"The most shocking hole that will be blown through people’s portfolios is if discount rates rise again fairly quickly. Even if the circumstance is one in which the global economy is doing well, the impact of a 1.5% increase in the discount rate on equities from here is a fall of over 30%, which would almost certainly be enough to swamp the earnings impact of the decent growth."
Following last Friday's shocking weak US GDP print, Asian stocks jumped to an 11 month high on reduced prospects of a near-term rate hike, while the region also digested mostly encouraging in conflicting Chinese PMI data. European bank stocks initially rose following the release of the 2016 stress test then declined, tempering gains in global equity indexes, amid investor skepticism over the usefulness of stress-test results and weaker oil prices.
It seems like you can’t watch the news anymore without stumbling onto a story that contains terrifying global implications. Not since the Cold War have tensions been so high among the nations of the world. You can strike sparks just about anywhere. The threat of another global war is downright palpable.
"... it's very difficult to see where the next step is except what I'm concerned about mostly, is stag-flation, meaning I think we're seeing the very early signs of inflation beginning finally to pick up as the issue of deflation fades.... we're in a situation now where looking at the interest rate levels that we're looking at and the inflation rates we're looking at, it's very clear that we're going to be moving reasonably shortly into a wholly different phase."
With Wall Street expecting the US economy to grow 2.6% in the second quarter, there were many shocked faces moments ago when the Census Bureau reported that not only did the US economy grow a paltry 1.2% in the quarter, but Q1 GDP was slased from an already poor 1.1% to just 0.8%.
The current oil-price rally led many to believe that a full price recovery was underway. But inventories have been too large for that to happen short of epic supply interruptions. U.S. rig counts have surged as oil prices sink. Capital is driving the oil markets and it enables bad behavior by producers. That is why oil prices will stay low. The oil-price rally that began in February is over.
Of all the developed countries, Japan is in the worst condition economically. Most others, including the United States, are following the same path to insanity though. Unlike Japan, other countries may have time to implement policy changes that will allow them to avoid Japan’s desperate circumstances.
Despite the longest winning streak for US macro data in US history, Durable Goods Orders collapsed in June. The 4% MoM plunge (vs -1.4% exp) is the biggest drop since Aug 2014. This represents a 6.6% YoY crash - the biggest drop since July 2015. The drop appears driven by plunge in airplane orders (non-defense aircraft and parts). Worse still, core durable goods orders extended their annual declines to 18 months straight - the longest non-recessionary streak of declines in US history.
The markets were following a rollercoaster night for the Japanese Yen, when after several media headlines Abe was said to have announced a stimulus package that would be more than JPY28 trillion, sending Japanese stocks higher 1.7% while the USDJPY spiked but well off overnight highs, pushing risk assets higher. Europe and US futs were also in the green on optimism from AAPL's earnings, but all eyes will be on today's FOMC announcement.