As usual, Gloom, Boom, and Doom's Marc Faber pulls no punches in this brief interview on CNBC's Futures Now. When asked what is the catalyst for the crash he expects in US equity markets (following crashes in various markets around the world), he shocks a stunned anchor looking at equity markets near all-time highs with some ugly truths - "interest rates are no longer a tail-wind, earnings growth is not there, and emerging economies are collapsing (so no global growth)." However, with asset allocators "swimming in the pool of liquidity" it is hard to say 'when' it will occur especially as money floods out of EM markets. Critically though, it is Syria (and the spillover) that has Faber most concerned; as he concludes that Western governments "meddling" is "going to be a disaster."
Markets started the day in exuberant mood. Investors were greatly rotating away from bonds into stocks, "war-off" premia were holding up and oil prices were not shooting higher. Then the macro data hit - better-than-expected - and things got a little anxious in equity land (and bond yields pushed higher in Taper-on mode). Then Boehner et al. showed their support for Obama and stocks started to crumble. Commodities had already risen back above Friday's close (dismissing any de-escalation) and while stocks stalled on their collapse lower at Sunday's futures open, they inevitably dumped back to unchanged from Friday. VIX jumped back above 17.25% and the curve flattened and bonds (slow to start) saw yields dump back lower. A late-day pure algo run to VWAP saved the day and closed us green in stocks buy Trannies are not happy as WTI closes back above $108.50.
Whether it is growth hopes or Taper fears, good-news was bad-news for bond bulls this morning as better-than-expected ISM and construction spending data jarred bond yields from already rising levels to their biggest jump in two months. With the 30Y up 11bps and back over 3.8% and the 10Y pushing 10bps higher in yield to 2.89%, the line in the sand level of 3.00% grows ever closer. Equity markets are unsure of what to make of it but appear to have a bias to the downside on this good-news-is-bad-news data but gold, silver, and crude oil is rising.
Most of the gains in global equity markets were achieved at the gap open of US futures last night but with volumes tepid, the levitation machines also got a lift from Europe's PMI data this morning. S&P futures have lifted from a +10 gap to +16 now, testing towards Tuesday's (Pre-Kerry) levels but Treasuries have been slammed as any safe-haven premium is removed sending yields on the 10Y and 30Y up around 6 to 7bps (10-day high yields). Gold, which was slammed lower with WTI at the open, has recovered most of its losses (like WTI) and trades only modestly lower but silver is up over 2.5% (its best day on 10 days). European bond spreads and stocks are rallying handsomely with Portugal and Spain -20bps from Friday's wides and stocks up 1.5 to 2% (though Greece is lagging).
"In the spring, the risks to growth seemed to be fading. The economy was weathering the fiscal shock. Politicians decided to delay battles over the budget and the debt ceiling, passing a continuing resolution to fund the budget through September and postponing the debt ceiling drop-dead date to some time in the fall. Meanwhile, financial markets in Europe had settled down, the European economy showed signs of improvement, and commodity prices were stable. In their June directive the FOMC made it official: “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.” Unfortunately, we seem to be entering another of those periods of elevated risk. Three concerns are emerging."
- Bank of America
Albert Edwards Storms Out Of The Gate With Calls For 450 On The S&P, Sub-1% 10 Year, And $10,000 GOldSubmitted by Tyler Durden on 08/29/2013 10:07 -0500
"The emerging markets "story" has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen’s slide and then by the threat of Fed tightening. China has flipflopped from berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart from the activists that seem to inhabit western central banks, thinks QE could be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At the risk of being called a crackpot again, I repeat my forecasts of 450 for the S&P, sub-1% US 10y yields and gold above $10,000."
ISRAEL IS DEPLOYING ALL OF ITS MISSILE DEFENSES AS A PRECAUTION.
It makes perfect sense that the precious metals are being slammed lower (as well as WTI modestly) as US equity markets open. No other asset-classes are exhibiting the vertical moves. Pre-open margin calls?
UPDATE 2: INR at 68.00 (-3.25% - biggest single-day drop since Sept 1995) and WTI Crude at $112.00 -- BNP Paribas Cuts India FY14 GDP Est. to 3.7% From 5.2%) -- *INDIA RUPEE DROPS 19.2% THIS YEAR, SET FOR WORST LOSS SINCE '91
UPDATE 1: Indian Rupee has blasted through 67.00 (down 1.75% on the day against the USD) to another new all-time low - a 15% devaluation in the last 21 trading days!!!
World FX, Bond, and equity markets are a sea of red tonight as the plunge in the US markets' day-session extends into AsiaPac. Led by the Philippines (down another stunning 5.4% tonight), equity markets in Thailand, India, and Japan are all struggling hard. Not to be outdone, bond spreads in the usual suspects of Indonesia, Thailand, India, and Taiwan are cracking wider. Most of the FX pressure is being focused tonight on Indonesia as the Rupiah collapses another 1.4% (even as the Indian Rupee opens at 66.90 - a new all-time low). Modest JPY weakness is providing a small lift carry-wise to US futures (Treasuries are unch, gold and silver are modestly higher from the US close) but it is the oil complex that is getting smashed higher. WTI last traded $111.59 (its highest since May 2011) and Brent just broke $117 (the latter typically more critical for US gas prices)..
There is a recurring nightmare that is playing out once again in many of the most leveraged asset-classes in the world's so-called 'markets'. The theme is that of an improving US economy which is pointing a normalization of US monetary policy. Good news, right? It would seem not; as Chris Wood's Greed and Fear notes, that the practical reality is that the emerging world, including Asia, will remain vulnerable to further selling so long as markets are anticipating normalisation of American monetary policy and a related strengthening in the US dollar. However, there is a conundrum, if the world was so sure of the relative strength of the American economy, surely the yen should be selling off more against the dollar. For CLSA the real test is yet to come when the new fiscal year in America begins on 1 October and the revival of US economic growth that is so hoped-for, does not materialize... and given the correlation in the chart below, it is clear that there is only thing that matters - the US 10Y rate.
With AAPL plunging below the critical $500 level and equity markets slumping this morning, it seems appropriate to reflect once again on the cause of last week's NASDARK debacle. As Nanex so obviously points out in these charts, digging into market data before the Nasdaq blackout at 12:20 EDT on August 22, 2013, we came across several significant periods of extremely high quote volumes. By plotting the number of messages for each of the 6 multicast lines used by the Tape C SIP (Securities Information Processor), we discovered the quote blasts map directly to individual multicast lines. The 'line' carrying AAPL's ticker saw the largest and most egregious quote volumes (spamming perhaps) that eventualy ovehwlemed NASDARK's creeking infrastructure.
All was well in the world early on. Dismal durable goods orders were terrible enough to provide the index-watching-muppets with the bad-news-that-is-good-news to pump stocks higher. Other markets reacted in a pro-Taper-off mode (aside from Gold and silver which were man-handled back down from the $1,400 level). Volume is/was terrible in stocks but they clung to earlier highs as homebuilders surged (seeming to ignore Friday's data entirely). Then Kerry spoke... first WTI broke higher (catching up Brent), then gold (and silver), the USD sold off (as JPY strengthened as a million carry traders were suddenly silenced), and US equity markets fell out of bed with a thump. The dow lost 15,000; S&P futures tested down to their 50DMA; gold traded up to $1,403; silver well over $24; VIX snapped 1 vol higher to 15.0%; and AAPL tumbled from early highs (holding above $500 though). An ugly close at the lows of the day for stocks...
“Indians want to maintain a store of value, so they go to gold.”
‘Gold is the last man standing as rupee fuels inflation’ was not published on Bloomberg.com but the story was published on Live Mint.
What is happening in India is a prelude to what will be seen in other economies in the coming years as currencies depreciate.
With the UK on holiday (vacation), European markets were relatively quiet - apart from Italy... The Berlusconi debacle rolls on and sparked the worst sell-off in Italian sovereign bonds in 9 weeks and pushed the spread on BTPs over Bunds to its highest in 3 weeks. Most European equity markets closed mildly lower (with Germany's DAX unch - recovering from its EUREX-halting drop earlier in the day. Italian stocks were the big underperformer (down 2.2%). For the 3rd day in a row, Europe's VIX was smashed lower from an opening high print to close at its lows. The UK and its 'credit police' will be back tomorrow.
Over six weeks ago we first noted that there were problems with the industry-specific data underlying the Chinese PMI numbers when we added that "the random disappearance of data was disorienting." Fast-forward to last week and the greater-than-50 PMI print heard around the world, which provided just enough momentum ignition to warrant more optimism in world equity markets that the second-half of the year would indeed prove to be a mythical renaissance. Well, it turns out that China's official National Bureau of Statistics has admitted that "we can’t ensure all industry-specific data can reach accuracy requirements," adding that they "were concerned that some of the numbers may affect related investors and users." Translation - the data in some industries was so bad that by telling the truth, our data would have become viciously self-fulfilling for their demise. The Juncker-rule is alive and well...
"When things are going well people become greedy and enthusiastic, and when times are troubled, people become fearful and reticent. That’s just the wrong thing to do. Another mistake that people often make is that they compare themselves with others who are making more money than they are and conclude that they should emulate the others’ actions ... after they’ve worked. This is the source of the herd behaviour that so often gets them into trouble... As long as human nature is part of the investment environment, which it always will be, we’ll experience bubbles and crashes.... People talk about the wisdom of the free market – of the invisible hand – but there’s no free market in money today. Interest rates are not natural. They are where they are because the governments have set them at that level. Free markets optimise the allocation of resources in the long run, and administered markets distort the allocation of resources. This is not a good thing..." - Howard Marks