Archive - Oct 8, 2014 - Story

"The new information on global slowing may be less important than the realization that policymakers have few tools to deal with any kind of slowing, let alone a major shock. G3 10yr government rates now average 1.27, within 10bps of the all-time pre-tapering low of 2013 (Figure 1).  So if the last 100bps of rate reduction did not stimulate global growth, it does not seem likely that another 20-30bps or so in the presence of negative demand shocks will do the trick.  The market takeaway from their comments is that the US economy is not strong enough to stand on its own, leaving little hope for the rest of the world, which is already slowing. Moreover since investors and business do not have particular confidence that the policy response will be effective, any upgrading of the risk of negative shocks raises the probability that we may be put into a zone to which there is no adequate response."

"I see the reasons to dampen down public fears,... But scientifically, we're in the middle of the first experiment of multiple, serial passages of Ebola virus in man... God knows what this virus is going to look like. I don't."

"We just don't have the data to exclude" the possibility that it spreads through the air in tight quarters.

Today: "If the Russell were to hold today and turn higher, then we might very seriously consider covering a portion of our derivatives; otherwise, we shall sit tight, remaining market neutral and fearing that indeed the bear market has begun and that rallies henceforth are to be sold rather than weakness bought."

2 Days ago: "The well-defined upward sloping trend channel continues to remain fully intact and until that trend line is broken we have to once again err upon the side of being bullish of shares generally... Support levels have held and trends from the lower left to the upper right obtain. One may wish to join the bearish camp, but one would be wrong."

After stoically ignoring the impact of its tumbling currency on the domestic economy (and as a reminder, Japan would kill for a currency collapse of this magnitude: just think of the "economic renaissance" that would result if only Abenomics was right about killing your currency leading to growth... which it isn't), the Kremlin is finally starting to feel the pinch leading to the biggest central bank intervention in FX markets since the start of the Ukraine campaign, buying Rubles for a third consecutive day at an amount of over $2 billion, with $1.75 billion purchased in the first two days of the current intervention attempt, and another $420 million in foreign currencies sold overnight according to Bank of Russia data.

Africa's US commander has admitted troops will be fighting Ebola for about a year (and in direct contact with infected individuals). Both US Ebola patients conditions are worsening, as Reuters reports, Thomas Duncan is fighting for his life on a ventilator (and undergoing dialysis) and NBC cameraman Ashoka Mukpo is receiving blood from Ebola-survivor Dr. Kent Brantly. The outbreak in Spain has spread with 6 "high risk" patients under quarantine (and Excalibur the dog is set to be euthanized - raising questions about transmission mechanisms). The economic impact on West Africa continues to surge with The World Bank estimating a $32billion hit by the end of 2015.

The one market seemingly everyone "knows" is a bubble is the treasury market. That is the market that just made new low yields on the 30 year bond for the year. GTAT, which is the first true "jump to default" I have ever seen looks exactly like a "bubble" popping,  is spurring the rethinking of where the risk is in high yield.

• Turkey says Syria town about to fall as Islamic State advances (Reuters)
• Only now? Growth worries grip stocks, oil (Reuters)
• Hong Kong Protest Leaders ‘Furious’ at Agenda for Talks (BBG)
• Earthquake Damages Thousands of Homes in Southern China (BBG)
• Keystone Be Darned: Canada Finds Oil Route Around Obama (BBG)
• Where Is North Korea's 31-Year-Old Leader? (BusinessWeek)
• Australia to Revise Employment Data (WSJ)
• Americans Living Longer as Fewer Die From Heart Disease, Cancer (BBG)
• A 401(k) Conundrum: Can You Make Cash Pile Last for Life?  (BBG)
• China Services Sector Slows in September (WSJ)

And it all started off so promisingly, when after the biggest selloff in US stocks in two months, the BOJ and its preferred banks once again sold 6J (i.e., bought USDJPY) in the morning Japan session (while collecting CME liquidity rebates of course), sending the pair from below 108 to half the way to 109, and naturally taking global futures higher while pushing yields lower when as ITC says a "large TY seller knocked USTs to lows during the session" - hmmm, wonder who the large seller was. And then... the "rebound euphoria" fizzled a la Sodastream, sending the Nikkei sliding 1.2%, and US equity futures back to unchanged with the bond surge returning and sending German Bunds to new all time highs once again, while the Dax briefly broke below under 9000 before stabilizing at the key support level. It is unclear what caused the failure in central bank euphoria, although some suggest that the latest bevy of disappointing economic news wasn't quite bad enough.