Now that Mario Draghi has telegraphed more easing from the ECB come December, the question is what exactly the bank will announce. Will Draghi cut the depo rate further into negative territory? How long into 2017 will PSPP be extended? Given the scarcity of purchasable paper, will the ECB expand the universe of eligible assets and if so, will Draghi go full-Kuroda knowing full well that you never, ever go full-Kuroda?
There is no alternative except to take cover because the latest stock market rip is based on pure central bank hopium. Indeed, Mario Draghi has confirmed once again that the world’s central bankers have a monetary death wish. Unlike the gamblers who bought Cramer’s top 49 stock picks, the best course of action is to sell, sell, sell—–and do it now.
Yesterday morning, when previewing the day's tumultuous events, we said that "Futures Are Firm On Hope Draghi Will Give Green Light To BTFD." And boy did Draghi give a green light, that and then some, when his press conference unleashed one of the biggest one-day US equity rallies in 2015. This morning it has been more of the same, with global market momentum on the heels of Draghi's confirmation that Europe's economy is again backsliding (it's a good thing, if only for stocks), leading to momentum for US equity futures, which together with soaring tech/cloud, earnings if no other, are on their way to take out recent all time highs.
If you thought we'd seen the depths of NIRP, think again because as Deutsche Bank notes, the ECB, Riksbank, SNB, and Nationalbank will likely dive further into the monetary Twilight Zone in the months ahead. Only when rates become negative enough to spark a depositor revolt will we have reached the "real" lower bound, but at that point, it will be far too late...
- ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (BBG)
- At odds with Republicans, Hillary Clinton to testify on Benghazi (Reuters)
- House tees up conservative plans to raise debt limit (Hill)
- U.S., Russia to Meet at Syria Conference to Discuss Crisis (WSJ)
- Putin Gains Record Support Among Russians Over Syria, Poll Shows (BBG)
- China Plans 2020 Deadline for Dismantling Capital Controls (BBG)
- Nyrstar Drops the Most on Record as Mining Hit by Metal Rout (BBG)
Since either NIRP, or QE, or most likely both, are about to cross the Atlantic and make landfall in the US before the Fed is forced to launch the monetary helicopter, those who want to know what is really coming - no, not rate hikes - are urged to read this.
It's Back To The Future As Stocks, Futures Jump On The Latest Abysmal Economic News; China Tremors ReturnSubmitted by Tyler Durden on 10/21/2015 05:57 -0500
26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax. None of the happened. Instead the only "back to the future" moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news leading to surging stocks.
- Great News: China’s GDP Growth Beats Forecasts as Stimulus Supports Spending (BBG)
- Oh wait, maybe not: China GDP: Deflategate Comes to Beijing (WSJ)
- Actually, definitely not: Shanghai rebar falls to record low after weak China GDP (Reuters)
- But who cares: European Shares Gain on Earnings as Bonds Drop, Metals Decline (BBG)
Thousands of austerity measures, dramatic cuts in incomes, incredible hikes in taxes. Five and a half years in deep recession. Three bailout agreements. And where do Greeks stand now? On top of the Eurozone when it comes to poverty. More than one out of three Greeks, that is “36% of the Greek population is at risk of poverty and social exclusion,” the EUROSTAT found out - the highest rate within the Euro Zone.
“Adulterous women will be stoned; thieves will have their hands chopped off!"
The cross asset whiplash events, coming at a furious pace unseen since 2009, continue, and while the late September surge driven by a historic short squeeze served to massively boost equities, other risk assets were also impacted. Case in point: junk bonds, which after becoming one of the most unloved asset classes in 2015 due to their exposure to energy assets, took advantage of the latest vicious squeeze in crude, and notched their biggest inflow in 8 months, even as gold just saw its biggest "QE-on" buying in the past 7 weeks.
In the absence of any key economic developments in the Asian trading session, Asian stocks traded mostly under the influence of the late, pre-opex US ramp momentum courtesy of another day of ugly economic data in the US (bad econ news is good news for liquidity addicts), closing solidly in the green across the board, led by China (+1.6%) and Japan (+1.1%) thanks in no small part to the latest tumble in the Yen carry trade, which mirrored a bout of USD overnight weakness. And since a major part of the risk on move yesterday was due to Ewald Nowotny's comments welcoming more QE, news from Eurostat that Eurozone CPI in September dropped -0.1% confirming Europe's deflation continues, should only be greeted with even more buying as it suggests further easing by the ECB is inevitable.
In the beginning of 2008, a US dollar could buy only €0.65 euros. Today, on average through 2015, one US dollar can buy €0.91 euros. With European demographics getting more challenging by the year, and deflation stalking the eurozone, problems don’t seem to be going away for the euro. The crises in Ukraine and Greece continue on without much resolved, and the ECB is continuing on with its QE program. Meanwhile, the Refugee Crisis has created another political distraction that has its own challenges for the people of Europe. Will the shrinking euro be able to revert its course, or is Europe doomed to become the next Japan?
A confluence of circumstances have conspired to make asset allocation a somewhat vexing task these days. The so called “tricky trinity” is comprised of the following three factors: decelerating global growth, the absence of a policy put, and risk premia offering but a limited buffer. For HSBC, this means "remaining highly risk averse" going forward.