Eurozone

What is the reason for the drop? Well, one can believe the ECB's stated explanation which is that due to European summer vacations, activity in Europe has ground to a halt. Of course, this would suggest that monetization in the Eurozone is continent on managers' summer vacation plans, which is probably an even more troubling explanation of ECB activity bottlenecks than what may be really going on in Europe. The alternative? As we noted over the weekend when we reported that now even the IMF is discussing the upcoming limits to BOJ QE as a result of sellers running out of BOJs to hand over to the BOJ, the same may be taking place in Europe

Logically, the massive liquidation of USD assets by China and other emerging market central banks should put upward pressure on UST yields and will, all else equal, work at cross purposes with DM central bank QE. But all else is never really equal...

The centrally-planned house of cards is finally starting to shake uncontrollably.

Banks in the US and Europe are trying to develop a cashless transactions system. The concept is to establish a comprehensive ledger for a business or a person that records everything received and spent, and all of the assets held – mortgages, investment portfolios, debts, contractual financial obligations, and anything else of market value. There would be no need for cash because the ledger would tell you and anyone you were considering a transaction with how much is available and would be transactable at any specific moment. This is not a dreamy idea. Blythe Masters is leading a new business effort to develop a universal cashless system. Not only is she gathering significant investor interest, but the Federal Reserve and various US Government agencies have become keenly interested in the potential usefulness and efficiencies of a universal cashless system

Mario Draghi has no more magic bullets left...

Large pools of gold in indebted nations will be vulnerable. Pool accounts, digital gold bullion vaulting providers and depositories in the UK and the US might have their companies and assets nationalized and have their clients gold and silver bullion confiscated.

Moments ago, US equity futures tumbled to their lowest level in the overnight session, down 22 points or 1.1% to 1924, following both Europe (Eurostoxx 600 -1.8%, giving up more than half of yesterday's gains, led by the banking sector) and Japan (Nikkei -2.2%), and pretty much across the board as DM bonds are bid, EM assets are all weaker, oil and commodities are lower in what is shaping up to be another EM driven "risk off" day. Only this time one can't blame the usual scapegoat China whose market is shut for the long weekend.

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The REAL RISK currently is not missing some of the upside if the bull market does begin to resume, but rather catching the downside if this correction turns into a full-fledged bear.

ABN Amro was right: moments ago Mario Draghi announced that, just as the Pavlovian Dogs were salivating, the ECB would not leave markets hanging, and while not boosting QE in size, announced he would increase the amount of monetizable assets, i.e., the ECB's share limit per CUSIP equivalent, from 25% to 33%. The result: an immediate surge in both stocks (ES jumping 21 points) and bonds (the 10Y dropping to 2.156%).

• U.S. Treasury's Lew says China will be held accountable on currency (Reuters) ... but not Japan
• Bank of Japan Not Convinced of Need for Further Easing (WSJ)
• Stocks Advance With Commodities on Signs of European Revival (BBG)
• IMF Says China Slowdown, Other Risks Threaten Global Outlook (WSJ)
• Xi Says China No Threat, Announces Military Cuts at Parade (BBG)
• China holds massive military parade, to cut troop levels by 300,000 (Reuters)
• Migrants leave Budapest for Austrian frontier; pressure builds for EU action (Reuters)

All eyes will be on Mario Draghi on Thursday as expectations for something big from the former Goldmanite have grown over the past two weeks. More specifically, some now think the odds of QE expansion have increased considerably in light of collapsing eurozone inflation expectations, the incipient threat of some $1 trillion in QE-offsetting EM FX reserve draw downs, turmoil in China's financial markets, heightened volatility across the globe, and chaos in emerging markets from LatAm to AsiaPac.

With China closed today, the usual overnight market manipulation fireworks out of Beijing were absent but that does not meant asset levitation could not take place, and instead of the daily kick start out of China today it has been all about the ECB which as we previewed two days ago, is expected - at least by some such as ABN Amro - to outright boost its QE, while virtually everyone else expects Draghi to not only cut the ECB's inflation forecast, which reminds us of the chart which in March we dubbed the biggest hockeystick ever (we knew it wouldn't last) but to verbally jawbone the Euro as low as possible (i.e., the Dax as high as it will get) even if the former Goldmanite does not explicitly commit to more QE.

"Not 'IF' but 'WHEN central banks lose control?' The global financial repression pushed investors to invest cash in risky assets, such as property and equity. The scale of global policy interventions is trumping all fundamental factors for now. Investors should keep in mind that the road is never straight and next month should be full of potentially disruptive events impacting sharply overcrowded assets and trades. History shows that such misallocation of resources creates bubbles that can last before fully blowing; the question is not if, but when."

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