Whether Janet Yellen admits it or not, you can bet that going into today’s most important Fed meeting ever (until the next one) the supposedly “data dependent” FOMC has taken a good hard look at what’s happening in China in the wake of Beijing’s not-so-smooth transition to a new currency regime. A fresh look at the data suggests outflows from July through mid-Septemeber total more than $300 billion.
Kyle Bass shared his macro views during the “Squawk on the Street”
Going into Thursday, everyone - and we do mean everyone - is scrambling to predict which asset classes are most susceptible to a Fed hike. Amid the rampant confusion, BofAML asked fund managers to weigh in. Here are the results.
News That Matters
First it was Deutsche Bank, and now UniCredit. "Italy's biggest bank by assets, is planning to cut around 10,000 jobs, or 7 percent of its workforce, as it seeks to slash costs and boost profits, a source at the bank told Reuters on Monday," Reuters reports.
As Reuters reports, "Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division, financial sources said on Monday."
The title does give it away: the only event that everyone will be focusing on this week will be the Fed's announcement and Yellen's press conference on Thursday. Here is what else is on deck.
In the seven years since the world’s central banks responded to the financial crisis by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat.
To be sure, whether or not Janet Yellen has made a mistake will become all too clear over time. All one need do is observe whether EMs careen further into chaos and/or whether the PBoC becomes even more schizophrenic, but as far as what to watch in the immediate aftermath of the FOMC announcement, we return to what we noted after September’s NFP print when we quoted BofAML. To wit: “If they do hike, watch the long-end.”
"A 'policy error' rate hike might well result in positive correlations among equities, commodities and bonds, due to a combination of risk off and higher rates. In this case it is not entirely clear how risk-parity funds would rebalance: A potential candidate for inflows would be currencies, and in particular the dollar. This would only put additional upward pressure on the dollar, reinforcing the “policy error” nature of the hike."
Behind the veneer of “all is well” being promoted by both world Governments and the Mainstream Media, the political and financial elite have begun implementing moves to prepare for the next Crisis.
This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates. It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.
When it comes to the Fed's upcoming rate hike, only one simple shorthand matters: higher rates means less liquidity, and vice versa. What does that mean for inflation/deflation and bond yields? According to the following simple and understandable analysis by Deutsche Bank, nothing good.
Fed Hike Will Unleash "Panic And Turmoil" And A New Emerging Market Crisis, Warns World Bank Chief EconomistSubmitted by Tyler Durden on 09/08/2015 16:25 -0500
Earlier today we got the most glaring confirmation there had been absolutely zero coordination at the highest levels of authority and "responsibility", when the World Bank's current chief economist, Kaushik Basu warned that the Fed risks, and we quote, triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned. And just in case casually tossing the words "panic in turmoil" was not enough, Basu decided to add a few more choice nouns, adding a rate hike "could yield a “shock” and a new crisis in emerging markets"