Archive - Aug 2015 - Story

BULLARD SAYS FED DOESN'T REACT DIRECTLY TO EQUITY MARKETS

California Dreamin’ this is not.

Well, we have a winner - Oil broke to a 3 handle before 10Y rates hit a 1 handle (just - 10Y at 2.04%) following the 5th weekly rise in rig count (+2 to 674). Energy credit risk is soaring to record highs as investors realize 'there will be blood' in all those highly-levered loans.  This is the first time the front-month crude contract traded below $40 since March 3rd 2009... just before QE was unleashed in all its asset-inflating, malinvestment-driving, zombifying glory.

Dow Theory flashes sell signal. S&P 500, NYSE & Russell 2000 all closed below key supports.
No tactical capitulation. Not 90% down. ARMS below 2.0. 10-day total put/call ratio not showing panic. But VXV/VIX oversold.

One of the big problems with China's FX move is that although they've "only" seen a 3% currency fall (in the onshore Yuan) since their announcement last week, as Deutsche's Jim Reid explains... others have subsequently followed suit either deliberately or via market pressure. Emerging Market FX has been falling for 9 straight weeks but the last 2 have seen a dramatic escalation in the carnage...

It's amazing to think that just earlier this week VIX traded at 13: as of this moment it is up nearly 100% since Tuesday (and all those 'sure thing' shorters of VXX are about to get some very unpleasant margin calls). But what would be far scarier is if whoever is suddenly offering a nickel for the VIX Sept 50 calls actually knows something.

Central bankers are watching Marx's dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008's global financial meltdown.  The herd must be turned away from selling by any means available, and at this point, that means coordinated buying by all the world's Plunge Protection Teams.

Carnage - everywhere. A surging EUR - as CNH carry traders unwind en masse - has led to an unwind across most risky assets in Europe. This week saw EuroStoxx 600 - the broad index - crash almost 6%, its biggest drop since September 2011. Perhaps most stunningly, Germany's DAX was the biggest loser - collapsing 7.4% on the week. European bonds are are also seeing risk increase dramatically with Portugal and Italy worst (aside from Greece's blowout). Europe's VIX topped 30 this week, as US VIX surges.

The S&P 500 index has broken below the crucial psychological 2,000 level for the first time since late January. This is the biggest collapse in stocks since June 2013 (bigger than October's plunge - which was only rescued by Bullard's threat of QE4). What is perhaps most worrisome for the trend-followers - the S&P is now down year-over-year for the first time since May 2012... which once again brought The Fed out with moar QE.

"I have learnt from history that it is very hard working out what the trigger is. In 2008, it was the collapse of Lehman Brothers that triggered a credit crunch. Now it could be a major event in Turkey or a default of the Brazilian oil company Petrobras or some event in Malaysia. But if I have to pick one I would say it is Turkey introducing capital controls. Such controls will mean that Turkey will not pay back principals amounting to 400 Bio. $ and the interests on it." - Russell Napier

"Music streaming market leader Spotify has decided that it wants to know a lot more about you. It wants to be able to access the sensor information on your phone so it can determine whether you’re walking, running or standing still. It wants to know your GPS coordinates, grab photos from your phone and look through your contacts too. And it may share that information with its partners, so a whole load of companies could know exactly where you are and what you’re up to."

Members of Syriza's Left Coalition, led by Panagiotis Lafazanis who once plotted to storm the Greek mint, seize the country’s reserves, and arrest central bank governor Yannis Stournaras, have broken away and formed their own political party which they say will support Grexit and stand firm in the face of German "blackmail."

“August’s survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September. With the headline PMI swiftly losing ground after a modest rebound during July, the latest figure now points to the weakest overall pace of manufacturing growth for almost two years."

Somewhere Janet Yellen is smiling a "told you so" grin as she watches the "stretched valuations" of the Biotech index get slashed. Biotechs are now down 22% from the highs  - officially a bear market - and just broke the crucial 200-day moving average for the first time in 10 months...

Well that escalated quickly...