With knife-catching "value" investors proclaiming yesterday that any dip today would be an opportunity, it appears once again that faced with the reality of Brexit blowback, no one (not even the central banks) are buying the f##king dip). As Bloomberg's Mark Cudmore exclaims "Don't be a hero," to those value-investors, warning that "most of the market is still in denial."
Despite the exuberant rally in stocks following the dreadful murder of UK lawmaker Jo Cox last week, investors are anything but convinced that everything is awesome. As polls show the Brexit vote remains very evenly-matched, so traders have piled into short-term VIX protection (covering the next few days) spiking from 11 to 22 in the last week. This is the widest spread to 'normal' VIX since the August crash following China's turmoil-inducing currency devaluation.
Tuesday's overnight price action has been a continuation of yesterday's Brexit relief rally, as investors focused on the two latest polls favorable to Remain in Thursday's referendum (while ignoring the YouGov poll which gave Leave a small lead), and hoping the doom and gloom by George Soros will convince the undecideds to vote against Leaving. As a result, global stocks continued their advance while pound extending the biggest rally since 2008.
Whatever the outcome of the Brexit vote this week investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits. And whilst the market preference for the status quo might be celebrated in the short-term, actually when the fog clears all of the problems will still be there.
Global equities rallied and the pound strengthened the most since 2008, soaring by 300 pips since the Friday close as polls signaled the campaign for the U.K to stay in the European Union was gaining momentum. Haven assets including the yen, U.S. Treasuries and gold slumped. The Stoxx Europe 600 Index surged by the most since February as the MSCI Asia Pacific Index advanced with S&P 500 futures. Haven assets including the yen, U.S. Treasuries and gold slumped.
The last two-quarters of economic growth have been less than exciting, to say the least. However, these rather dismal quarters of growth come at a time when oil prices and gasoline prices have plummeted AND amidst one of the warmest winters in 65-plus years. Why is that important? Because falling oil and gas prices and warm weather are effective “tax credits” to consumers as they spend less on gasoline, heating oil and electricity. Combined, these “savings” account for more than $200 billion in additional spending power for the consumer. So, personal consumption expenditures should be rising, right?
"We have arguably reached the point that Keynes warned of in his General Theory where demand for money and credit to satisfy what he labeled “non-speculative” motives has been more than satisfied... At this point it is likely central bankers are “pushing on a string,” positively affecting prices for the financial markets’ flavor of the month but doing nothing for actual economic activity."
FANG stocks, led by Google, have tumbled by the most in two months today and given up any gains in 2016. This is weighing on the broad hope-strewn stock market as it erases all the post-Jo-Cox-death gains from yesterday...
While it may very well not last and all of yesterday's gains could evaporate instantly if the Brexit vote is set to take place as scheduled, all 10 industry groups in the MSCI All-Country World Index advanced, with the index rising 0.7% trimming the week’s drop 1.6%. The Stoxx Europe 600 Index rose 1.4%. Futures on the S&P 500 were little changed, after equities Thursday snapped their longest losing streak since February. . Oil rose, paring its biggest weekly decline in more than two months. Bond yields around the globe fell.
10Y Treasury yields just broke below February's flash-crash lows and ar enow trading back to their lowest since August 2012 with the yield curve also collapsing (2s30s down 6bps to 168bps - lowest since Jan 08). US equity markets are also tanking, led by banks - as contagion spreads - crashing back to unchanged year-to-date.