The euro “might start to unravel” if Deutsche Bank collapses according to respected financial journalist, Matthew Lynn. “It all has a very 2008 feel to it …” he warns and outlines his and our growing concerns about Deutsche Bank.
Two weeks after European and Japanese banks threatened mutiny against new banking capital requirements set forth by the Basel Committee, Bloomberg reports that Wall Street would have to come up with billions of dollars in additional capital in a proposed revamp of the Fed’s stress tests. US bank stocks are sliding on the news, falling back to the reality of lower and flatter yield curves as well as systemic threats from Deutsche Bank.
The SEC announced that BofA/Merrill Lynch agreed to pay a $12.5 million penalty for "maintaining ineffective trading controls" that failed to prevent erroneous orders from being sent to the markets and causing at least 15 mini-flash crashes between 2012 and 2014.
Amid what some might call self-inflicted economic collapse, Saudi Arablia has announced a $5.3 billion bailout of its banking system as interbank borrowing rates near the highest since Lehman. In what the supposedly central bank calls "supportive monetary policy...on behalf of government entities," is easing liquidity constraints with 28-day repo agreements and is the second liquidty injection this year.
The governed are ready for a period of retrenchment, consolidation and diplomatic solutions to unwinnable conflicts, as imperfect as the peace might be to hawks. For these reasons, the more adept elements of the Deep State have no choice but to dump Hillary. Empires fall not just from defeat in war with external enemies, but from the abandonment of expansionist Imperial burdens by the domestic populace. Put another way: drones and proxies don't pay taxes.
The machines are in charge again as Saudi cut hopes created just the right amount of momentum to fill the gap to the drop highs from Friday (after Iran's denial of any deal)...However, Oil volatility is spiking as hedgers pile into protection.
The post-hearing dead cat bounce in Mylan stock is over. The "blood in the streets" buyers are in trouble as the stock is tumbling following WSJ reports that Mylan is admitting its pre-tax profits for EpiPen are actually 60% higher than they told Congress.
"Moving from interest rates being ‘low for long’ to being ‘low forever’ would severely limit the room for maneuver for conventional monetary policy tools, but even more worryingly, it would threaten the contract between generations as well as risk tearing up our social fabric." - ECB's Benoit Coeure
"When it's important, you have to lie," is the now well-known mantra from European leaders when the crisis hit. So when a German politician proclaims "you can’t compare Deutsche Bank with Lehman. The bank is in a position to get out of this situation on its own," it's time to panic. Just a week after the 8th anniversary of Lehman's collapse, the multi-trillion dollar derivative book of Deutsche Bank dwarfs that of Lehman... and the credit markets are starting to wake up again.
For the 21st month in a row, Dallas Fed's manufacturing outlook remains stuck in contraction (-3.7 vs -2.5 exp). This is the longest streak outside of recession in the survey's history as new orders cratered (one respondent noting "my order book is abysmal") and inventories tumbling (not good for GDP).
Citi said that its "base case is for a Clinton victory and mostly continuity in policies, which would leave U.S. and global growth expectations relatively unchanged,” while describing the U.S. contest as “increasingly bizarre.” Bizarre or not, earlier this morning Morgan Stanley, whose base case is still a Clinton victory has presented several "contingency planning" scenarios in case Trump does win.
Following July's exuberant spike, August saw new home sales tumbled 7.6% MoM (better than expected 8.3% drop) catching down to Existing and Pending Home Sales (and Housing Starts) plunge. Perhaps more problematic, the median new home price slipped to $284k, its lowest since September 2014. Probably a good time to hike interest rates...
Oil prices have bounced off Friday's plunge lows, with WTI hovering around $45. The market for now is being driven by short-term headlines offering hope of a deal/production cuts (and rapid denial) and medium-term speculators unwinding bullish bets.
All eyes turn to the debate as Trump opens up a 2-point lead in the latest Bloomberg poll and the New York Times launches an all out attack on Trump describing him as a "man who dwells in bigotry, bluster and false promises"...sounds like panic.
The week ahead is striking in the sheer number of central bank speakers, but with the Fed on hold until December and the BoJ’s new framework now revealed, focus turns squarely from central banks to US politics. The first US presidential debate at the start of the week will be a key focus.
Just three weeks after yet another "landmark" Syria peace deal was signed, the agreement is not only in tatters but the war drums are beating louder than ever before after the US slammed Russia's action in Syria as "barbarism," not counter-terrorism, while Moscow's U.N. envoy said ending the war "is almost an impossible task now" as Syrian government forces, backed by Moscow, bombed the city of Aleppo.
"I don’t buy at all what’s coming out of Germany in terms of Germany not wanting to step in ultimately if Deutsche Bank was really in trouble" said Andreas Utermann, Allianz Global Investors’ chief investment officer. "Deutsche Bank is “too important for the German economy.”