Archive - Aug 19, 2015

Amid heavy volume at the open, US equity markets are rapidly reverting to Monday's lows. The Dow is now down 200 points from the Monday highs. Having seen the biggest squeeze on Monday, small caps are leading the plunge.

A rate hike is coming. It is coming because the economy is not in crisis and zero rates are crisis rates, Bloomberg’s Richard Breslow writes. It is coming because the benefits of starting down the path to monetary policy normality are vitally important to the future health of the economy and restoring the Fed’s reaction function. The world can share the benefits and the costs. But one thing we do know, is that with all the hinting and polling and talk of trajectory, it is not priced in.

The American dream has become perverted into the equivalent of hoping to pick a winning economic lottery ticket: hoping that you somehow will become one of the lucky 0.00001% who strike it big and make millions upon millions of Dollars.

Because nothing says "sell bonds" like a dismally low inflation print. From the moment CPI printed (lower than expected), Treasury yields started to rise and accelerate higher as traders reflect on the chances of a delayed Fed rate hike... bad-enough news is bad news for bonds (for now) and stocks...

Turkey’s lira is once again in free fall, after testing all-time lows against the dollar during multiple sessions of late as political turmoil and civil war wreak havoc on the currency. As BofAML notes, "now that the CBT has left rates unchanged and announced that it will largely rely on selling more FX to tame volatility in FX market while waiting Fed to hike first, TRY still remains a fair game."

US Consumer Prices (CPI) missed expectations MoM with a mere 0.1% rise (half the expected 0.2% rise). Core CPI (ex food and energy) rose just 0.1% - its weakest growth since Dec 2014 with the biggest drivers being a 5.6% plunge in airfares - the biggest drop since 1995 and a 0.3% surge in 'owner equivalent rents' driven by lodging. Gas prices rose for the 3rd consecutive month (unequivocally good?) but new and used car prices tumbled.

Who says there’s no affordable housing in NYC or San Francisco?

Druckenmiller’s fund recently bought $300 million worth of SPDR Gold Trust (GLD), an ETF that tracks the price of gold. It’s a huge bet, even for a big-time trader like Druckenmiller. He put 20% of his fund’s money into this trade, and it’s his largest position.

• $1 trillion in Emerging Market outflows in the past 13 months (FT)
• German lawmakers back third Greek bailout (Reuters)
• Dutch government faces test in "junkie" Greece debate (Reuters)
• China c.bank offers selected banks medium term lending facility (Reuters)
• Another "expert network" busted: Promontory settles over StanChart probe (FT)
• Angola to Ship Most Crude in Four Years to Meet Asian Demand (BBG)
• Hackers dump data online from cheating website Ashley Madison (Reuters)
• Yuan’s Devaluation Brings Losses for Some (WSJ)

With a Greek payment to the ECB due tomorrow, there was no doubt that Germany's parliament would ratify the Third Greek bailout, and the only question was whether political opposition to a Greek rescue would be larger or smaller than expressed in the last such Bundestag vote on July 17. Sure enough, following a speech by Schauble urging his fellow MPs to give Greece a "chance for a new start", moments ago the German parliament approved the third bailout with 454 votes for, 113 against - of which 63 were Merkel's lawmakers - and 18 abstentions.

PREVIEW: July 28th-29th FOMC minutes due at 1900BST/1300CDT
 

• Markets looking for clarification for a September or December lift-off after the FOMC statement did not send any overt signals

With China's currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday's dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.