Today’s dilemma – for financial markets and central bankers – is that pushing back against nascent “risk off” unleashes another forceful bout of “risk on.” At this point, it’s either Bubble on or off – destabilizing either way. The global Bubble has grown too distended and the market backdrop too dysfunctional. Central bankers over the past 25 years have created excessive “money,” while incentivizing too much finance into financial speculation. There is now way too much “money” crowded into the securities and derivative markets, and the upshot is an increasingly hostile backdrop for leverage and speculation.
If it smells like a rat it probably is a rat, and so it is with respect to these deals by collusion between China and Western governments, and their chosen corporate protégés, whether on currency or trade or investment matters. This is all an exercise in some combination of crony capitalism (with cronies on both sides!) and diplomacy by stealth. The gains and gainers are deliberately kept opaque. The losers are much less evident than the gainers, on whichever side of the fence, but principle and practice tells us that the total losses are much larger than the gains.
While understandably all eyes have been fixed on every monthly capital outflow update from China (even the ones that the Politburo is clearly massaging), few have noticed that one of the biggest total outflows currently in the global developed economy is taking place right in America's own back yard.
After yesterday's closing ramp "prudently" just ahead of an abysmal IBM earnings report with the lowest revenues since 2002, and the latest rally in capital markets which sent European stocks to their highest level since August on the back of a barrage of global bad data which has unleashed the Pavlovian liquidity dogs screaming for moar central bank bailouts, this morning has seen a modest decline in the Stoxx 600 driven by energy names, while S&P500 futures are set to open lower on IBM's disappointment at least until the latest massive BOJ USDJPY buying spree sends the pair to 120 and the S&P solidly in the green. The biggest political event overnight was the Canadian election, where Trudeau's liberals swept PM Harper from power, capping the biggest political comeback in the country's history; the Canadian dollar is largely unchanged after initially weakening then rising.
Correction continues, but it is only a correction.
Gains in the foreign currencies appears to be mostly short-covering rather than bottom-picking per se. In bigger picture the dollar is consolidating its earlier gains.
The poor jobs report weighed on the dollar, but the greenback recovered as the session progressed. It is not clear the jobs report was a game changer. Stay tuned.
Gold in Q3: USD -4.5%, EUR -2.4%, GBP +1.5%, CHF +2.4%, CAD +4.6%. Global stocks fall 5% to 13% - Stocks face worst quarter since 2011 over fears for global economy
News That Matters
Yellen's reaffirmation of a likely rate before year-end helped lift the dollar. Look for some consolidation ahead of the US jobs data.
Non-bombasitc overview of the investment climate. No, the sky is not falling. This is not the end of days.
The divergence meme that is the center of the dollar bull narrative was never predicated on precise timing of Fed's lift-off. To go from no hike in September to Fed will never raise interest rates, or QE4 is next, is a needless exaggeration.
That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations.
A review of the technical condition of the dollar in the days leading up to the FOMC meeting announcement.
For anyone who (still) believes that Canada has a diversified economy...