Overnight the yield on China's sovereign 10Y bond jumped 6.5bps to 2.94% on what Bloomberg dubbed were "liquidity fears." This was the biggest one day spike for the benchmark bond since Jan. 25, according to ChinaBond data.
In a report confirming that the ECB is preparing for a rerun of a post-Brexit scenario, Reuters writes that the ECB is ready to temporarily step up purchases of Italian government bonds if the result of next Sunday's crucial referendum "rocks markets" and sharply drives up borrowing costs for the euro zone's largest debtor. BTP futures briefly spike higher, gaining ~30 ticks in 2 minutes, to session high of 135.46 following the news.
"... we believe that the equity market is still at a level that can cope with moderately rising bond yields. We estimate that a rise in US bond yields above 2.75% or probably between 0.75-1% in Germany would create a more serious problem for equity markets: at that point we would expect that any further rises in yields from there would be a negative for stock returns." - Goldman Sachs
Don't let the fact that US equity markets are closed hold back the exuberant melt-up that a Trump victory has unleahed in capital markets. Echoing a normal non-holiday trading day, 0930ET came around and US equity futures kneejerk ramped higher, pushing Dow futures up above 19,100...
"There is something going on with the repo markets and we can see that as soon as the ECB starts talking about tackling these problems we see a market reaction," said David Schnautz, interest rate strategist at Commerzbank.
Gold mine production is peaking globally and this is “bullish for gold” according to a slowly emerging group in the gold industry. It is great to see the reality of peak gold production slowly be acknowledged in the mainstream as it is an important fundamental factor in the market which has been continuously ignored.
Prior to the election, investors didn’t believe there was much operating leverage available in corporate America. Slow revenue growth, slow inflation, slow wage growth, slow earnings growth. That was the recipe for next year. Now, expectations for better economic growth have markets scrambling to find companies with the operating leverage (read high fixed costs and high incremental margins) to show outsized earnings growth as a result.
"The VIX index – the famed “fear gauge” – no longer has any explanatory power for leverage... The mantle of the barometer of risk appetite and leverage has slipped from the VIX, and has passed to the dollar."
The sharp rise in yields following the Trump victory inflicted a big loss in the value of the global bond universe with the dollar value of the universe of tradable bonds globally losing $1.2 trillion over the past week, while at the same, the value of global equities increased by $0.8 trillion; however the real fireworks were behind the scenes, where the fund in- and outflows within equity groups were truly unprecedented.