Archive - Oct 2, 2014 - Story

Broad European stocks plunged into the red for 2014 today as a rattled Mario Draghi disappointed a hungry-for-more risk market. Bloomberg's BE500 index dropped its most since June 2013 to 2-month lows led by weakness in Italian banks. UK stocks underperformed (-3.6%) but Spain, Italy, and Portugal all tumbled 2-3%. The selling pressure interestingly stayed in stocks as bond spreads rose only modestly and EURUSD roundtripped to only a small rise from pre-ECB. Notably, US equities are cratering as they are so used to the pre-EU-close pump that did not happen.

It "all depends on Draghi," warned UBS' Art Cashin early this morning... and Draghi disappointed. Historically October 2nd, Cashin notes, usually sees a rebound but payrolls may complicate that pattern (and rumors that ISIS is consolidating west of Baghdad). Stick with the drill, he advises – "stay wary, alert and very, very nimble," as the 120-day moving average (1945 on Cash S&P) is critical...

While the Obama administration is furiously scratching its head how to write off the debt of a few hundred million Americans, so they can once again load up on debt from scratch, spend like drunken sailors, and blow up the system once more, others are already a few steps ahead, such as UK's largest payday lender, the Wonga Group Ltd., which we learn today has written off the debt of 330,000 customers after British regulators introduced tougher rules to "protect consumers" such as Master Elliot Gomme, 20, who admits he lied to get a loan: "the 20-year-old admitted lying on his application and told Newsbeat it was "too easy" to be accepted."

UPDATE: TEXAS HEALTH OFFICIALS INCREASE NUMBER OF POSSIBLE CONTACTS OF EBOLA VICTIM TO 100

Despite promises by all asunder that any Ebola epidemic in America will be "contained" the dreadful news this morning appears to confirm this is not the case. From one patient, Eric Duncan, just 2 days ago, to 4 schools and 18 people yesterday (according to Texas Governor Rick Perry) to today where NBC News has confirmed with the Dallas county health and human services that 80 people came into contact with the Dallas Ebola patient or his family (including 12-18 direct). The ambulance workers are also under close watch after Duncan vomited on the ground outside an apartment complex as he was bundled into an ambulance. In addition, CBS is reporting one possible Ebola patient in isolation in Hawaii. Contained? Perhaps it is time to rethink the ethics of disease control once again.

Surprised? Following last month's 10.5% record rise in Factory Orders, August just printed -10.1% MoM - the biggest drop on record. While some give-back was excpected this is notably worse than the expected drop of -9.5% (the biggest miss since January 2014). Worse still durables orders cratered 18.4% (and non-durables dropped 0.4%) MoM and ex-transports dropped 0.1% - the 3rd drop in the last 4 months. So - in summary - last month saw a $56 billion rise and this month saw a $55.8 billion drop - 'economic growth' roundtripped... as inventories rose 0.1% and shipments fell 1%.

• Programmes will last at least two years
• Will enhance transmission of monetary policy, support provision of credit to the euro area economy and, as a result, provide further monetary policy accommodation
• Eurosystem collateral framework is guiding principle for eligibility of assets for purchase
• Asset purchases to start in fourth quarter 2014, starting with covered bonds in second-half of October

Extending current programs (i.e. no imminent Sovereign QE)... may not spend the entire EUR1 trillion on current programs... no rate change... Markets are not happy. EUR is surging, European stocks are dropping, European peripheral bond risk is rising. Treasuries are bid and US equities have dropped to yesterday's lows.

About 36 months ago Ireland’s two-year notes were yielding 14% and its government and the Brussels apparatchiks were scrambling with tin cup in hand to stave off disaster. Now their yield is negative 0.01%.

We look forward to more jawboning, more promises, and more hope that fiscal policymakers enact reforms as ECB chief Mario Draghi explains how doing nothing on rates (they are at the limit) and QE (zee Germans) is still the most dovish thing because they might possibly maybe kinda sorta do it in the future...

"With the recent weakness in risk, are we understanding more about how addicted markets have been to the Fed's QE? Or is this just a temporary unrelated blip? The Fed will turn off the QE tap later this month and in our opinion volatility has been increasing as the market adjusts. We've long felt that the Fed pulling back from QE would be an issue for markets and it’s tempting to be bearish here."

Unlike last month, when in an act of futility and desperation, the ECB pushed NIRP into NIRPer territory, this time the ex-Goldmanite in charge of Europe's money printer decided not to antagonize Germany further, and to do nothing.

• As we warned in May 2013... Gross Exposes $42 Trillion Bond Market’s Key Flaw in Exit (BBG).... hint: no liquidity
• WTI Crude Slips Below $90 for First Time in 17 Months (BBG)
• Traders Thank Fed for Once-in-Decade Surge in Profit (BBG)
• Islamic State committing 'staggering' crimes in Iraq: U.N. report (Reuters)
• Philippine Islamist militants threaten to behead German on October 17 (Reuters)
• Draghi’s Buying Spree for the ECB Might Start Modestly (BBG)
• Russian Officials Say No Plans for Capital Controls (WSJ)
• Indians Join the Wave of Investors in Condos and Homes in the U.S. (NYT)
• Leader of Mexican drugs cartel captured (FT)
• Dallas Ebola patient vomited outside apartment on way to hospital (Reuters)

While we already documented the crash in Japanese stocks earlier, the biggest market development overnight is the plunge in crude, with both Brent and WTI plunging, the latter sliding under $90 for the first time in 17 months, extending yesterday's selloff after Saudi Aramco cut Arab Light OSP in Asia to 2008 levels. Brent drops to lowest since June 2012. This also confirms that the global slowdown whose can is kicked every so often in a new bout of money printing, is arriving fast. That, and the imminent crackdown on today's Hong Kong protest will likely be the biggest stories of the day, even as the spread of Ebola to the US is sure to keep everhone on edge.