Stocks, bond yields, and the Dollar suddenly started dropping right as The Fed unveiled its revisions for industrial production and capacity utlization. Already at weak levels, both were revised notably lower, slowing the market's rate-hike expectations and stalling any hope that the recovery is gathering pace. Judging by the chart below, the June payrolls report was right: snowfall in the summar was indeed much worse than most remember.
If yesterday's market action was boring, today has been a virtual carbon copy which started with the usual early Chinese selloff levitating into a mildly positive close, with the SHCOMP closing just above the psychological 4,000 level: the next big hurdle will be 4058, the 38.2% Fib correction of the recent fall. In the US equity futures are currently unchanged ahead of a day in which there is no macro economic data but lots of corporate earnings led by Microsoft, Verizon, UTX and of course Apple. Most importantly, some modest USD weakness overnight (DXY -0.1%) has helped the commodity complex, with gold rebounding from overnight lows, while crude has at least stopped the recent carnage which sent WTI below $50.
Russian municipal bond risk is surging once again (at 6-week highs) heading towards crisis-levels as Bloomberg reports numerous regions (including Chukotka - across from Alaska, Belgorod -near Ukraine, and three North Caucus republics) are prompting concerns as debt-to-revenue levels top 100% (144% in the case of Chukotka). The clock is ticking for President Vladimir Putin to defuse a situation he set off in 2012 with decrees to raise social spending. That contributed to a doubling in the debt load of Russia’s more than 80 regions to 2.4 trillion rubles ($42 billion) in the past five years and it all rolls within the next two to three years.
Chinese Gold reserves jump 604 tons from 1,054 tons last reported in 2009 to 1,658 tons. Many gold observers ask: "Is that it"? Since 2009 China has mined over 2,000 tons of gold and imported over 3,300 tons of gold through Hong Kong*. Where did it all go?
"We really want to stay away from positions we can’t get out of"...
Many analysts believe the officially reported 1,660 tonnes to be an understatement given the enormous volumes of gold that have been passing through Hong Kong - and through Shanghai in more recent years - and the large amounts that have been produced and bought domestically.
It is important to remember that as we have long pointed out two other entities, besides the PBOC, have also been buying gold - the State Administration of Foreign Exchange (SAFE) and the China Investment Corporation (CIC).
Today's action is so far an exact replica of Friday's zero-volume ES overnight levitation higher (even if Europe's derivatives market, the EUREX exchange, did break at the open for good measure leading to a delayed market open just to make sure nobody sells) with the "catalyst" today being the official Greek repayment to both the ECB and the IMF which will use up €6.8 billion of the €7.2 billion bridge loan the EU just handed over Athens so it can immediately repay its creditors. In other words, Greek creditors including the ECB, just repaid themselves once again. One thing which is not "one-time" or "non-recurring" is the total collapse in commodities, which after last night's precious metals flash crash has sent the Bloomberg commodity complex to a 13 year low.
How the intersection of Fed policy, the post-crisis regulatory regime, and illiquid markets turned ETFs into the new financial weapons of mass destruction.
Why Greece is simply a symptom of a much larger problem
Everyone seems to be focusing on Greece these days – a country so indebted that it needs even more loans to repay just a fraction of its gigantic credits. Clearly this is unsustainable and something has to give. Even the IMF agrees. But what about the other Southern European countries? Actually, Portugal’s financial situation is looking particularly shaky, and any hiccups could have serious cross-border repercussions from Madrid all the way to Berlin.
"Moody’s, which in 2013 began using a lower rate than governments do to calculate future liabilities, has estimated that the 25 largest U.S. public pensions alone have $2 trillion less than they need", Bloomberg reports.
What have the bailouts achieved? Well, the Greek economy is doing worse than ever, and the people are poorer than ever; and both have a lot more bad ‘news’ to come. The bailouts needed to be as big as they were to 1) successfully make the international banks ‘whole’ that had lent as much as they had into the Greek economy, 2) get the IMF involved, 3) and absolve the notorious -and cooperative- domestic oligarchy from any pain. And make all the usual suspects a lot more money in the process. It therefore doesn’t look at all unlikely that Greece was saddled with an artificially raised deficit, and that the intention behind that, all along, was to get the Troika ‘inside’ for the long run. So the country could be stripped of all its assets.
There has been so much attention on Greece in recent weeks, but the truth is that Greece represents only a very tiny fraction of an unprecedented global debt bomb which threatens to explode at any moment. The only “solution” under our current system is to kick the can down the road for as long as we can until this colossal debt pyramid finally collapses in upon itself.
Investors are too myopically focused on expectations of a steep rise in bond yields and on using central bank stimulus to pile back into riskier assets. There is too much complacency. We believe the upside potential for Treasuries prices for the balance of the year is once again being greatly underestimated. The long end should continue to perform well under various scenarios. If the Fed hikes in September or earlier, the back end should perform well. If the Fed breaks its implicit promise to hike rates in September, its credibility would be damaged: unless of course, it was due to a significant deterioration in the economic or political landscape. Either outcome would likely benefit long Treasury security prices.
The dollar made new multi-year highs against the dollar-bloc and is bid against most major and em currncies. Why?