Archive - Nov 30, 2015

"The idea of lettting an asset bubble run is literally one of the most foolish things a central bank can do... they always end badly;"

Are the "globalization gloves" finally coming off?

For the 10th month in the last 12, Milwaukee's ISM missed expectations. After bouncing hopefully off 6-year lows in October, November saw weakness return with a plunge in New Orders and weakness in employment (even as exports supposedly soared). This is the 8th straight month of contraction (sub-50) in the survey.

Faced with a sharp deterioration in government finances, the Saudis have resorted to tapping the bond market and delaying contractor payments in an effort to avoid further depletion of the kingdom's SAMA reserves. Now, Saudi banks are bleeding private and public sector deposits, while interbank rates have spiked the most since 2008. 

As noted earlier, after last week's snoozefest, this week starts off with a bang when the IMF announces in a few hours it will accept the Chinese Yuan in the pantheon of world reserve currencies alongside the USD, EUR, GBP and JPY the only question being what the alotted weighing of the currency will be. Things then progress to tomorrow's global PMI numbers, Yellen speeches on the economy to the Economic Club of Washington and Congress (Weds/Thurs), the eagerly anticipated ECB meeting on Thursday and finally Friday's OPEC meeting and US payroll print - the last before the FOMC in 2 weeks time.

"All global events have been reduced to monetary policy events, i.e., buy the dip opportunities. France’s CAC-40 sold off the two trading days before the recent horror. It was a solid buy the following Monday. By always protecting risk-takers, the authorities are complicit in trivializing issues that need an all hands on-deck response. Bad news is good news has metastasized into an even baser concept"

"We think that the equities risk-reward will be less attractive than it was in the past few years. We reduce our equities OW in a balanced portfolio to a minimal one, at 5% vs benchmark, the lowest we have had since the current upcycle started. The long period of indiscriminately buying any dip might be coming to an end."

Late last year, Japanese PM Shinzo Abe effectively forced the $1.1 trillion Government Pension Investment Fund to double its domestic equity allocation. With Kuroda providing perpetual Nikkei plunge protection, and with Abenomics set to bring about an economic renaissance, what could possibly go wrong?...

• Dollar rises versus euro, oil drops before ECB, OPEC meetings (Reuters)
• Smog chokes Chinese, Indian capitals as climate talks begin (Reuters)
• Obama: COP21 Paris Climate Talks Could Be ‘Turning Point’ For Planet (BBG)
• China plans to launch carbon-tracking satellites into space (Reuters)
• Scientists Dispute 2-Degree Model Guiding Climate Talks (WSJ)
• At NATO, Turkey defiant over downing of Russian jet (Reuters)
• ECB Left With No Choice But Action After Draghi's Priming (BBG)

Without a rerun of last Friday's Chinese stock market rout, European traders could focus on what "really matters", namely how much of the ECB's upcoming 20 bps rate cut and €20 billion QE expansion (with Commerzbank saying Draghi may even hint at Europe's QE3) is priced in, and whether the ECB's actions are just modestly priced in, or more than fully, and just how big the "sell the news" event will be.The result: the Euro falls to a new 7 month low, the dollar spot index hits a new all time high, and European stocks and US futures stage another remarkable overnight comeback on the usual low volume levitation and central bank intervention.