Volatility

We've Entered An Era Of Rising Instability And Uncertainty

And there you have our future, visible in the 13th, 16th and 18th century price-revolution waves which preceded ours. It is hubris in the extreme to think we have somehow morphed into some new kind of humanity far different from those people who tore down the Bastille in a great frustrated rage at prices for energy and bread they could no longer afford.

Trump Narrows Clinton's Lead But Latest Polls Show Voters "Hate Them Both"

The last few weeks have seen Hillary Clinton's lead over Donald Trump reduced notably from over 8pts to below 3pts as her poll numbers tumbled post-Comey. While variance (discussed here) across the polls remains yuuge, Clinton remains the clear winner among African-Americans and younger Americans while Trump leads among whites and men; but as one pollster noted with regard the unfavorables, "Let me summarize the poll into four little words: 'They hate them both'."

Morgan Stanley: "To Make Up For A 10% Drop In The S&P, Treasury Yields Would Need To Go… Negative"

Take a 60/40 portfolio constructed today from the S&P 500 and US Treasuries. To make up for a 10% decline in the equity market, Treasury yields would need to go… negative. Not impossible, but certainly a high hurdle! We think investors in European and Japanese bonds are seeing a clear example of this dilemma, with Bunds and JGBs simply unable to rally enough to offset recent equity market declines.

Global Stock Rally Halted In Aftermath Of Latest French Terror Attack

The tremendous rally of the past 4 days that has sent global stocks soaring in recent days has finally been capped and European shares, S&P futures are all modestly lower following a deadly terror attack in Nice, France. Meanwhile Asian stocks rose as Chinese economic data beat estimates, with Q2 GDP rising by 0.1% more than the estimated 6.6% on the back of stronger housing data.

Fed's Beige Book Repeats "Modest Improvement", No Rate Hike Odds Reaction

The Beige Book offered its ubiquitous modest, moderate, mummified growth outlook with little insight into whether the Fed is considering any rate hike in the immediate future, with the following summary of the Fed's two non-market mandates: "Labor market conditions remained stable as employment continued to grow modestly since the previous report and wage pressures remained modest to moderate. Price pressures remained slight."

Loonie Surges As BOC Keeps Rate Unchanged, Cuts 2016, 2017 GDP, Blames Brexit, Wildfires, Weak Consumption

The Bank of Canada did not surprise moments ago when it kept the overnight rate at 0.5%, as expected The Bank said that the "current stance of monetary policy is still appropriate" adding that risks to inflation profile are roughly balanced. It also said that "fundamentals remain in place for a pickup in growth over the projection horizon, albeit in a climate of heightened uncertainty." Where the BOC did surprise was in its latest cut to Canada's economic outlook: the central bank now expects GDP to grow 1.3% in 2016, 2.2% in 2017, down from 1.7%, 2.3%, respectively.

Frontrunning: July 13

  • Brexit, what Brexit? Shares near 2016 highs (Reuters), Global Stocks Inch Higher (WSJ), Stocks Climb With Copper as Brexit-Induced Volatility Subsides (BBG)
  • Yen under pressure as global stock markets rally (Reuters)
  • Spanish Banks Surge as Fears Subside Over EU Mortgage Ruling (BBG)
  • Pimco Loads Up on Treasuries as Gundlach to Gross Voice Caution (BBG)
  • U.S. Presses China to Be Responsible Power After Sea Ruling (BBG)

Global Stocks, Futures Rise On Disappointing Chinese Trade Data, Hopes For More Central Bank Intervention

In an otherwise quiet overnight session, which among other things saw Germany sell 10Y Bunds with a zero coupon and a negative yield (-0.05%) for the first time ever (despite being uncovered with just €4.038BN sold below the €5.00BN target) anyone hoping for a confirmation that China will be able to prop up the world economy once more, was left disappointed when earlier this morning China reported June exports and imports that once again dropped substantially in dollar terms as soft demand at home and abroad continued to weigh on the world’s largest trading nation.

6 Regional Feds Voted To Hike The Discount Rate In Early June, Up From 4 In April

Back in April, when the world was still reeling from the China devaluation inflicted market slump, the Fed's discount rate minutes for the months of March/April showed that 4 regional Feds wanted a 25 bps rate hike, up from just two  - the Richmond Fed and Kansas City - in the Feb/March meeting. Moments ago the Fed released its latest May/June Discount Rate Minutes which revealed that both the (Jim Bullard's) St. Louis and Boston Feds joined four other regional Feds, Cleveland, Richmond, Kansas City and San Francisco, in seeking a quarter point increase in Fed discount rate to 1.25 percent prior to the June 14-15 FOMC meeting.

Kyle Bass Was Right: Here Is SocGen's Primer How To Trade The Biggest Yuan "Depreciation Wave" Yet

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.

Fear The No Fear

Don’t put on the “party hats” just yet...