Trump’s corporate tax cut is supply-side stimulus I could agree with if done right, even though it primarily helps the rich. Trump's cut of the top rate from 35% to 15% is the largest of its kind in the history the United States.
The BOJ disappointed by unveiling a lackluster package that sent stocks lower and JPY higher initially - bigger ETF buying, maintains rates (no easing), maintains bond-buying (no easing), unveils "yield curve control" (steepens curve but crushes bank balance sheets through long bond MTM losses). But then offered some hope by noting that the monetary base may fluctuate to achieve yield-curve control (which markets liked as it implies the possibility of more easing).
Stocks across the board, and US equity futures are broadly in the green this morning as markets shrug off the terror-related events in the NYC area over the weekend. There wasn’t a single positive “reason” for the green price action but fears about the bond “tantrum” appear to be fading while a stronger dollar helped push oil and the commodity complex higher.
"One thing we learnt from Japan is that the equity secular valuation bear market takes many economic cycles to unfold and ends when equities are ?dirt cheap?. US equities did not get dirt cheap in March 2009 at a Shiller PE of 14x - they just got cheap. To be dirt cheap they needed to half again from the 666 level they reached."
Overnight the Chinese Central bank unleashed one of the most furious attacks on currency Yuan shorts since the January devaluation scare when the cost of borrowing yuan in Hong Kong soared to a seven-month high amid. In doing so, however, it unleashed the latest buying spree of bitcoin.
"The only thing keeping the US out of recession is the US consumer (see chart below). It is difficult to say consumption is driving the economy forward ? rather it is like a woodwormridden crutch creaking under the strain of holding up a deadweight economy. This recovery ? the fourth longest in history ? is surely nearing its end."
Today the London Metal Exchange (LME) and the World Gold Council (WGC) jointly announced the launch next year of standardised gold and silver spot and futures contracts which will trade on the LME’s electronic platform LMESelect, will clear on the LME central clearing platform LME Clear, and that will be settled ‘loco London’. Together these new products will be known as ‘LMEprecious.’
After 7 consecutive drops in the Dow Jones, the Industrial average is set for an 8th decline with US equity futures modestly lower in the premarket as risk-averse sentiment persists overnight. Oil’s continued slide and recent plunge into a bear market, despite some stabilization this morning just south of $40, has finally rekindled global growth concerns, and is keeping a lid on bullishness. European stocks are little changed, while Asian stocks and S&P futures fall.
While the main event in today's European bank stress test was leaked moments ago, when Monte Paschi board member Turicchi said that the bank has finalized a bank consortium for a critical capital hike, suggesting that contrary to last minute jitters the bank has found the needed number of willing banks to provide €5 billion in fresh capital it needs resulting in the bank's 3rd bailout in the past 2 years - this one courtesy of the private sector - there may still be some surprises.
The Fed is expected to stay on hold today. Given the Fed’s dovish reaction to the weak May employment report, SocGen expects that officials are likely to be reluctant to commit to any particular path just yet (despite the longest streak of economically positive surprise in US history). In the absence of any signal regarding the next hike, attention will fall on their characterization of the economy. Here are five things to watch in the statement...
Following the previously noted fireworks from Kuroda, who in a BBC interview said that there is "no possibility" of helicopter money (which however the WSJ quickly added was based on an interview conducted in mid-June which supposedly means there is possibility now) In under an hour the market will turn its attention to the ECB's latest statement, where as SocGen's Anatoli Annenkov writes, it is "time to send another dovish signal."
SocGen has become the latest in a long and illustrious line of (so far wrong) forecasters, to predict that the 30-year-old bond rally is finally over. Using a new and improved "model", the French bank says that there’s less than a 1 percent chance U.S. 10-year yields fall below 1.1% especially as the Federal Reserve moves to raise interest rates. "Our analysis shows a roughly an adjusted fair value for the 10yT of 1.95%." Here's why.
The new risk scenario for CNY is 8.0 (20% increase in USD-CNY). The caveat is that the pain threshold for the market appears to be much higher than before and the implications for the global financial markets will primarily depend on the speed of depreciation. We believe that it would take significantly more pressure on capital flows than what we have seen over the past few years, or an economic hard landing, for our risk scenario to unfold.