Another miraculous overnight recovery has eliminated all the bearish aftertaste from the failed Italian referendum. As Guillermo Sampere of MPPM EK put it: "After Brexit, it took three days for markets to shake it off, with Trump it took three hours, with Italy it took three minutes.The fast money, who expected markets to fall further with this outcome, are now covering their positions."
Did Jeff Gundlach do it again? Shortly after the DoubleLine manager told Reuters yesterday afternoon that the Trump rally is ending, that "stocks have peaked" and that it is "too late to buy the Trump trade", US stocks tumbled to session lows, and have continued to drop overnight, with S&P futures down 0.3%, alongside sliding Asian and European markets.
Industrial metals commodity prices plunged by the most since March in the last 2 days as China’s exchanges (once again) clamped down on speculation by tightening trading rules. As Bloomberg reports, for the second time this year, trading has exploded on the nation’s exchanges, pushing prices of everything from zinc to coal to multi-year highs and sending authorities scrambling to deflate the bubble before it bursts.
Following last night's API reported surge in product and Cushing inventories, DOE confirmed massive builds in Cushing (biggest since March 2015) and Distillates (biggest since Jan 2016). Of course, with all eyes on Vienna the price action is tough to discern. Production rose very modestly.
Having soared to fresh 13 year highs in a quiet overnight session on thin liquidity due to the US Thanksgiving holiday the dollar pared back its weekly advance with modest profit taking after traders wondered if the rally has gotten "too stretched." European shares were fractionally higher, with Asian stocks and US equity futures rising and both the Dow Jones and the S&P set for new all time highs.
Typically, a bottom occurs when both commercials and speculators are flat, and the latest report is still a long way from that. But if things stay this way, this indicator, at least, will be screaming “buy gold”.
1) Peak Liquidity: era of excess liquidity is over; 2) Peak Inequality: more fiscal stimulus to address inequality; 3) Peak Globalization: free movement of trade, labor, capital ending; FX wars starting; 4) Peak Deflation: low point in bond yields now behind us; 5) Trough Volatility: era of “flash volatility” and “pain trades” continues; 6) Peak Passive: active investors to outperform passive; 7) Transforming World: robotics, eCommerce constrain inflation upside
All this talk of massive new infrastructure spending financed with a tsunami of freshly-minted currency should be lighting a fire under gold. That it hasn’t is a testament to how out-of-whack the precious metals market had gotten during the first six months of this year.
According to BofA, the biggest tail risk is now a "stagflationary bond crash" - crowded longs (Minimum Volatility, US/EU credit, long EM debt) remain vulnerable to further jump in yields. In contrast, political rhetoric to calm “protectionism" fears (which jumped to highest levels since 2009) would boost risk appetite.
Prior to the election, investors didn’t believe there was much operating leverage available in corporate America. Slow revenue growth, slow inflation, slow wage growth, slow earnings growth. That was the recipe for next year. Now, expectations for better economic growth have markets scrambling to find companies with the operating leverage (read high fixed costs and high incremental margins) to show outsized earnings growth as a result.
Sharp turn taken by commodities, after U.S. bond market “took down” EM assets Thursday, will add to EM pain, Deutsche Bank strategist Alan Ruskin writes. There’s signs that higher bond yields, “knock” of stronger USD are having a “domino impact,” taking down weakest risky assets first before moving on to next weakest.
Yesterday we wondered how long the broader market would ignore the carnage taking place across emerging markets, instead focusing on making the Dow Jones Industrial Average both great, and all time high, again. Today, we got our answer.