Following a November to remember, which saw tremendous market gains following the election of Donald Trump, December has started off on the back foot, with US equity futures lower, European stocks halting a two day advance ahead of the Italian referendum, US Treasury yields higher and the US dollar backing away from a 9 month high.
We, and the rest of the world, are patiently hanging around, waiting to see if the Federal Reserve wakes up to what’s happening to dollar liquidity, and the threat it poses to the global economy and to its own (glacially slow) tightening cycle.
“More volatility in the near future is likely and the potential for an abrupt reversal remains significant amid heightened political uncertainty around the globe and underlying emerging market vulnerabilities,” the ECB wwarned in its twice-yearly Financial Stability Review published on Thursday.
Germany's second-largest shipping lender, German Landersbank NordLB warned it was facing a loss of “more than €1bn” this year, as a result of the latest shoring up of reserves against losses on its portfolio of shipping loans, and that a whopping €8 billion, or 40%, of its shipping loan book was now non-performing.
Each year in November the Financial Stability Board releases is ranking of the 30 banks that pose the greatest systemic risk to the global financial system and the two at the top of 2016's list just might surprise some folks.
The EU fired a major global trade war tit-for-tat retaliation today against US banks and the UK in a single action. Brussels will raise costs for foreign lenders while simultaneously taking a pot shot at London.
"US will likely implement serious fiscal stimulus but without Fed QE. Europe will have no meaningful fiscal stimulus but lots of QE. Japan is a hybrid as it will have monetary policy that easily allows for more expansionary domestic fiscal policy. However there is some evidence to suggest that we’ll effectively have cross border helicopter money."
"2016 has been a landmark year as we seem to have reached a point where the faster the plates are spun the more the unintended short-term consequences... the global financial system remains broken and extremely fragile. Secular stagnation trends are everywhere. The world has too big a debt burden for the current growth environment.."
FX traders are pricing in as big a potential disruption event for Italy's referendum as they did (correctly) for the Brexit vote. So-called 'currency-vigilantes' are buying EURUSD protection across the Dec 4th date of the vote in size as Italian bond spreads (over Bunds) push to 30-month highs.
Mario Draghi just dropped the c-word. In his address to the EU Parliament, the ECB President explained that financial-stability risks are "for the time being, contained." Having admitted that Deutsche Bank is correct that negative rates certainly hurt bank profits, Draghi remains "committed to accomodative policy." But it was ECB executive board member Benoit Coeure that spoiled the party by rejecting the narrative of ECB stock buying.