from here due to a tight EU crude market, sudden moves lower, OPEC's reluctance to increase supply and above consensus growth forecasts, However, increasingly uncertain macro outlook, rising production an OPEC spare capacity suggests prices at likely to remain around current levels with high volatility

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, est. 50.6, prior 50.6
  • 10am: ISM Manufacturing, est. 53, prior 52.8
  • 10am: Construction Spending MoM, est. 0.4%, prior -0.9%
  • Wards Total Vehicle Sales, est. 16.9m, prior 16.4m

DB's Jim Reid concludes the overnight wrap

Obviously being a Liverpool supporter it was a glorious weekend for me. Not even the kids could spoil it although on Saturday we went out strawberry picking as a family and aimed to leave at 930am but eventually left hot, bothered and bad tempered at 1pm. There were tantrums, numerous toilet related accidents, several changes of clothes, more tantrums, buckets of suncreams to apply, sunglasses to find, pack lunches to prepare etc etc. Originally we finally got ready to leave 2 hours late and then as we reversed the car we found that our electric gates wouldn’t open. After 30mins of failed brute force we called someone out. They came in an hour, fixed it and off we went 3.5 hours late. As for the final it was an awful game. In fact given it was Europe’s premier sporting occasion and given that it featured two English sides I’d imagine those in Brussels this morning will be lobbying extensively for the hardest possible Brexit so they don’t have to watch such a poor spectacle again. Anyway a great result... for me at least.

Markets have been on the wrong end of some bad results over the past month and after a strong 2019 up until the end of April, May was a big risk-off month with this trend accelerating over the last week. Craig has already published the May/YTD/QTD performance review(link here ) this morning so please see that for more but the highlights are Bunds going from 0% to a multi-century record low of -0.202% and the S&P500 (-6.2%) having its 3rd worst month in the last 92 behind only December and September last year which saw declines of -9.0% and -6.8% respectively. We’ll review the last week in a bit more detail later on but the highlight on Friday was a 13.9bp rally for 2yr US Treasuries (24.2bps on the week - the most for nearly a decade) as the probability of multiple US rate cuts this year surged as the out of the blue Mexican tariffs added to the recent Chinese ones. I suppose one of the additional worries would be that if the US has been so quick to escalate the trade war on these two countries the bar must be a bit lower to carry out a trade assault on Europe at some point in the future. Interesting times.

Quickly looking forward to this week before we analyse the weekend news, the data highlights will be the final global manufacturing PMIs and US ISM (today), the services and composite PMIs/US ISM (Wednesday), the latest ECB meeting (Thursday) and then another payroll Friday to end the week. The US ISM today may be the key release. The consensus expects a 0.2pt increase to 53.0 however our US economists have highlighted that in the current business cycle, the new exports orders components has led the headline by 5 months, and that the recent sharp downtrend in new export orders does not bode well. In the background we are still waiting for the date of a potentially China hawkish speech from US VP Pence (rumoured to have been moved from tomorrow’s 30th anniversary of the Tiananmen Square incident, maybe to avoid being maximum inflammatory). It could still be this week and likely be a big event. In terms of Fedspeak, the big event is the long awaited Fed research conference on "Monetary Policy Strategy, Tools, and Communications Practices" tomorrow and Wednesday. The future of how to interpret the 2% inflation mandate is the most widely anticipated part of the get together but this will likely be nearer the start of the conversation rather than the end of it. So so don’t expect a revolution yet.

China’s May Caixin manufacturing PMI has already been published overnight and it has diverged a touch from the official PMI from Friday as it slightly beat expectations at 50.2 (vs. 50.0 expected). Surprisingly, the commentary alongside the release said that the new orders component continued to rise over the previous month. However, the output sub-index fell to 50.1 (vs. 50.7 in last month), the lowest reading since January 2019. China also held a press conference yesterdayandissued a white paper outlining their official position on the trade talks. Theystated that the US ‘should bear the sole and entire responsibility’ for the breakdown in negotiations. Vice Commerce Minister Wang Shouwen didn’t overly escalate matters though and said that China is willing to work with the U.S. to find solutions, but the latter’s strategy of maximum pressure and escalation can’t force concessions from China. The white paper reiterates what the Chinese have recently suggested they require for a trade deal - a) US should remove all additional tariffs, b) China’s purchases of goods from the U.S. should be realistic, and c) there should be a proper balance in the text of the agreement. China has also launched an investigation into FedEX for ‘wrongful delivery of packages’, with the state broadcaster CCTV saying the investigation ‘will be a warning to other warning companies, organisations and individuals violating China’s rules and regulations’. This came after news at the end of last week that the Chinese are drafting an ‘unreliable entity list’ of foreign companies. So tensions are continuing to build.

Elsewhere, President Trump has said overnight that he is “really okay” with imposing tariffs on Mexico over illegal immigration if an agreement can’t be reached on stemming the flow of migrants at the border. He added that Mexico is sending a “big delegation” to the White House on Wednesday and we will see “what can be done, but if it’s not done, you know what we’re going to be doing, and, uh, I’m really okay with that.” On a more dovish note, Mr Trump downplayed a New York Times report which said that his administration considered imposing tariffs on Australia last week. Trump’s response to the report was that the US has very strong ties with Australia and he didn't mention tariffs. Meanwhile, President Trump has said that his top economic adviser Kevin Hassett will leave the White House shortly and he will name his replacement “soon” after he returns from a trip to Europe this week.

Markets in Asia have started the week on largely negative footing with the Nikkei (-1.26%), Hang Seng (-0.35%) and Shanghai Comp (-0.49%) all lower while the Kospi (+0.84%) is up. The Japanese auto index is down a further -1.04% this morning after declining -3.60% on Friday. All the G10 currencies are trading slightly stronger (+0.10-0.30%) this morning. Elsewhere, futures on the S&P 500 are down -0.54% while oil prices (WTI -0.95% and Brent -1.39%) are also weak. In other overnight data releases, Japan’s final May manufacturing PMI came in two tenth above the preliminary read at 49.8 (vs. 50.2 in last month) while capital spending in Q1 remained strong at +6.1% yoy (vs. +2.6% yoy expected).

Elsewhere Andrea Nahles, the head of junior German coalition partner the SPD, resigned yesterday throwing ever more questions out there about the sustainability of the coalition.

Recapping Friday’s and last week’s market action now, the moves were dominated by the trade-war escalation and generally poorer economic data. The S&P fell -2.62% in a holiday-shortened week for its worst weekly performance of the year, sliding early in the week before staging a modest recovery on Thursday that was subsequently erased after the Mexico tariff induced selloff on Friday (-1.32% on Friday). That was the fourth consecutive weekly decline, a streak that hasn’t occurred since October 2014. Other US indexes staged similar moves, with the DOW and NASDAQ down -3.01% and -2.41% (-1.41% and 1.51% Friday), respectively. Some cyclical sectors lagged, with banks down -3.96% (-1.53% Friday), with other recent laggards actually outperforming with the Philly semiconductor index down only -1.20% (-1.45% Friday).

That poor move by banks was largely attributable to the sharp move lower in bond yields, as treasuries rallied on risk aversion and tepid inflation data. Ten-year yields fell -18.7bps (-8.0bps Friday) but the real action was in the front end, where 2-year yields fell -24.2bps (-13.9bps Friday) for their sharpest weekly move in almost 10 years. US core PCE for the first quarter was revised lower by 0.3pp to 1.0% on an annualised quarter-on-quarter rate. That’s significantly below the Fed’s target, and though there remains scope for inflation to rise over the next several months and quarters, the market is pricing full-on easing from the Fed now. Futures prices now imply 55bps of cuts this year, an additional 34bps of cuts compared to the preceding week. The sharp repricing in the front end is keeping the 2y10y yield curve in positive territory though, as it rose +4.4bps this week to 19.8bps (4.8bps Friday).

Other global equity indexes followed the US lower, with the STOXX 600 down -1.82% (-0.81% Friday) and European banks ending -3.22% (-1.67% Friday), back to their lowest level since December’s mini meltdown. Bunds rallied, though not as sharply as treasuries, with yields dropping -8.5bps to a new all-time low of -0.20% (-2.7bps). Italian BTPs notably underperformed, with yields rising +11.6bps (+1.4bps Friday), in the face of generalised safe haven flows into bonds. In credit, European HY cash spreads widened +14bps (+8bps Friday), while spreads in the US staged their worst performance of the year, widening +38bps (+20bps Friday). Despite all the carnage in equities and credit, the VIX and V2X remained surprisingly calm, rising only +2.9pts and +0.7bps (+1.4pts and +0.7pts Friday) to 18.71 and 17.42 respectively.

Published:6/3/2019 6:49:25 AM
[Markets] What the Dow Breaking Its 200-Day Moving Average Really Means for Your Stocks The Dow Jones Industrial Average broke below its 200-day moving average last week. But the popular stock market analysis tool doesn’t live up to its billing. Published:6/3/2019 4:26:44 AM
[Markets] Peter Schiff: Bond Buyers Are Right About Recession But They're Making The Wrong Bet


Bond prices have spiked and yields have fallen in the last several weeks. Investors are beginning to see a recession on the horizon and they are pouring into Treasurys believing they will provide a safe haven. In his most recent podcast, Peter said bond buyers are right about the looming recession, but they are making the wrong bet.

In a podcast earlier this month, Peter Schiff called the end of the bear market rally. He reasoned that the rally was built on expectations that the Federal Reserve was shifting toward an easing cycle. When Jerome Powell came out and threw cold water on that, Peter figured that would be the end of the market rally. As he put it, “What the Fed giveth by being more dovish than the markets expected, the Fed had finally taken away by being more hawkish.”

In that podcast, Peter said he didn’t believe that the Fed was nearly as hawkish as it was projecting, nevertheless, it gave that impression.

Fast-forward to today and the S&P 500 and the Dow Jones are both down about 5.5% from their early-May highs.

I still think we are in a bear market. I do not believe that the rally that we had following the Fed’s pivot constituted a brand new bull market that is now already probably over and this is a new bear market. I think this is the same bear market.”

Peter said it did surprise him a bit that the bear market rally went as high as it did. But he thinks things are beginning to turn back and that we will eventually revisit the lows we saw early this year. That will prompt the Fed to once again come to the markets’ rescue. In fact, the markets are already pricing in rate cuts even though Powell and company took them off the table.

The question is how long with the central bank wait?

If the Fed waits until we’re officially in a recession, well, then they’re just going to go straight to zero. They’re not going to pass go. But if they started cutting rates sooner, like maybe next week or something, then maybe its possible they only go a quarter point or a half point. But that’s not going to be enough. That is going to do nothing. That is going to be like waving a scarf at a bull. Because the minute the Fed cuts the markets are going to push them to cut more.”

Peter said that he doesn’t even think another round of QE will do the trick this time around. Every time a bubble pops, it takes more air to reflate it. The amount of air - QE - that the Fed would need to blow up another bubble once the current one completely deflates would wreck the dollar.

The markets still don’t get this, but they are starting to worry about a recession.

Investors are pouring into US Treasurys, thinking they are a safe haven. The yield on the 10-year bond fell to 2.26% on May 29 and we are seeing some inversion on the yield curve. This has historically signaled a looming recession. Peter said they are right about the recession, but everybody is getting one thing wrong – this is not bullish for bonds. It’s bearish for bonds.

The bond market is betting on a recession and that the Fed will slash rates.

Now, the market is correct. We are going into recession and the Fed is going to respond to this recession the same way it responds to all recessions that it causes, and that is by doing more of what caused it, which is slashing interest rates back to zero. But what the markets, I think, have got wrong is the reaction. Because the recession we’re going to get this time is going to be stagflation. We are not going to have stable prices or a drop in the official inflation rate. Inflation is going to rise. And that means bond prices are going to fall. And that is going to exacerbate the severity of the next recession.”

In recent recessions, low inflation has provided a cushion for consumers. It has also allowed the Fed to cut interest rates which provides relief in the high-debt environment that generally precedes the economic downturn.

But if the next time the Fed slashes the short-term interest rates inflation spikes up, and that means long-term interest rates don’t go down, they go up and they follow the inflation rate higher, then that is going to exacerbate the pain of the next recession.”

Imagine how bad this will be given the extreme amounts of government, consumer and corporate debt out there right now.

The stagflation that is coming is bad for bonds.

The bond market still hasn’t figured this out yet. They still think that we’re going to follow the playbook from the last financial crisis. We’re not.”

Published:6/2/2019 4:46:55 PM
[Markets] Wall Street Weekahead: Struggles of transport stocks transmit caution to market Add this to worries about Wall Street: The index of planes, trains and trucking companies, considered an important stock barometer of the U.S. economy's health, is struggling. The Dow Jones Transportation Average swooned 10.2% in May, a far steeper decline than that of the Dow Jones Industrial Average or the S&P 500. For analysts who closely watch the transports, this could be a sign of deeper market stress. Published:6/1/2019 7:44:02 PM
[Markets] Struggles of transport stocks transmit caution to market Add this to worries about Wall Street: The index of planes, trains and trucking companies, considered an important stock barometer of the U.S. economy's health, is struggling. The Dow Jones Transportation Average swooned 10.2% in May, a far steeper decline than that of the Dow Jones Industrial Average or the S&P 500. For analysts who closely watch the transports, this could be a sign of deeper market stress. Published:5/31/2019 6:35:21 PM
[Markets] The Dow Fell 355 Points Because News of Mexico Tariffs Sent the Whole Market South The Dow Jones Industrial Average slumped 1.41% to close at 24,815.04. The S&P 500 lost 1.32% to end at 2752.06, and the Nasdaq Composite dropped 1.51% to close at 7453.15. Published:5/31/2019 4:33:44 PM
[Markets] Dow ends down over 350 points as stocks suffer first monthly loss of the year Dow ends down over 350 points as stocks suffer first monthly loss of the year Published:5/31/2019 3:37:34 PM
[Markets] Dow Slammed, Stocks End at Day's Lows as Trump Targets Mexico With Tariffs The Dow Jones Industrial Average posted its sixth straight weekly loss Friday after President Donald Trump threatened to impose tariffs on Mexican imports. rose after the ride-hailing company reported better-than-expected earnings in its first quarter as a public company. Stocks closed at session lows Friday as President Trump's announced threat to impose tariffs on Mexican imports, along with worries about the ongoing U.S.-China trade war, sent investors running for cover. Published:5/31/2019 3:37:34 PM
[Markets] Trade Turmoil Wipes $5 Trillion Off Global Stocks In Worst May Since 2010

Global Equity markets lost almost $5 trillion in May, more than they did in December!


Everything was going so great too...

All major US equity markets were ugly in May...

But, on the week, spot the odd one out...

Big week for China, thanks to a huge PBOC-panic liquidity injection...


Europe's worst month since early 2016...

Not helped by Deutsche Bank closing at record lows...


All major US equity indices were down this week, led by Trannies and Small Caps... (today was a one-way street lower after Europe closed)


US equity markets had an ugly month - the first losing month of the year and worst May since 2012...

This was the Dow's 6th straight weekly loss (longest losing streak in 8 years)

But still remain comfortably green on the year...


All the major US equity indices are back below their 200DMAs...


The S&P broke below the key 2800 level...


Semis suffered their worst month since Nov 2008...


As the broad S&P tech sector tumbled...


S&P Energy sector plunged...


Credit markets blew wider in May (led by HY) and for now, VIX is holding in (even with its curve inversion)


HY Spreads are shouting their warning that something is up...


Treasury yields collapsed around 35bps on the month and accelerated lower this week despite talking heads claiming pension rebalancing would bid stocks and offer bonds into month-end...

This is the biggest May drop in yields since 2010, slamming yields to their lowest in years...


10Y hit 2.13% intraday as the yield plunge accelerated...


The yield curve crashed in May, inverting out to around the 15Y maturity...


With 3m10Y plunging to -22bps...



Inflation breakevens collapsed - the biggest monthly drop since December...


The Dollar Index rose for the 4th month in a row


And as the Dollar surged, EM FX cratered...


Cryptos managed to hold on to the week's gains after yesterday's ugliness...

This was Cryptos best month since August 2017...


Ugly week for commodities broadly with crude getting crushed but gold managed solid gains...

And Gold managed gains on the month as WTI collapsed...


WTI's worst month since November, tumbling back below $54...And worst May since 2012


Gold's best month since January, soaring back above $1300...


And finally, the market is pricing in 1 rate-cut in 2019 and 2.5 rate-cuts by the end of 2020...

Stocks will have to sink considerably for those expectations to come true...

Published:5/31/2019 3:04:30 PM
[Markets] Dow industrials down 275 points in afternoon trading; Nasdaq off 90 Dow industrials down 275 points in afternoon trading; Nasdaq off 90 Published:5/31/2019 12:05:25 PM
[Markets] Dow Falls as Trump Targets Mexico With Tariffs Threat The Dow Jones Industrial Average tumbled Friday after President Donald Trump threatened to impose tariffs on Mexican imports. dipped slightly after the ride-hailing company reported better-than-expected earnings in its first quarter as a public company. Stocks plummeted Friday as President Donald Trump's announced threat to impose tariffs on Mexican imports, along with worries about the ongoing U.S.-China trade war, sent investors running for cover. Published:5/31/2019 12:05:24 PM
[Markets] Dow Falls Sharply as Trump Targets Mexico With Tariffs Threat The Dow Jones Industrial Average tumbled Friday after President Donald Trump threatened to impose tariffs on Mexican imports. rose slightly after the ride-hailing company reported better-than-expected earnings in its first quarter as a public company. Published:5/31/2019 10:03:36 AM
[Markets] Mexico ETF drops more than 4% after Trump tariff threat The largest exchange-traded fund to track Mexico's equity market fell sharply Friday, after U.S. President Donald Trump threatened to place escalating tariffs on all Mexican imports in an effort to force the country to slow the flow of Central American asylum seekers to the southern U.S. border. The iShares MSCI Mexico ETF fell 4.4% but was off initial lows. The ETF traded as low as $42.14, its lowest since March 14. The Mexican peso was off nearly 3% versus the U.S. dollar . The tariff threat rattled global markets, with investors already nervous about global growth prospects in part due to the continued U.S.-China trade battle. U.S. stocks traded sharply lower, with the S&P 500 off 1.3%. The Dow Jones Industrial Average dropped more than 300 points, or 1.2%, to 24,865. Published:5/31/2019 9:11:08 AM
[Markets] Dow futures down nearly 300 points Dow futures down nearly 300 points Published:5/31/2019 8:06:25 AM
[Markets] Global Markets Routed After Trump Tariff Bombshell, Bund Yields Crater To Record Low

To those who sold in May, congratulations. To everyone else, we hope you are enjoying the bloodbath.

US stock futures, global markets and sovereign bond yields tumbled on Friday as investors feared President Donald Trump’s shock threat of tariffs on Mexico - a 5% tariff from June 10, which would then rise steadily to 25% until illegal immigration across the southern border was stopped - risked tipping the United States, and maybe the whole world, into recession.

The rout, which sent the Dow below 25,000 and the S&P below its 200 DMA, will break the S&P's unbroken monthly streak in 2019, with May set for the first monthly loss since the December rout. In fact, May will be the third worst month since the US downgrade in August 2011.

Trump announced the decision on Twitter late Thursday, catching markets completely by surprise.

“The mercurial President Trump has signalled via Twitter this morning that his mindset is shifting ever farther from reaching trade deals,” warned Saxo's Eleanor Creagh. “It seems now that market participants are finally realising that the narrative of an H2/19 recovery is fast dissipating,” she added. “As escalating trade tensions across the globe cause growth expectations to be recalibrated, risk off sentiment will remain and volatility will increase.”

“We are seeing a Trump who is going all-out,” said Kay Van-Petersen, global macro strategist at Saxo Capital Markets Pte. “This raises the bar not just for Mexico and Canada, but also for China.”

After Trump's announcement, investor mood hit pitch black when China's May manufacturing PMI printed not only below expectations, but below the lowest expectation, raising questions about the effectiveness of Beijing’s stimulus steps. The official NBS manufacturing PMI fell to 49.4 in May, from 50.1 in April. Sub-indexes suggested lower price inflation and weaker trade growth in May. Trade indicators worsened further – the imports sub-index declined to 47.1, from 49.7, and the new export order index went down to 46.5, vs. 49.2 in April. Inventory indicators rose – the raw material inventories index was 0.2pp higher at 47.4, and the finished goods inventory index rose to 48.1 in May.

With traders throwing in the towel, global markets moved aggressively to price in deeper rate cuts by the Federal Reserve this year, while bond yields touched fresh lows and curves inverted further in a warning of recession.

With markets tumbling, traders flooded into the safety of bond market and the dollar, with yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.17%, while the dollar jumped 1.7% on the Mexican peso. In the US, all Treasury tenors from 2Y to 5Y were now trading below 2.0%, while the 3M-10Y was inverted as much as 21bps. Bonds extended their bull run with 10-year Treasury yields now down a steep 33 basis points for the month and decisively below the overnight funds rate. Such an inversion of the yield curve has presaged enough recessions in the past that investors are wagering the Fed will be forced to ease policy just as “insurance”.

Yet Treasuries were hardly alone in rallying, with bond yields across Europe either at or near record lows. Yields in Australia and New Zealand have also hit an all-time trough on expectations of rate cuts there. Bund yield falls 4bps to -0.213%, below the previous all-time low touched in July 2016, as core bonds outperformed semi-core, and German provincial CPI numbers are weaker than economists estimated.

As if that wasn't enough, stocks extended declines on reports that China will establish a list of “unreliable” entities to target firms it says damage the interests of domestic companies.

The Stoxx Europe 600 Index fell, with all industry sub indexes down, led by autos and basic resources.European shares extend losses, alongside U.S. futures, as China announces it is preparing for retaliation by implementing a list of “unreliable" entities in order to target firms it says damage the interests of domestic companies. Stoxx 600 Index falls 1.4%. European shares set for largest monthly drop since January 2016; Stoxx Europe 600 Index down 6.2% in May, with the biggest pain felt again by Deutsche Bank shareholders, as DBK tumbled to new all time lows.

Asian shares fell at first, only to draw month-end bargain hunting having endured a torrid few weeks. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.3%, though it was still down a whopping 7.3% for the month.

China’s blue chip index held steady, partly on talk Beijing would now have to ramp up its stimulus, but again was nursing loses of 6.8% for May. Japan’s Nikkei fell 1.3%, dragged down by big falls in car makers, which left it off 7.1% for the month. 

There was one silver lining: Apple suppliers rose in Taipei Friday, boosting the Taiex index, after China said it would protect foreign businesses’ legitimate rights. The comments from China’s commerce ministry official Thursday was interpreted as an indication that Beijing doesn’t intend to retaliate against Apple and other American firms doing business on the mainland, according to Concord Securities assistant vice president Allan Lin, although that may be over as soon as today.

Another silver lining: investors clearly felt encouraged that opening a new front in the trade wars would pressure central banks everywhere to consider new stimulus. On Thursday, Fed Vice Chair Richard Clarida said the central bank would act if inflation stays too low or global and financial risks endanger the economic outlook.

“What the Clarida’s comments have done is clarify in many people’s minds the answer to the questions of whether low inflation proving more than transitory would itself be enough to get the Fed to ease – the answer appears to be ‘yes’,” said Ray Attrill, head of FX strategy at National Australia Bank. “That served to reinforce prevailing market expectations that the Fed will be easing in the second half of this year.”

Not surprisingly, in FX the DXY dollar index ramped to new two-year highs against a basket of currencies at 98.115. The euro was huddled at $1.1129, having shed 0.7% for the month. The safe-haven yen fared better as the dollar lost 0.6% on the day to a three-month low of 108.94. Sterling was poised for the biggest monthly drop in a year as the imminent departure of Theresa May as prime minister deepened fears about a chaotic divorce from the European Union. The pound was last at $1.2611 and nursing a 3.2% loss for the month so far.

In commodity markets, spot gold firmed 0.4% to $1,293.33 per ounce. Oil prices fell to their lowest in almost three months on fears a global economic slowdown would crimp demand. U.S. crude was last down 55 cents at $56.04 a barrel, while Brent crude futures lost 91 cents to $65.96.

Expected data include personal income and University of Michigan Sentiment Index. Big Lots is reporting earnings.

Market Snapshot

  • S&P 500 futures down 1.1% to 2,759.25
  • STOXX Europe 600 down 1% to 368.54
  • MXAP down 0.04% to 152.22
  • MXAPJ up 0.2% to 498.43
  • Nikkei down 1.6% to 20,601.19
  • Topix down 1.3% to 1,512.28
  • Hang Seng Index down 0.8% to 26,901.09
  • Shanghai Composite down 0.2% to 2,898.70
  • Sensex down 0.3% to 39,707.10
  • Australia S&P/ASX 200 up 0.07% to 6,396.85
  • Kospi up 0.1% to 2,041.74
  • German 10Y yield fell 2.7 bps to -0.202%
  • Euro up 0.2% to $1.1148
  • Italian 10Y yield rose 1.4 bps to 2.283%
  • Spanish 10Y yield fell 1.8 bps to 0.746%
  • Brent futures down 3.3% to $64.70/bbl
  • Gold spot up 0.7% to $1,297.30
  • U.S. Dollar Index down 0.1% to 98.00

Top Overnight News from Bloomberg

  • Trump vowed to impose tariffs on Mexican goods until that country stops immigrants from entering the U.S. illegally, jeopardizing a new North American trade agreement. The tariff would take effect on June 10 and has major implications for American automakers and other companies with production south of the border
  • U.S. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) calls President Trump’s Mexico tariff Plan a “misuse” of authority. “Following through on this threat would seriously jeopardize passage of USMCA.” Mexican President Andres Manuel Lopez Obrador says in letter to Trump posted to Twitter “from start, I express that I don’t want confrontation.”
  • China has prepared the steps it will take to use its stranglehold on the critical minerals in a targeted way to hurt the U.S. economy, people familiar said. The measures would likely focus on heavy rare earths, a sub-group of the materials where the U.S. is particularly reliant on China
  • China will establish a list of so-called “unreliable" entities in order to target firms it says damage the interests of domestic companies, according to an announcement carried by state media on Friday
  • Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, is preparing major job cuts in London, offering voluntary redundancy packages to about 500 directors and managing directors in London, according to an emailed statement. That’s roughly a quarter of its workforce in the city
  • India’s Prime Minister Narendra Modi picked leaders with experience for key portfolios as he began a second five-year term facing an economic slowdown and global headwinds
  • The outlook for China’s manufacturing sector deteriorated more than expected in May, as weakness in the domestic economy combined with escalation in the trade standoff with the U.S.
  • Federal Reserve Vice Chair Richard Clarida says “if the incoming data were to show a persistent shortfall in inflation below our 2% objective or were it to indicate that global economic and financial developments present a material downside risk to our baseline outlook, then these are developments that the committee would take into account in assessing the appropriate stance for monetary policy
  • Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, is preparing major job cuts in London, offering voluntary redundancy packages to about 500 directors and managing directors in London, according to an emailed statement. That’s roughly a quarter of its workforce in the city
  • India’s Prime Minister Narendra Modi picked leaders with experience for key portfolios as he began a second five-year term facing an economic slowdown and global headwinds

Asian equity markets traded mixed heading into month-end with early pressure seen after US President Trump announced to place 5% tariffs on all goods from Mexico from June 10th, which will increase to as much as 25% by October 1st and remain there until Mexico addresses the illegal immigration inflows to the US through its territory. The announcement pressured US equity futures to give back the prior session’s gains in which the Emini S&P breached its 200DMA to the downside and the DJIA briefly slipped below the 25K level, with Wall St on track for its worst monthly performance YTD. ASX 200 (Unch.) was lower for most the session with tech and energy the underperformers although strength in gold and other mining names stemmed the downside in the index, while Nikkei 225 (-1.6%) suffered from currency flows and with automakers spooked by fears of a trigger-happy ‘Tariff Man’. Hang Seng (-0.8%) and Shanghai Comp. (-0.2%) were mixed as participants digested varied Chinese PMI data in which Manufacturing PMI fell short of estimates and slipped into contractionary territory but Non-Manufacturing PMI printed inline, and although the PBoC refrained from open market operations, its efforts this week resulted to a total net injection of CNY 430bln. Finally, 10yr JGBs followed suit to the upside in T-notes as Trump’s announcement spurred safe-haven demand, while the BoJ were also present in the market for JPY 680bln of JGBs in the belly to super long-end.

Top Asian News

  • Anta Jumps After Fighting Back on ‘Misleading’ Short Sell Attack
  • BOJ Paves Way to Buy Fewer Bonds as Growth Worries Sink Yields
  • Apple Suppliers Rise as China Shows No Intention to Retaliate
  • Philippine Central Bank Governor ‘Promises’ More Rate Cuts

European Indices trade firmly in negative territory this morning [Euro Stoxx 50 -1.7%] as sentiment took a hit as US President Trump revisited his ‘Tariff Man’ persona by announcing the placement of 5% tariffs on all goods stemming from Mexico as of June 10th; which may increase by up to an additional 20% by October 1st. Currently eight automakers including Volkswagen (-3.6%) and Fiat Chrysler (-4.6%) operate plants in Mexico, as such the Stoxx 600 Auto Sector (-2.8%) is significantly lagging its peers with the Dax (-1.6%) the underperforming bourse due to automakers/parts having around a 14% weighting in the Dax. Auto names aside, other companies with exposure to Mexico have been significantly affected by President Trump’s announcement with the likes of Tenaris (-4.7%) afflicted due to the Co. operating one of the world’s largest manufacturing centres for steel tubes in Mexico. Elsewhere, Italian banks are at their lowest level since November 2016 due to the ongoing internal political tensions as well as the potential for Italy to face EU disciplinary procedures in the form of a EUR 3.5bln fine. Other notable movers this morning include Wirecard (-11.3%) who are lagging the Stoxx 600 after reports that several public prosecutors are said to see the Co. as the central payment processor for the fraudulent trading site Option888. Bucking the risk-off sentiment and at the other end of the Stoxx 600 are Whitbread (+1.9%) after the Co’s board decided that the second phase in their three phase capital programme is a GBP 2bln tender offer.

Top European News

  • Brexit Delay Boosts U.K. Mortgage Lending, Consumer Borrowing
  • German Yields Set New Sub-Zero Record as Haven Seekers Rush In
  • Visco Says Italy’s Debt Load Is ‘Severe Constraint’ on Economy
  • Europe Car Stocks Sink to Five-Month Low on Trump’s Mexico Plan

In FX, the broad Dollar and Index are on the backfoot this morning with DXY now back below 98.000, albeit marginally. The Buck awaits key US data in the form of April PCE prices as traders look for any clues if the “dip in inflation was transitory” as the Fed stated at its most recent meeting. On a technical front, to the downside DXY sees its 50 DMA just under the 97.50 level at 97.47 ahead of clean air down to 97.00.

  • MXN, CAD - The clear underperformers today, more-so the Peso after President Trump dampened USMCA hopes by taking aim at Mexico. The Peso immediately saw downside and continued that trajectory throughout the session, with USD/MXN spiking higher from around 19.1500, through its 50 WMA (19.2766) and 200 DMA (19.3360) to a high of 19.7360. Meanwhile, from Canada’s side, the potential ramifications on the USMCA deal, coupled with lower energy prices sent USD/CAD higher to around 1.3550 from a low of around 1.3494 ahead of a barrage of Canadian data including Q1 GDP.
  • JPY, CHF - The Yen stands as the clear G10 outperformer this morning amid the overall risk aversion in the market with downside vs. the USD exacerbated as Trump spills his trade war into Mexico. USD/JPY cleanly broke below the 109.00 figure and continues to lose ground below the level, having traded within a wide 109.62-108.76 band, with buyers reported at 108.75 ahead of the Jan 28 low just above 108.50. Following the latest developments, Morgan Stanley believes that a breach below 109.00 support opens downside potential to 107.70. Meanwhile, the Swiss Franc also posts gains, albeit to a lesser extent, with traders speculating potential SNB intervention to keep the CHF strengthening further. USD/CHF currently rests just above the 1.0050 mark ahead of its 100 DMA at 1.0037.
  • EM - The EM space is weaker across the board amidst the Trump-sparked collapse in the Mexican Peso, albeit the TRY has shown some resilience as it consolidates following yesterday’s stellar performance. However, geopolitical risks for the Lira remain as the Turkish Foreign Ministry spokesperson has dismissed reports that the Russian S-400 delivery will be delayed, which comes after US pressured the country to dump the USD 2.5bln deal with Russia, which contradicted prior reports that the Russian system will be delivered ahead of scheduled. Either way, markets are looking at any potential US sanctions on Turkey if the delivery does go through, which Turkey noted was "a done deal"
  • AUD, NZD, EUR, GBP - All marginally firmer against the Greenback (ex-GBP), albeit more due to a pullback in the USD than individual factors. The Antipodeans were little fazed by the overnight miss in the Chinese NBS manufacturing PMI as currencies await the Caixin release next week alongside the RBA’s “live” rate decision and Aussie GDP. Elsewhere, the expectations for a post-Easter collapse sees the EUR largely shrugging off the downticks in German state inflation numbers, as markets gear up for the national release at 1300BST. EUR/USD resides closer to the top of today’s 1.1126-54 band with resistance reported at 1.1155 ahead of 1.1170. Meanwhile, the Pound has lost some ground in recent trade, particularly vs the EUR with some citing RHS demand and EUR/GBP bids at 0.8850 as factors.

Commodities are mixed with the energy markets plumbing the depths as risk sentiment further deteriorates amid trade war escalations coupled with rising US crude production. WTI (-2.1%) straddles around the USD 55/bbl level, having already dipped below the figure whilst its Brent (-2.5%) counterpart follows the same trajectory as it hovers around USD 64.50/bbl. Furthermore, some geopolitical risk premium may have also unwound in the oils amid reports that US has delayed tougher sanctions Iran's petrochemical sectors in an attempt to dial back tensions. Elsewhere, gold (+0.6%) benefits from the risk aversion and the receding USD as it creeps closer to the USD 1300/oz level, whilst copper extends its decline below the USD 2.600/lb level amid the soured risk tone coupled with disappointing Chinese PMI data.

US Event Calendar

  • 8:30am: Personal Income, est. 0.3%, prior 0.1%; Personal Spending, est. 0.2%, prior 0.9%
  • 8:30am: PCE Deflator MoM, est. 0.3%, prior 0.2%; PCE Deflator YoY, est. 1.6%, prior 1.5%
  • 9:45am: MNI Chicago PMI, est. 54, prior 52.6
  • 10am: U. of Mich. Sentiment, est. 101.5, prior 102.4; Current Conditions, prior 112.4; Expectations, prior 96d

DB's Jim Reid concludes the overnight wrap

The final day of May probably couldn’t come soon enough for most given the change in tide driven by a 102-word tweet from President Trump 26 days ago. Well, somewhat fittingly, the month was bookended by another surprise tweet from the US President last night, this time announcing a set of tariffs on imports from Mexico. According to Trump, the US will institute a 5% tariff on imports from Mexico effective June 10, with the rate set to rise by 5% every month until it reaches 25% in October. However, the new duties will be removed on Mexico if “illegal migrants coming through Mexico, and into our country, STOP” as per his tweet. For reference, the US imports around $30bn of goods from Mexico each month, and around 30% of those are autos. Tariffs at 25% on that flow of goods, in addition to the duties on China, would start having a significant and potentially crippling impact on US industry, so it’s possible that this move is aimed at pushing the US Congress to act on either the USMCA deal or on an immigration package. So far Mexico has stated that they will not retaliate until talking with the US, however the damage is likely to be already done to US-Mexico relations which since President AMLO was elected, had been improving. As for markets, the Mexican Peso has weakened -2.14% as we go to print, S&P 500 futures are down -0.65%, 10y Treasuries are down -3.1bps at 2.182% and WTI oil is down -1.15%. So, June starts right where May finished with tweet/tariff-induced selloffs.

As we’ve been arguing, these tweets have the potential to change the dynamics of global markets and it now seems like we could get a serious trade escalation that wasn’t likely at the start of last month, especially as it had appeared Trump had looked like he wanted to get a deal done in 2019. The landscape has changed dramatically and it could be an interesting summer ahead. The reality also is that with it being the first day of June tomorrow, tariffs will officially kick in between the US and China with the US applying 25% tariffs on $200bn of China exports to the US, while China will apply 5-25% tariffs on $60bn of US exports to China.

Needless to say, this also means economic data will be closely scrutinized as to the impact that the trade escalation has had, with next week’s final PMIs and ISM report top of that list. In the meantime this morning we’ve already had the final official May PMIs in China, which slid more than expected. The manufacturing print came in at 49.4, and the new orders and new export orders sub indexes were notably soft at 49.8 and 46.5. The non-manufacturing print came in at 54.3 as expected, bringing the composite PMI to 53.3 and slightly lower versus April. Equity markets in China initially opened in the red, however have since recovered with the Shanghai Comp (+0.01%) and CSI 300 (+0.06%) now pretty much unchanged. The Nikkei (-0.70%) and Hang Seng (-0.19%) are in the red, however markets do appear to be holding their own for the most part given both this data and the tariff news and it’s the same with Asia FX which has been broadly stable. That said it’s worth noting that the auto sector has borne the brunt of the pain, with Japanese automakers currently down -2.60%. To add to the headline risk the moves this morning also come despite China announcing that it is prepared to restrict exports of rare earths to the US if needed as per Bloomberg.

The overnight newsflow is clearly the main story and in any case it follows a mostly dull session on Wall Street yesterday prior to the latest tariff announcement. The good news is that risk assets did stage a rebound - albeit a modest one - with the S&P 500 rising +0.21%, however it still did close below the 2,800 level. Overnight, Binky Chadha published a timely note (available here ) estimating that the trade war has cost around $5 trillion in forgone equity gains, equal to 12-years’ worth of the bilateral trade deficit with China. Meanwhile the NASDAQ ended +0.27% while in Europe the STOXX 600 rose +0.42%. Volumes were however well below average across most markets, though markets did experience some late-session volatility after Vice President Pence said that the US can “more than double” tariffs on China if needed. As we highlighted yesterday, speculation also continued to swirl about a planned Pence speech next week which could be used to announce new sanctions on specific companies (per CNBC).Equities slipped into the red but ultimately closed higher, while bonds yields fell more persistently. Indeed 10y Treasuries rallied -4.9bps, though Bunds had already closed flat near their all-time lows at -0.177% before the rally. The US 2s10s was steady at 14.9bps while the 3m10y curve slid another -6.7bps to -15.9bps, its lowest level since May 2007. The VIX (-0.6pts) closed at 17.3, though high yield credit spreads in the US finished +3bps wider. HY spreads were flat in Europe.

Away from trade it’s worth noting that Italy could be a talking point again today with the government expected to respond to the EU’s request for an explanation of the violation of the debt rule for 2018. However, our economists have pointed out that there are more arguments for not opening a procedure right now. In particular they flag Italy’s deteriorating growth outlook, for which corrective measures could prove to be pro-cyclical. They also highlight different estimations of the output gap between Rome and Brussels, conciliatory steps adopted by Italy and the potential impact of the European election. Yesterday, Italian press reports – including from Il Messaggero and Il Corriere della Sera – claimed that Italy will argue that a corrective measure will be counterproductive and result in further growth deterioration. In any case, one to potentially watch. We should note that Italian assets underperformed yesterday with the FTSE MIB down -0.24% and 10y BTPs up +1.6bps in yield (compared to -4.3bps at the lows) following headlines suggesting that Deputy PM Salvini is ready to end the coalition government should he not get backing for his flat tax plan and other priority measures.

Elsewhere, though it didn’t end up moving markets, Fed Vice Chair Clarida’s comments yesterday did get some attention, since he was one of the key officials who initiated the pivot away from hikes earlier this year. He said that the economy is in a “very good place” and that the “current stance of policy remains appropriate.”He thinks policy should remain patient, which “means that we should allow the data on the US economy to flow in and inform our future decisions.” When asked about the yield curve’s recent flattening, Clarida seemed relatively sanguine, citing global and financial factors as the main drivers. He said that the curve is roughly flat right now, but that he would only be worried if it inverted more deeply and more persistently.

As for the data yesterday, where the second reading for Q1 PCE was revised down three-tenths to +1.0% qoq. So a fairly dovish print, however we should flag that the details did show that the revisions were mostly in financial services and insurance - a category that was already known to be weak in Q1 and is still expected to bounce back. Looking ahead, it’s worth noting that today we’ll get the April PCE reading which is expected to print at +0.2% mom for the core. Our US economists are forecasting a +0.3% reading which in their view would provide evidence that at least some of the recent weakness in the Fed’s preferred measure was likely transitory.

Meanwhile the second reading for Q1 GDP in the US was revised down to +3.1% qoq saar, marginally better than expected.However it didn’t go unnoticed that corporate profits were down -2.8% qoq, the second quarterly decline and biggest fall since Q4 2015. Elsewhere, claims printed at 215k, a small uptick on the week prior but more or less in line with expectations, while the April advance goods trade balance showed a deficit of $72.1bn compared to $71.9bn in March. Retail and wholesale inventories rose +0.5% mom and +0.7% mom respectively while April pending home sales fell -1.5% mom (vs. +0.5% expected).

To the day ahead now, which this morning kicks off in Germany where we’ll get April retail sales data, followed by the final Q1 GDP revisions in Italy, April money and credit aggregates data in the UK, and preliminary May CPI readings for Italy and Germany. In the US the big focus will be on that April PCE data, while personal spending and income data for April, the May Chicago PMI and final May revisions for the University of Michigan survey. Away from the data the Fed’s Visco is due to speak this morning while this afternoon the Fed’s Bostic is due to moderate a discussion on the global economy, while the Fed’s Williams speaks this evening on the topic of monetary policy theory and practice. Expect the fallout from the latest tariff announcement to be the big talking point however.

Published:5/31/2019 7:01:23 AM
[Markets] Dow futures fall 200 points after Trump announces tariffs on Mexican imports At around 02:45 a.m. ET, Dow futures slipped 224 points, indicating a negative open of more than 204 points. On Thursday evening, Trump announced the U.S. would impose a 5% tariff on all Mexican imports from June 10 until illegal immigration across the southern border was stopped. Published:5/31/2019 1:59:58 AM
[Markets] Bitcoin Jumps, Dow Jones Edges Up As These Industry Groups Defy Drop Bitcoin had a wild session but maintains big year-to-date gains. The Dow Jones Industrial Average wasted a small rally. Some industry groups are up, though. Published:5/30/2019 2:59:58 PM
[Markets] Stocks Rebound Even As Traders Brace For "Long-Term Trade War"

US equity futures and global stocks rebounded on Thursday as traders took a break from selling stocks and pumping money into safe-haven bonds and the dollar, awaiting the latest headlines in the ongoing trade war.

With just two days left in what has so far been the most turbulent month of the year, investors are busy squaring up positions, shaken by a violent escalation in trade war which has left many traders dazed and confused and the S&P back under 2,800 but above its 200 day moving average for now.

US equity futures drifted higher in the overnight session, while Europe's Stoxx 600 advanced, with tech among the biggest gainers, a day after posting its biggest drop in nearly three weeks. European stocks nudged 0.2%-0.5% higher having lost a third of the 15% gain they had been carrying into May, the major currencies paused, while German Bund yields climbed for the first time in four days having hit record lows.

Asian stocks were little changed, with MSCI’s index of Asia-Pacific shares ex-Japan slipping to a fresh four-month low before finding a bit of traction to edge up 0.1% into the close. Japan, Hong Kong and Shanghai falling while South Korean, Indian and Indonesian equities advanced as gains in the technology sector were offset by declines in health care and consumer staples. The Topix gauge fell 0.3% to its lowest level since January, led by Japan Communications Inc. and Avant Corp while the Nikkei slumped 0.5%. The Shanghai Composite Index dropped 0.3% after the PBOC's latest liquidity injection was a sharp dip from Wednesday's 250bn yuan, with China Life Insurance Co. contributing the most to the index decline.

Elsewhere in Asia, Australian stocks shed 0.85% as local miners suffered the worst month for copper prices since 2016 having slumped over 9%. Indian equities advanced for a fourth day in five amid continued optimism that Prime Minster Narendra Modi will adopt more policies to support economy.

As usual traders were focused on the war of trade, tech and words between Washington and Beijing. “We oppose a trade war but are not afraid of a trade war,” Chinese Vice Foreign Minister Zhang Hanhui said on Thursday in Beijing, when asked about the tensions with the United States. “This kind of deliberately provoking trade disputes is naked economic terrorism, economic chauvinism, economic bullying.”

“The equity markets are in the midst of pricing in a long-term trade war, with participants shaping their portfolios in anticipation of a protracted conflict,” said Soichiro Monji, senior strategist at Sumitomo Mitsui DS Asset Management.

“The upcoming G20 summit could provide the markets with relief, as the United States and China could use the event to begin negotiating again over trade,” he added, referring to the June 28-29 gathering of leaders in Japan.

In rates, the 10-year Treasury yield was at 2.27% after falling to a nearly two-year low of 2.21% Wednesday, with the 3M-10Y yield curve staying deep in inverted territory, most recently at -10bps.

“What’s going on in Treasury markets is ultimately a repricing of growth expectations,” JPMorgan's John Bilton said on Bloomberg TV. “We don’t see a recession coming in the next 12 months even allowing for the yield-curve inversion we’ve seen, typically that’s a signal that has a long lead time.”

In FX, the dollar traded at a five-month high ahead of first-quarter revised GDP due later that could give clues on the direction of U.S. interest rates. The dollar was little changed at 109.68 yen after bouncing back from a two-week low of 109.150 and the euro steadied at $1.1132 following three successive days of losses. “The strength in the dollar is surprising given that markets are now expecting multiple rate cuts by 2020,” Commerzbank FX strategist Ulrich Leuchtmann said.

In commodities, oil prices rose modestly following volatile trading on Wednesday, when oil prices fell to near three-month lows at one point as trade war fears gripped the commodity markets. WTI futures were up 0.66% at $59.20 per barrel after brushing $56.88 the previous day, their lowest since March 12. Brent crude added 0.37% to $69.71 per barrel. Trade worries have weighed on oil but supply constraints linked to the Organization of the Petroleum Exporting Countries’ output cuts and political tensions in the Middle East have offered some support.

Market Snapshot

  • S&P 500 futures up 0.4% to 2,790.50
  • STOXX Europe 600 up 0.4% to 371.84
  • MXAP down 0.09% to 152.43
  • MXAPJ up 0.2% to 498.00
  • Nikkei down 0.3% to 20,942.53
  • Topix down 0.3% to 1,531.98
  • Hang Seng Index down 0.4% to 27,114.88
  • Shanghai Composite down 0.3% to 2,905.81
  • Sensex up 0.9% to 39,853.99
  • Australia S&P/ASX 200 down 0.7% to 6,392.13
  • Kospi up 0.8% to 2,038.80
  • German 10Y yield rose 1.9 bps to -0.16%
  • Euro up 0.05% to $1.1137
  • Italian 10Y yield fell 4.1 bps to 2.269%
  • Spanish 10Y yield rose 0.9 bps to 0.742%
  • Brent futures down 0.2% to $69.34/bbl
  • Gold spot down 0.3% to $1,276.30
  • U.S. Dollar Index little changed at 98.16

Top Overnight News from Bloomberg

  • A succession of domestic dilemmas on both sides of the Atlantic threaten to frustrate efforts at a U.S.-EU trade pact before they’ve even begun. It’s been 10 months since talks have gone anywhere meaningful with European officials frustrated with a Trump administration that’s distracted by the breakdown in talks with China and also issues with Japan
  • China’s grip on the global market for rare-earth metals gives it the ability to target American weaponry in its trade war with the U.S. Rare earths have been thrust into the spotlight by a series of media reports in China signaling Beijing is gearing up to use the minerals as a counter in its trade battle with Washington
  • Ray Dalio, the billionaire founder of investment management firm Bridgewater Associates, said Wednesday that he viewed the U.S.-China conflict as more than a “trade war” and that increasing export controls would be a major escalation
  • A second referendum is preferable to a general election to resolve Brexit, according to U.K.’s Chancellor of the Exchequer Philip Hammond. Candidates to succeed Theresa May are honing their pitches amid deep divisions over whether to leave the European Union without a deal in October
  • Italy will tell the European Commission that any budget tightening this year would jeopardize a sluggish economic recovery, pushing back in its reply to a demand from Brussels to explain the nation’s increasing debt load, newspapers reported Thursday
  • The U.K. will need interest-rate increases if Brexit goes ahead smoothly, according to Bank of England Deputy Governor Dave Ramsden. His comments echo those of BOE Governor Mark Carney, who spent much of his last press conference making the case for faster rate hikes than money markets imply
  • Australia’s GDP growth will slow to a decade low despite cushioning provided by de-synchronized movements in house prices and commodity prices, Fitch Ratings says in a new report. Australia 1Q business investment falls the most since Sept. 2016
  • The slump in global yields as investors seek out trade-war havens is increasing speculation in Tokyo that the Bank of Japan may cut bond purchases again in June. The central bank could lower the target purchase range for 10-25 year maturities in its monthly plan on Friday, according to Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities
  • Oil rebounded to climb back above $59 after the release of an industry report showing a much bigger than expected drop in U.S. crude stockpiles
  • Israeli Prime Minister Benjamin Netanyahu failed to form a government by Wednesday’s deadline, opting instead for new elections that thrust both his future and the Trump administration’s peace plan into question

Asian equity markets mostly tracked the declines of their counterparts on Wall St where all majors extended on losses amid little in the way of catalysts to inspire a rebound and as participants looked ahead to upcoming US GDP and PCE inflation. Furthermore, trade uncertainty lingered, and technical selling was at play in which the DJIA briefly slipped below the 25K level and the S&P 500 tested its 200DMA to the downside. As such, ASX 200 (-0.7%) and Nikkei 225 (-0.3%) were subdued following the weak lead from their global peers with only the telecoms sector bucking the trend in Australia, while sentiment in Tokyo continued to be hampered as USD/JPY remained at a sub-110.00 level. Hang Seng (-0.4%) and Shanghai Comp. (-0.3%) were negative amid no signs of trade tensions abating as China’s Global Times Editor suggested US is shifting from protecting its interest to destroying China in its crackdown on Huawei. Finally, 10yr JGBs were lower as they tracked the pullback in T-notes but with downside stemmed by support around the 153.00 level and after improved results at the 2yr auction.

Top Asian News

  • Sakurai’s Caution on Stimulus Signals Diverging Opinions at BOJ
  • Short Seller Aandahl Targets China Apparel-Maker Anta Sports
  • Anta Slumps Most in 15 Months as Blue Orca Recommends Short
  • Singapore Minister Bats Away Criticism Over GIC, Temasek Pay

Major European Indices [Euro Stoxx 50 +0.5%] opened, and have remained, positive; diverting from the poor performance seen overnight in Asia-Pac indices which were largely subdued in sympathy with Wall St. As such, sectors are predominantly in the green with some outperformance in Energy names, although the sector has been weighed on by the recent sell off in oil prices, with Brent currently in negative territory. While the defensive utilities and healthcare sectors are underperforming given the broad risk-on sentiment this morning. In spite of the positivity across bourses, notable individual movers are sparse. Axel Springer (+21.3%) have moved substantially higher following reports that KKR are to make a bid to take the Co. private, with the Co. having been valued at EUR 4.9bln. Separately, Daily Mail & General Trust (+9.6%) have printed higher this morning post results, where they stated FY outlook is currently in-line with guidance. Also, post-earnings, but at the bottom of the Stoxx 600 are Johnson Matthey (-4.1%). Finally, Wirecard (1.3%) are at the top of the DAX (+0.6%) after announcing a strategic partnership with XBN relating to international e-commerce.

Top European News

  • Italy Set to Warn Against Budget Tightening in Reply to EU
  • U.K. Will Need Hikes If Brexit Goes Smoothly, BOE’s Ramsden Says
  • ECB Seen Offering Generous Loans to Banks to Boost Feeble Growth
  • Watches of Switzerland Gains After London Share Offering

In FX, the broad Dollar and the index trades relatively flat thus far, albeit still north of the 98.000 level, as participants await a barrage of tier 1 US data in the form of Q1 GDP (2nd estimate), Core PCE, advances goods trade balance and initial jobless claims. DXY fluctuated between a reasonable 98.08-24 band for now, ahead of some mild resistance around the 98.37-40 mark. US-China news-flow has consisted of MOFCOM reiterations wherein the Chinese noted that tariffs will not solve trade imbalance and will not accept a deal which hurts sovereignty and pride. Nonetheless, focus of today will remain on the aforementioned US data with expectations for the GDP figure to be revised marginally lower (3.1% vs. Prev. 3.2%) whilst the Core PCE Q1 prelim figure is expected to be unchanged at 1.3% (FOMC noted that the recent dip in PCE is transitory) and initial jobless claims are expected to tick slightly higher to 215k from 211k. Elsewhere, Citi’s month-end FX hedge rebalancing model indicates moderate buying of the USD at month end, with the signal (ex-USD/JPY) measuring just over +0.5 historical standard deviations across all crosses.

  • AUD,NZD,CAD - A firmer risk appetite or perhaps some consolidation from yesterday’s decline sees the risk currencies on a firmer footing this morning. AUD/USD has shrugged off the dismal Building Approval figures overnight ahead of the much anticipated RBA meeting next week. UBS believes the AUD is “too short for its own good” heading into the weekend, adding that “only a complete equity meltdown could drive the Aussie lower at this stage”. In terms of technicals, AUD/USD trades within a relatively tight 0.6917-36 range ahead of resistance at 0.6940. Meanwhile, the Kiwi is largely moving in tandem with its Aussie counterpart after showing little reaction to the NZ budget, in which it sees the 2018/19 cash balance at -2.785bln vs. the Prev. forecast of -4.993bln. NZD/USD also remains within a tight range with the antipodeans eyeing Chinese NBS Manufacturing PMI following the aforementioned US data. Elsewhere, the Loonie nurses some of yesterday’s post-BOC loses, with the aid of rising oil prices amid a much wider than expected build in crude stocks reported by APIs last night. In terms of technical, USD/CAD hovers around the 1.3500 mark having moved in a 1.3493-3520 range, with support flagged at 1.3490. Looking ahead for the CAD, current account data is due at 1330BST whilst BoC’s Wilkins is due to give a speech around 1930BST.
  • EUR,GBP - Little changed and trading mostly at the whim of the Greenback amid tentative newsflow. EUR/USD remains within a tight 20 pip range (1.1125-45) with support flagged at 1.1125 and 1.1105. In terms of upside, resistance levels are noted at 1.1155 ahead of 1.1170 (with 1bln in option expiries at strike 1.1175-85). Similarly, the Pound has done little on the day thus far and GBP/USD remains within a 1.2612-39 band with little new to report on the Brexit front. Meanwhile, EUR/GBP is currently flat on the day around within a 0.8810-25 with resistance around 0.8845-50.
  • CHF,JPY - Both safe haven currencies are marginally weaker vs. the Buck amid the rebound in risk sentiment in early EU trade. USD/JPY remains above 109.50, having tested the level overnight, with resistance flatted at 109.80-85, whilst USD/CHF eyes 1.01 to the upside as it flirts around the top of today 1.0072-94 range.
  • EM - Lira remains the outperformer amongst its EM counterpart as the US-Turkey does not seem to be detreating as (fast as) expected, following a phone call between the two President yesterday in which they agreed to meet on the side-lines of the G20 summit in June. USD/TRY is not back below the 6.00 figure and closer to 5.95, ahead of President Erdogan’s presentation of his judicial reform strategy programme at the presidential palace at 1200BST following by a meeting of the National Security Council at 1300BST.

In commodities, WTI (+0.3%) and Brent (-0.8%) futures are mixed with the former relatively flat whilst the latter has failed to hold onto its post-API gains in which US crude stocks showed a wider-than-forecast drawdown (-5.27mln vs. Exp. -0.9mln). This mornings downside in Brent was exacerbated as 69.0/bbl was taken out to the downside, with Brent currently trading around 68.80/bbl. News-flow for the complex has been light, although amidst the little clarity in regard to the OPEC/OPEC+ meeting schedule, the Azeri Energy Minister noted that the meeting will likely take place in early July (touted dates include July 3rd/4th). As a reminder, the DoEs will be release later today at 1600BST amid US’ market absence on Monday. Elsewhere, gold prices (-0.2%) are marginally pressured amid the improvement in the risk tone. Meanwhile, copper prices remain near 4-month lows due to a weak performance in China. Further for the red metal, supply side disruptions are to keep an eye on after Chile's CODELCO mine workers voted in favour of a strike in the Chuquicamata mine which is the largest open-pit copper mine in the world.

US Event Calendar

  • 8:30am: GDP Annualized QoQ, est. 3.0%, prior 3.2%; Personal Consumption, est. 1.2%, prior 1.2%; Core PCE QoQ, est. 1.3%, prior 1.3%
  • 8:30am: Initial Jobless Claims, est. 214,000, prior 211,000; Continuing Claims, est. 1.66m, prior 1.68m
  • 8:30am: Advance Goods Trade Balance, est. $72.7b deficit, prior $71.4b deficit
  • 8:30am: Retail Inventories MoM, est. 0.2%, prior -0.3%; Wholesale Inventories MoM, est. 0.1%, prior -0.1%
  • 9:45am: Bloomberg Consumer Comfort, prior 60.3
  • 10am: Pending Home Sales MoM, est. 0.5%, prior 3.8%; NSA YoY, est. 0.1%, prior -3.2%

DB's Jim Reid concludes the overnight wrap

Today sees the start of the cricket World Cup here in England. A massive event for a large part of the global population and a complete nonevent for an even bigger part of the global population. I’ve mentioned this before so apologies if you remember the story but the last time it was hosted in England 20 years ago I was on the brink of pop stardom as I sang on the Barmy Army’s (England’s supporters club) “Come on England” pop song. We were lined up to appear on all the major UK TV current affairs and pop shows the week of the release. I was extremely excited. However, the problem was we delayed the release of the single to the start of the knockout stages to ensure maximum publicity. The flaw in the plan that no-one considered at the time was that England might get knocked out in the group stages. Sadly they did, one day before the song was released and the knockout stages begun. So the wave of publicity shrivelled up and died just as record shops got their deliveries. In all fairness, it did shoot into the national charts that week at a very respectable no.45, which at least allows me to say I’ve sung on a top 50 single. For those who want to see the awful video, please feel free to see the link on my Bloomberg page header or email me and I’ll send it to you. I appear for a few frames throughout with the first glance at 22 seconds. It was a low budget affair with the theme being based on “goodies” versus “baddies” from history as that’s what the prop team had in their cupboard. The star turn was Faye from pop band Steps who was captain of the goodies from history for some reason. Joining her were the likes of Winston Churchill. On the baddies side Saddam Hussein was captain. It has a few celebrities in it but in reality it’s truly awful. Anyway good luck to England over the next 6 weeks!!

Unlike England in 1999, there’s no doubt that the global risk sell-off has gathered momentum this week but as we’ll see later risk assets did bounce off their lows after Europe went home last night. The next big event will be the latest Chinese PMI early tomorrow morning, which is expected to dip from 50.1 to 49.9 and below the psychologically important 50 level, which normally indicates contraction. In reality, the relationship isn’t quite that simple but there’s no doubt that recession fears are rising across markets. As for other imminent events to look out for, I was speaking to DB’s man in Washington (Frank Kelly) last night and he pointed out that US VP Pence will give a very important speech on US-China relations on Tuesday (June 4th), which is the 30th anniversary of the Tiananmen Square incident. Frank was of the opinion that it could be pretty hawkish given the signs out of Washington and his previous speeches on the matter. So watch this space.

Back to the recession fears and two of the Fed’s preferred yield curve measures – the 3m10y and 18m3m 3m – hit new lows yesterday at -9.5bps (-1.1bps on the day) and -50.1bps (-7.6bps), respectively. Both have now eclipsed their March lows and in fact you have to go back to the depths of the financial crisis to find the last time they were lower. A quick look at our screens now shows that all measures of 3m, 6m and 1y curves from 1y to 10y are inverted. The 2y curve is inverted at 3y and 5y but marginally positive at 2y7y (at 5.1bps) while the closely followed 2y10y is at 15.2bps and in fact was marginally steeper on the day yesterday (+1.4bps). This still remains our favourite recession indicator as we discussed in our “Yield Curve 101” note here . Indeed ahead of the last 9 recessions, this measure of the curve has always inverted beforehand with the earliest inversion to recession timing being 8 months and the average being nearer 12-18 months. As mentioned in our spread forecasts update, I think we still have a minimum of 12 months left in this US cycle (outside of a complete and sudden meltdown in global trade) but my confidence of an extended cycle beyond that is low given we’re close to an inversion and with other indicators we have previously discussed suggesting we are quite late cycle. So my views of a sell-off this summer are trade oriented at the moment rather than end of cycle oriented. However, the economic worries are building.

The broad curve flattening (with the exception of 2y10y) came despite fairly small eventual moves in cash treasuries, where the 10-year yield fell -0.5bps and the 2-year yield fell -1.8bps. That still took the 10-year to a new 20-month low, but it was well off the intraday trough of being -5.8bps on the day. Bunds also hit -0.1797% intraday yesterday – before closing at -0.1788% - and as a reminder the low mark back in July 2016 was -0.189%. So we’re only a sneeze away from those levels now. The rest of the European sovereign market rallied as well,including -4.2bps rally for BTPs despite the risk-off, and a -6.8bps rally in Portugal. The S&P 500 (-0.69%), DOW (-0.87%) and NASDAQ (-0.79%) all ended in the red, though they all rallied off their lows. Counterintuitively, cyclical sectors, including materials, financials, and industrials, actually outperformed, with losses instead concentrated in defensives and real estate. In Europe, the STOXX 600 (-1.43%) had its worst day in nearly 3 weeks – albeit partly as a result of playing catch up to the moves in the US late Tuesday. The move in rates also saw European Banks fall -1.56%, which puts them down now -15.77% from the April highs. For comparison, US Banks are down -7.60% from the recent highs. Meanwhile, the VIX rose +0.4pts to 17.87 yesterday, while EM FX and equities ended up +0.21% and +0.65%, respectively.

WTI oil prices initially fell as much as -3.82% before rallying back as investors first digested the news that Russia is pushing back against holding an OPEC+ meeting on June 25-26, pushing instead for July 3-4. This seemingly routine discussion has been interpreted by some as a tacit signal that Russia does not want to renew the December 2018 supply agreement. However, prices bounced back to end the day only -0.6% lower and are up +0.7% in Asia after a bigger fall than expected in US inventories.

This morning in Asia markets are trading on the softer side with the Nikkei (-0.85%), Hang Seng (-0.28%) and Shanghai Comp (-0.83%) all lower while the Kospi (+0.33%) is up. Elsewhere, futures on the S&P 500 are up +0.18% continuing a little of the late rally back from last night. In other news, negative rhetoric around the US-China trade war continues with China’s Vice Minister of Foreign Affairs Zhang Hanhui saying at a briefing today that deliberately provoking trade disputes is economic terrorism, economic hegemony and economic chauvinism. Note that it’s Ascension Day across parts of Europe today so there will be some countries out on holiday.

Back to yesterday and in truth there wasn’t a great deal of new news. The price action more appeared to reflect some of the fallout from recent reports of China potentially cutting exports of rare earth materials, adding to the long line of evidence that de-escalation is no nearer. The move below 2,800 on the S&P 500 was also seen as an important technical break at the same time as curves flattened. Meanwhile, Bloomberg reported that the US had warned Europe that its Iran ‘workaround’ could face sanctions. Elsewhere, it’s worth noting that yesterday’s BoC meeting – while not hugely interesting – was the first G7 central bank meeting since the recent trade escalation period. However, the comments on trade were fairly balanced, with the BoC noting that “the recent escalation of trade conflicts is heightening uncertainty about economic prospects. In addition, trade restrictions introduced by China are having direct effects on Canadian exports. In contrast, the removal of steel and aluminum tariffs and increasing prospects for the ratification of CUSMA will have positive implications for Canadian exports and investment."

Turning to US politics, where attention was dominated by Special Counsel Robert Mueller’s first public comments in almost two years. He said that “under long-standing department policy, a president cannot be charged with a federal crime while he is in office,” though “if we had had confidence that the president clearly did not commit a crime, we would have said so.” President Trump greeted the remarks by tweeting “Nothing changes from the Mueller Report (…) The case is closed!” On the other hand, leading Democratic Presidential candidate Joe Biden said via a spokesman that impeachment “may be unavoidable.” It is likely that this drama will continue to linger over the coming months.

In European politics, the EU Commission formally sent Italy a letter confirming that the country risks disciplinary action unless it takes remedial actions. This was a legal requirement under the EU’s governing treaties, and Italy now has two days to respond. The more interesting item to watch will be Italy’s 2020 budget, due by end of September, which could include fiscally costly items like the flat tax and no VAT, which is more likely to spark a substantive confrontation with the Commission.

In other news, it was a quiet day for data yesterday with the only release in the US being the Richmond Fed manufacturing index, which rose +2pts to 5 in May, albeit below expectations for a 7 reading. That’s unlikely to move the dial much for expectations for next week’s ISM print. Prior to this in Europe we saw the May CPI reading in France rise only +0.2% mom (vs. +0.3% expected) while unemployment in Germany in May unexpectedly rose one-tenth to 5.0%. That’s the first time unemployment has ticked higher since November 2013; however, it appeared to be mostly down to a technical reclassification. Swedish GDP printed at 0.6% qoq, compared with expectations for 0.2%, but the details of the report showed a deterioration in consumption and investment, with the outperformance driven almost entirely by net exports.

Looking ahead to the rest of today, we’ll have to wait until this afternoon for the main data highlights with the second reading of Q1 GDP due in the US. Following a stronger than expected +3.2% qoq saar preliminary reading, the consensus expects a small downward revision to +3.0%; however, our economists note that in light of last week’s downward revisions to core durable goods orders and the latest quarterly services survey, it is possible that Q1 growth slips below 3%. Also due out this afternoon will be the latest claims reading, April advance goods trade balance, April retail and wholesale inventories and April pending home sales. Away from that, we’re due to hear from Fed Vice Chair Clarida at 5pm BST when he speaks to the economic club of New York, while US Secretary of State Pompeo is due to travel to meet German Chancellor Merkel in Berlin.

Published:5/30/2019 7:00:35 AM
[Markets] Stocks in Asia mixed after Dow drops for second consecutive day Shares in Asia Pacific traded mixed. Stocks in Asia were mixed in Wednesday morning trade following a overnight session on Wall Street that saw the Dow Jones Industrial Average dropping more than 200 points. The Nikkei 225 in Japan slipped 0.34% in early trade, as shares of index heavyweights Fast Retailing 9983.T-JP and Softbank Group 9984.T-JP declined. Published:5/29/2019 7:53:26 PM
[Markets] Stocks in Asia set to slip after Dow drops for second consecutive day The 10-year Treasury note yield fell to its lowest level since September 2017 before rebounding. Stocks in Asia were set to slip on Wednesday following a overnight session on Wall Street that saw the Dow Jones Industrial Average dropping more than 200 points. Published:5/29/2019 6:53:49 PM
[Markets] US Market Indexes Close Lower for a 2nd Day on Wednesday Dow Jones down 0.87% Published:5/29/2019 5:20:50 PM
[Markets] Stocks Slammed As Credit Cracks, Retail Routed, Yield Curve Craters

The Fed trying to hit its inflation goal...

Chinese stocks are outperforming Europe and US this week (thanks to a panicking PBOC throwing liquidity at it)...

As buying-panics keep rescuing stocks...


European Stocks were uniformly ugly today...

And after a stunningly bad German unemployment print, bunds tumbled even close to record low yields...


US markets traded very much in sync today, chopping and popping together with a late-day surge that dragged us "off the lows"...

Dow briefly lost 25k intraday

The buy program hit at around 1530ET - biggest in 3 days...

S&P and Nasdaq both broke below their 200DMA today (joining The Dow and Small Caps already well below it), but the machines did their best to get them both back above that key level...


YTD, Nasdaq remains up almost 14% and Dow up around 8%...


Semis ended the day marginally higher after almost tagging the bear market (-19.79%) at the open...

NOTE - the machines always ready to fade the opening

The GOOS was cooked... (down a record 28% on the day)...


But the entire retail space is getting monkey-hammered...


VIX term structure inverted further...


HY Credit spreads are blowing out to 4-month highs, eerily tracking last year's collapse...


Global Stocks are starting to roll over but Global Bond Yields are collapsing...


And HY risk is leading stocks notably lower...


Treasury yields tumbled once again today but a weak 7Y auction sparked some yield give-back...


Additionally, as Bloomberg notes, rates on 10-year and 30-year securities hit an additional milestone, retracing over half of their climb from the record lows of 2016 to the multiyear highs in 2018. Having broken through those levels, the yields’ next major technical objectives include the 61.8% retracements, which for the 30-year is fewer than 5 basis points away.

For the 10-year, which rose from 1.318% in 2016 to 3.259% in 2018 and touched 2.2081% today, the 50% retracement was at 2.289%; the 61.8% is at 2.0596%

For the 30-year, which rose from 2.088% in 2016 to 3.465% in 2018 and touched 2.654% today, the 50% retracement was at 2.777%; the 61.8% is at 2.6141%


This prompted the yield curve to collapse to new cycle lows...


And before we leave bond-land, the ED market is implying more than 2 rate cuts by the end of 2020...