Everything went from bad to worse once Europe opened, and things started going "bump in the morning" across the European banking sector, where not only has it been more of the same with CDS spreads for major banks - most notably Deutsche Bank - continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014, and other peripheral nations following.
US futures were largely unchanged overnight, with a modest bounce after the European close driven by a feeble attempt to push oil higher, faded quickly and as of this moment the E-mini was hugging the flatline ahead of today's main event - the January payrolls, expected to print at 190K and 5.0% unemployment, however the whisper number - that required to push stocks higher - is well lower, at 150K (according to DB), as only a bad (in fact very bad) jobs number today will cement the Fed's relent and assure no more rate hikes in 2016 as the market now largely expects.
After last week's relatively quiet, on macro data if not central bank news, week the newsflow picks up with the usual global PMI survey to start, and end the week with the US January payrolls report.
BofAML says that clients are no longer in "denial" about recession/bear market risks; but clients not yet willing to "accept" we are already well into a normal, cyclical recession/bear market.
How about now?
Initially both European stocks and US equity futures were grateful that China has picked at least one asset class to prop up overnight, and rose in an extremely illiquid market with European shares gaining for first time in 4 days, as S&P futures rise even as the MSCI Asia Pacific ex-Japan index just fell to the lowest level in more than 4 years. However, as of moments ago the Stoxx 600 had faded all its earlier gains and was trading near the flatline, as an algo takes out all stops on the top and bottom once more, and looks set to move on to US futures shortly.
After rising by $15.5 billion in the month before, and a near-record $22 billion in September, the November increase in nonrevolving credit was a paltry $8.3 billion - this was the smallest monthly increase in this most important for US car makers data, since February of 2012!
The half-life of the latest "market supporting" intervention by the Chinese government: just about 12 hours.
Because our macroeconomic policies have false targets and actually incentivize short term strategies the Fed has directly led us off of an economic cliff. Now that the Fed has boxed itself out of any further action, the market is at the peril of a collapsing, breadwinner-job-less and debt ridden economy and so prepare yourself for the largest market ‘correction’ the world has ever faced.
At 108 four-year colleges, at least half of all students hadn’t paid even $1 of what they owe within three years of leaving college. Those colleges got more than $10 billion in federal student loans and grants last year.
Seven years of zero rates, massive monetary inflation and incessant market backstopping have desensitized and anesthetized. Rational thought ultimately succumbed to "perpetual money machine" quackery. And now all of this greatly increases vulnerability to destabilizing market dislocations, as senses are restored and nerves awakened. "A lot of this looks like late 2007 or early 2008," warns one manager, but today, market mispricing is systemic and global – virtually all securities classes at home and abroad.
Over the weekend, in its latest quarterly presentation, the Bank of International Settlements made what may have been a very premature assessment that China is now contained. Judging by events in the past 24 hours, the reality is anything but.
After September's record surge in total consumer credit, when non-revolving credit soared by $22 billion while credit card jumped by a whopping $6.7 billion, something appears to have snapped in October when according to the Fed, just $16 billion of new credit was created, almost half the prior month, and far below the consensus estimate of a $20 billion increase. And yet there is little risk that debt-fuelled spending on the two staples that have kept the US credit machine chugging along, namely student and car loans, both of which have just surpassed a total of $1 trillion in notional debt outstanding.
After a week full of macroeconomic and headline news (and blooper) fireworks, it’s a fairly quiet start to the week today, with the usual post-payrolls lull in the US.
With Draghi's Friday comments, which as we noted previously were meant solely to push markets higher, taking place after both Europe and Asia closed for the week, today has been a session of catch up for both Asian and Europe, with Japan and China up 1% and 0.3% respectively, and Europe surging 1.4%, pushing government bond yields lower as the dollar resumes its climb on expectations that Draghi will jawbone the European currency lower once more, which in turn forced Goldman to announce two hours ago that it is "scaling back our expectation for Euro downside."
As noted earlier, after last week's snoozefest, this week starts off with a bang when the IMF announces in a few hours it will accept the Chinese Yuan in the pantheon of world reserve currencies alongside the USD, EUR, GBP and JPY the only question being what the alotted weighing of the currency will be. Things then progress to tomorrow's global PMI numbers, Yellen speeches on the economy to the Economic Club of Washington and Congress (Weds/Thurs), the eagerly anticipated ECB meeting on Thursday and finally Friday's OPEC meeting and US payroll print - the last before the FOMC in 2 weeks time.