Archive - Aug 6, 2014

At 2.43%, 10Y Treasury yields are back at June 2013 levels with the entire complex pressing low-yields of the day (down 5-6bps on the week). The USD is strengthening (now up 0.45% on the week) to new 11-month highs. Equity markets are reeling in US and Europe. All major US indices are now down almost 1% from last week's payrolls data, and the Dow and Russell 2000 remain notably red year-to-date. In Europe, it's getting ugly fast, the broad European stock market is now down for 2014 with the periphery suffering the most. For 2014, Portugal is worst but Germany's DAX is -3.5% YTD. European bonds are also hurting with Italy, Portugal, and Spain spreads up 12-22bps, with German 2Y yields at 1bps - their lowest in 13 months. Gold is up on the week, jumping above $1300 this morning as copper slides.

• Bodies dumped in streets as West Africa struggles to curb Ebola
• ‘God is angry with Liberia,’ local religious leaders say, blaming Ebola on ‘homosexualism’
• Nigerian nurse dies of Ebola as 5 others confirmed with disease

• So that's what Obama meant by "costs" - Italy Recession, German Orders Signal Euro-Area Struggle (BBG)
• Russia worries, weak German data weigh on Europe (Reuters)
• Hedge Funds Betting Against Banco Espírito Santo in Line for Big Gains (WSJ)
• Bankers Called Up for Ukraine War as Rolls-Royce for Sale (BBG)
• Double Punch for 'Inversion' Deals (WSJ)
• Statist Strongmen Putin-Xi See History’s Capitalism Clash (BBG)
• China bans beards, veils from Xinjiang city's buses (Reuters)
• BATS to Settle High-Speed Trading Case (WSJ)
• Second Ebola patient wheeled into Atlanta hospital for treatment (Reuters)

With everyone focused on China as the source of next systemic risk, most forgot or simply chose to ignore Europe, which through Draghi's verbal  magic was said to be "fixed." Or at least everyone hoped that the rigged European bond market would preserve the "recovery" illusion a little longer giving the world some more time to reform pretend it is doing something to fix it. Turns out that was a mistake, confirmed earlier not only by the plunge in German Factory Orders which cratered -4.3%, down from 7.7% and below the 1.1% revised, and UK Industrial production which missed expectations of a 0.6% boost, rising only 0.3%, but most importantly Italy's Q2 GDP shocker, which as we reported earlier, dropped for the second consecutive quarter sending the country officially into recession. As a result, European stock markets, Stoxx600, has joined the DJIA in the red for the year while Germany's 2 Year Bund just went negative on aggressive risk aversion, the first time since 2012.

In the physical markets, buying remained subdued in the seasonally quiet summer period. Gold and silver bullion coin buyers have secured their allocations and there is very little new entrants into the bullion market which  has contributed to falling demand recently. Data from the U.S. Mint showed that gold coin sales in July fell about 40% from a month ago.

Goodbye European recovery, we hardly knew you. It must have come as a huge shock to all hypnotized lemmings aka "sophisticated investors" who have been following the manipulated, artificial yields in the Italian 10Y relentlessly declining and thus suggesting at least some economic stability, when an hour ago instead of reporting a 0.1% increase for its Q2 GDP as widely expected, Italy "unexpectedly" reported a sequential contraction of -0.2% down from a -0.1% drop in Q1, and officially the start of yet another, its third since Lehman, recession. Then again, considering Italy's youth unemployment of over 40% just hit a record high, we use the term "unexpectedly" rather loosely.