"Things have not suddenly become awesome over the course of the past week... It is very easy to be sucked into the gushingly positive narratives and often unsupported narratives put forth by the financial media. This is particularly true when the move in asset prices can make minutes seem like days and hours seem like months. Excessive market valuations, weak internal measures, and a deteriorating backdrop has historically been a “wicked brew” for investor outcomes."
"We see the US economy moving into modest disequilibrium over the next 1-2 years, with an unemployment rate falling below its long-run sustainable rate and inflation rising above the Fed’s target. Looking ahead, overshooting means that the economy could begin to develop imbalances, increasing the odds of another downturn further into the forecast horizon."
"The paradigm has shifted in terms of inflation. Long-end interest rates are dangerous. Make sure you are being really careful about the long-end exposure as we saw this week." - Rick Rieder, CIO for global fixed income at BlackRock.
Two weeks ago we warned of the "unintended consequences" of Dodd-Frank which are likely to crush bond market liquidity. On the day of Brexit we got a glimpse of what can happen when the world's most liquid bond market suddenly isn't and as one veteran bond trader exclaimed today, US Treasury market liquidity is "worse than Brexit."
"Tobias Levkovich’s US share-shrinker portfolio has risen sharply relative to the S&P following the US election. Clearly, the market thinks that much of the capital repatriated from overseas will be returned to shareholders. This doesn’t bode especially well for those who hope policy changes will encourage a significant pick-up in US company capex."
While Chinese policymakers have taken the yuan's recent slide in stride, they are getting ready to slow its descent - i.e., sell reserves - for fear of fanning capital flight if the currency falls too quickly through the psychologically important 7-per-dollar level, Reuters reports citing policy advisers.
More of the same this morning as the dollar extended its advance on the still undeteremined Trump reflationary policy measures after Yellen signaled an interest-rate hike could be imminent, while bond yields around the globe rose again, metals declined, European stocks advanced and futures were modestly in the red just shy of all time highs.
Violent rotation: record inflows to equity ETFs, record inflows to financial sector funds, biggest bond redemptions in 3½ years, record redemptions from EM debt, largest equity inflows in 2 years ($28bn), biggest bond outflows in 3½ years ($18bn); widest weekly disparity between stock & bond flows ever.
Global bond yields and the dollar both weakened after the Bank of Japan offered to buy an unlimited amount of debt at fixed yields, stabilizing the global bond rout, while investors awaited testimony from Fed Chair Janet Yellen that will help shape the outlook for interest rates ahead of a December rate hike that is now seen as near certain.
We warned last night that the runaway yields on Japanese Government Bonds were a worrisome signal that the Bank of Japan had lost control (as short-dated yields rose above target and 10Y broke above policy 0.00% levels). Sure enough, it appears Kuroda hit the panic button tonight as it announced it first ficed-rate unlimited bond purchase operation.
Less than two months after Facebook admitted it had overstated the influence of its product to advertisers, today the social network again reported that it had "discovered several mistakes" in its reporting of metrics to partners and advertisers. One of these mistakes could lead to pages seeing their 28-day reach drop by 55%, the company said.