While the bump in rates has been fastened to the recent election of Donald Trump, due to hopes of a deficit expansion program (read: more debt) and infrastructure spending which should foster economic growth and inflation, it doesn’t explain the global selling of U.S. Treasuries.
This morning the world awakes to a charred landscape in which markets are frantically rushing to catch up to a suddenly hawkish Fed which not only hiked for the second time in a decade but, as per yesterday's Fed statement and Yellen press conference, realizes it has been behind the curve all along,
After a bubblicious surge higher over the last few months (as China's hot money swishes from one trending-higher market to another), China's bond market is collapsing just as we warned. As Chinese money-markets tighten into new year, yuan weakens, and capital outflows accelerate, so it appears the final bastion of safety has cracked. Chinese bond futures crashed overnight by the most on record, erasing in a week the gains of the last 18 months.
European stocks slipped from an 11 month high, Asian stocks and S&P futures were flat as caution pervades global markets before the Federal Reserve’s expected interest-rate hike on Wednesday. Treasuries slipped, after reaching the highest level in more than two years. Oil in New York slid to near $52 a barrel after API showed a build in inventories, and currencies of commodity-exporting nations fell. Gold headed for its biggest gain in a week.
"An event as minor and as arbitrary as Mrs. O’Leary’s cow kicking over a lantern caused the city of Chicago's rickety structures to burn in 1871. But, today, the economic barn is full of cows. Each is standing next to a lantern. And the economic structure is very rickety."
Following news last week of a surge in Chinese retail gold premiums as demand for physical bullion soars amid China capital controls, Reuters reports that the chaos in India has sent people rushing to buy gold, paying as much as a 50 percent premium above official India prices. This renewed surge in demand for physical in india follows reports that India's top importer of gold, Axis Bank, reportedly suspending the bank accounts of some bullion dealers and jewelers following the arrest of some executives over money laundering.
"I again feel all alone in our positions and ideas, while at the same time the macro indicators in China, as well as the increasing desperation of the authorities there to reduce capital outflow means we are getting close to the devaluation and crisis that I have long expected."