Capital Markets

Price Discovery - R.I.P.!

But the destruction of price discovery in the sovereign debt market is not simply an academic curiosity to be jawed about by the few remaining fiscal scolds in the world. To the contrary, it is already having massive toxic consequences in the arenas of fiscal governance and capital markets alike.

Frontrunning: July 1

  • Bond yields sink as central banks head for easier policy (Reuters)
  • PM hopeful Gove says UK leader must believe in Brexit (AP)
  • U.K. Can’t Bank on EU’s Rationality in Talks (WSJ)
  • Gove Makes Case for U.K. Premiership After Johnson Betrayal (BBG)
  • ECB not debating abandoning capital key in QE buys (Reuters)

The Curse Of "Wealth Effects" Central Banking

The robo-machines and perma-bulls are at it again, delivering another volumeless dead-cat bounce in a market that has churned sideways for 600 days now. Nevertheless, there is a reason for the churn and there is a culprit behind the abortive rallies.

S&P Downgrades European Union From AA+ To AA - Full Text

On June 30, 2016, S&P Global Ratings lowered its long-term issuer credit rating on supranational institution, the European Union (EU), to 'AA' from  'AA+'. The 'A-1+' short-term rating was affirmed. The outlook is stable.

Global PPT Swings From "Easing Actions Are Backfiring" To Double Central Bank Bazookas In 3 Days

Sunday evening, as the world watched the fallout from what "Remin"-ers said was the end of the world, The BIS warned that central bank 'easing' actions "have started to backfire" and explained what little could be achieved with further stimulus. Three days later, first The Bank of England and then the European Central Bank both unleashed fresh bazookas as The PPT to save the world swung into action to rescue stocks and the all-important global wealth effect. Yet again - no consequences for anything will be allowed...

The First Casualty Of Brexit: Italy Prepares €40 Billion Bank Bailout

Barely has the market had time to digest last week's Brexit vote by the UK, a vote which may never actually be implemented if the "sturm und drang" campaign unleashed by the EU and the ECB on UK capital markets succeeds in changing the mind of enough "Leavers" to the point that the entire referendum is called off and Boris Johnson never triggers the Article 50 clause, and already Europe's most financially troubled nation, Italy, is using Brexit as a pretext to unleash a €40 billion ($44 billion) bailout of its insolvent banks.

Nigeria Takes First Bold Step Toward Hyperinflation As Currency Plunges 30%

As we warned last week was likely, Nigeria's decision to throw in the towel on maintaining its currency peg has resulted in a collapse in the Naira. Ending a 16-month-long effort to 'fix' its currency, Nigeria's shift to a free float has resulted in a 30% crash in the currency as the central bank began auctioning dollars to try and clear backlogs of orders for hard currency. However, as the forward market suggests, the pain is far from over as the hyperinflationary endgame remains more than likely.

Fed Congressional Testimony Preview: Janet Yellen's Shot At Redemption

Google "The Fed" and the search engine will offer to autofill your query with "surrenders," reflecting market concerns that The Fed has abandoned its recently more upbeat take on the domestic economy. During this week's semiannual monetary policy report to Congress, the success/failure of this appearance will hinge on the tone she chooses to strike and the conviction investors hear in her testimony and in Q&A. With so much chatter about the Fed “Losing credibility” with markets, this will be an important chance for Chair Yellen to set the record straight.

Nigeria Hyperinflation Looms As Central Bank Throws In The Towel, Devalues Currency

Less than a month ago, when looking at Nigeria's deplorable economic and reserve situation, we predicted that "Nigeria Currency Devaluation Looms As FX Forwards Crash To Record Lows." Ealier today this prediction came true when Nigeria’s central bank finally threw in the towel when it announced that the it will allow the Naira exchange rate to be market-driven, setting the stage for a devaluation of the currency, and unleashing the latest bout of hyperinflation.