Following yesterday's dramatic geopolitical shock, U.S. equity index futures rise as Russia has not escalated the confrontation with Turkey as some had feared, while Asian shares fall, reversing earlier gains. European stocks are rallying and the euro is falling on the back of a Reuters report that the ECB is mulling new measures to prop up lending, although it’s not clear at this point what the real impact from these measures would be.
The Party Is Over: Goldman Sees "Limited Equity Upside" As "Bernanke Put" Is Replaced With "Yellen Call"Submitted by Tyler Durden on 11/20/2015 04:59 -0500
"We see a risk that the ‘Bernanke put’ will gradually be replaced by the ‘Yellen call’. The ‘Bernanke put’ captured the intuition that when the risks to growth, monetary policy reacts aggressively to bad news. Now that these risks have receded, we expect the Fed will shift to an easing bias, implying that monetary policy will likely begin to react more aggressively to good news... Rallies in risk sentiment may be met by less accommodative monetary policy – the ‘Yellen call’.
Venezuela is at a political crossroads, with an all-important parliamentary election set to take place in December. Meanwhile, the Venezuelan economy continues to deteriorate as the state seeks to stave off default and a brewing financial crisis. Late last month, Brazil withdrew its involvement in election monitoring after Venezuela rejected the officials Brazil put forward. Maduro is doing his best to keep international observers from scrutinizing the election. The election will take place just as the OPEC meeting will be wrapping up in Vienna, which is expected to yield few benefits for Venezuela. All signs point to OPEC continuing its market share strategy, keeping a lid on any substantial price rebound in the short-run. That does not bode well for Venezuela as it teeters on the brink of catastrophe.
China as the global Bubble’s focal point – the weak link yet, at the same time, the key marginal source of Bubble finance. China’s policy course appears to focus on two facets: to stabilize the yuan versus the dollar and to resuscitate Credit expansion. For better than two decades, similar policy courses were followed by myriad EM policymakers in hopes of sustaining financial and economic booms. Many cases ended in abject failure – often spectacularly. Why? Because when officials resort to such measures to sustain faltering Bubbles it generally works to only exacerbate systemic fragilities. For one, late-stage reflationary measures compound Credit system vulnerability while compounding structural impairment to the real economy. Secondly, central bank and banking system Credit-bolstering measures create liquidity that invariably feeds destabilizing “capital” and “hot money” outflows.
In our Chinese stock market wrap following Friday's unexpected rate cut, which saw the Shanghai Composite storm out of the gate, we said that "we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs." Sure enough, with just minutes to go before the close, the SHCOMP wiped out all its daily gains and was set for a red close had it not been for the "national team" miraculous last minute intervention which was inevitable after Friday's PBOC rate cut, and which lifted the composite 0.5% into the green as the euphoria was rapidly evaporating.
China Calms Fears, Says "Stock Plunge Is Normal Correction" As Panic-Buying Resumes On Japanese OpenSubmitted by Tyler Durden on 10/21/2015 20:35 -0500
After last night's bloodbathery in China, analysts and officials are out en masse to ensure a newly re-leveraged Chinese investors that the "stock plunge is a normal correction." Disappointingly, Chinese stocks are barely bouncing at the open, which is not what we can say for Japan, where the mysterious uneconomic panic-buyer-of-first-resort appeared once again and smashed the Nikkei 225 200 points higher at the open (after weakness in the US).
Following Friday's disastrous payrolls report, which confirmed all the pre-recessionary economic data and signaled that instead of approaching "lift-off" and decoupling from the rest of the world, the US economy is following the emerging markets into a slowdown in what may be the first global, synchronized recession since 2008, the market saw its biggest intraday surge since 2011 and the sharpest short covering squeeze in history, we are happy to announce that the "market" is now solidly back in "bad news is good news" mode.
From time to time, the data (from economic activity, inflationary pressure, risk appetite and asset valuations) points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a point, and the worry is that each indicator is flashing red.
With China markets closed for holiday until the middle of next week, and little in terms of global macro data overnight (the only notable central banker comment overnight came from Mario Draghi who confidently proclaimed that "economic growth is returning" which on its own is bad for risk assets), it was all about the USDJPY which has seen the usual no-volume levitation overnight, dragging both the Nikkei higher with it, and US equity futures, which as of this moment were at session highs, up 7 points. The calm may be broken, though, as soon as two hours from now when the September "most important ever until the next" payrolls report is released.
The Fed’s policy of forward guidance and radical transparency is not working. It turns out that letting the market peer over its shoulder as it makes monetary policy sausage is, in some ways, worse than the opaque process that existed prior to the arrival of Bernanke and Yellen. It pulls back the curtain and shows the human, error prone side of the Fed. Every time the Fed’s dots move, it is an admission of failure and undermines the very confidence it was trying to inspire.
There’s an enormous and growing disconnect between the cash and physical markets for gold. This is exactly what we would expect to precede a major market-shaking event based on a physical gold shortage.
The divergence theme is likely to strengthen in the week ahead.
Market participants, be they lenders or borrowers, know that “easy money” has an expiry date. If The FOMC raises rates, "we foresee negative effects on world GDP in the medium term, not only for emerging markets but also for industrialized economies." In other words, though emerging markets – through their dependence on capital inflows – will be at risk when America’s monetary policy eventually returns to “normal,” the same will be true for advanced economies.
US & China Stocks Are Plunging After PMI Hits 6.5-Year Low, PBOC Strengthens Yuan Most Since Nov 2014Submitted by Tyler Durden on 08/31/2015 22:21 -0500
Following China's official PMI print at a 3-year low, Caixin's PMI collapsed to 47.3 - the lowest sinec March 2009. Despite another CNY150bn liquidity injection (but the biggest strengthening of Yuan since Nov 2014 and a financial conditions tightening in FX trading), China, US, and Japanese stocks are plunging... SHCOMP -4%, Dow -280, NKY -340
"In the meantime, in our (un)beloved country, there is something scarier than Freddy Krueger: our growth / fiscal outlook."