The first big problem, or rather first 9.5 trillion problems: that is how much debt the corporate buyback binge will cost companies over the next 5 years as the debt matures. The second big problem is even more important: the disappearance of virtually all demand from the primary bond market, most certainly in the junk space, and gradually, in investment grade as well.
Today's deflationary report, the worst since the start of Europe's QE, virtually assures another substantial round of policy easing from the European Central Bank on March 10. The question is what the ECB will reveal. Here are the options.
The week was supposed to start off quiet on the macro news front, but the PBOC spoiled that with an unprecedented Monday, Feb 29 RRR cut, its fifth since the start of 2015. In any case, it slowly builds up to the week's biggest event on Friday, when the BLS reports February payrolls and will be hard pressed to find all the seasonal adjustments it needs to cover for not only the lost jobs in the devastated energy sector but, as we reported over the weekend, the sudden dramatic air pocket in Silicon Valley jobs.
- Fight night: Rubio, Cruz gang up on Trump in debate ploy (Reuters)
- Laid Bare in Shanghai: G-20 Tensions Over How to Spur Growth (BBG)
- China Flags Scope for Policy Stimulus, Tweaks Monetary Stance (BBG)
- Global Stocks Rise With Commodities as China Sees Room to Ease (BBG)
- Greece seeks to stem migrant flow as thousands trapped by border limits (Reuters)
"With the introduction of negative rates and the subsequent rise in the Yen, are the Japanese authorities, once again, about to snatch defeat from the jaws of victory, as has happened so many times in the past? The market, today, is clearly hoping the authorities will step in.... whilst QE typically pushed investors out of bonds into riskier assets, negative interest rates could potentially do the exact opposite. "
Spoiler alert: no.
Following a week of crazy volatility, overnight exhausted markets took a breather.
“We have listened to feedback and as a result decided to change the way these cost savings are to be achieved"...
"Trying to divine the end of the rout is difficult given the globe is in the midst of a series of tightly intertwined, self-reinforcing, and correlated trades and narratives (i.e. oil slumps and drags inflation down with it which prompts CBs to ratchet up accommodation which sinks banks which crushes general market sentiment and the overall price declines tighten financial market conditions and scares corporate execs and actual economic activity begins to deteriorate)."
After last week's relatively quiet, on macro data if not central bank news, week the newsflow picks up with the usual global PMI survey to start, and end the week with the US January payrolls report.
"Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact. No country that has gone into negative rates has experienced major shifts in its growth and inflation profile – minor, yes; major, no. As a consequence every dip into negative rates has been followed by additional moves."
With Citi's chief economist proclaiming "only helicopter money can save the world now," and the Bank of England pre-empting paradropping money concerns, it appears that Australia's largest investment bank's forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a "basic monthly income" for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job.
That giant sucking sound you hear is the P&L of macro/FX hedge funds as they look in dismay at their USDJPY exposure.