en EURUSD, Bund Yields Plunge After ECB Tells Market 'You Misjudged Draghi's Comments' <p>Just as we warned was likely (how many times have we seen this game played), The ECB has come out this morning to explain to the market that <strong>the reaction to Draghi&#39;s hawkish speech yesterday was entirely mistaken</strong>. The reaction is clear - EUR and Bund yields are tumbling.</p> <p><strong>Vice President&nbsp;Vitor Constancio&nbsp;scrambled to set the record straight,</strong> saying the remarks were &ldquo;totally&rdquo; in line with existing policy and the response by investors was hard to understand.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Following the euro&rsquo;s biggest daily jump in over a year, in what could be interpreted as verbal intervention,<strong> ECB&rsquo;s Constancio said that market reactions aren&rsquo;t always understandable</strong> and that <strong>Draghi didn&rsquo;t say anything new in regards to recent ECB policy.</strong></p> <p>&nbsp;</p> <p>Mario Draghi&rsquo;s speech in Sintra on Tuesday was<strong> &ldquo;totally&rdquo; in line with recent ECB policy,</strong> ECB Vice President Vitor Constancio said in an interview on CNBC.</p> </blockquote> <p>And the reaction is clear...</p> <p><a href=""><img height="314" src="" width="600" /></a></p> <p>And Bund yields are down 5bps already...</p> <p><a href=""><img height="316" src="" width="600" /></a></p> <p>It is very clear now that The ECB is terrified of a new bond tantrum... just as we noted earlier...</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en">Global Bonds Sell Off, Sparking Fears of Further &lsquo;Taper Tantrum&rsquo; <a href=""></a></p> <p>Don&#39;t worry, Draghi will be dovish in 90 minutes</p> <p>&mdash; zerohedge (@zerohedge) <a href="">June 28, 2017</a></p></blockquote> <script async src="//" charset="utf-8"></script><p><em><strong>&ldquo;I don&rsquo;t think his speech was a big surprise, but you saw the market reaction,&rdquo;</strong></em> said&nbsp;Joachim Fels,&nbsp;global economic adviser at Pacific Investment Management Co., who attended the forum. <em><strong>&ldquo;It&rsquo;s a warning sign that there are some unintended consequences as central banks head toward the exit.&rdquo;</strong></em></p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="962" height="504" alt="" src="" /> </div> </div> </div> Banks Bond Business Central Banks Eurogroup European Central Bank European Union Financial services Group of Thirty Mario Draghi Wed, 28 Jun 2017 12:25:08 +0000 Tyler Durden 598813 at Bill Blain: "The 1-, 4- And 10-Year Cycles Top Out Mid-August At Which Point Be Very Afraid... Or Something Like That" <p><em>By Bill Blain of <a href="">Mint Partners</a></em><a href=""></a>, Blain’s Morning Porridge – June 28th 2017</p> <p><span style="text-decoration: underline;"><strong>Uncertainty, confusion, a Tech-sell off.. but are things as bad as they seem?</strong></span></p> <p><em>“Now I got mortgages and homes, I got stiffness in my bones, ain’t no beauty queens in this locality…”</em></p> <p><strong>As we reach towards month end and the half-year, markets do not feel like they are in particularly solid territory. </strong>Lots of uncertainty out there. Relax. Never as bad as you think, but it helps to understand what is really going on. Noise, and lots of it.&nbsp;&nbsp; </p> <p>I highlighted on Monday the shifts occurring in underlying sentiment and direction. We’ve had bullish/tightening comments from many central bankers, and clear signals the debate has moved on from the continuation of “Extraordinary Monetary Policy” towards “Normalisation”. The outlook for growth (Europe, perhaps, aside) is increasingly fraught.&nbsp; <strong>I sense a degree of “contradictory bluster” billowing around markets. </strong></p> <p>In Europe, Draghi has given a very positive assessment on recovery, pushing up the Euro and denting bonds. What he said was simple – policy remains accommodative until we get recovery, when we will normalise and tighten. Every bank analyst I know says recovery is great for undervalued European banks as it will improve margins and reduce the damage in Non-Performing-Loan books. (Of course, if European growth proves less than solid and the accommodative policy that has so inflated asset values ends, or growth is thumped by global events, then the opposite will be true of European banks….. (Clue.. I’m still bearish European banks!))</p> <p>And then there was Bank of England governor Mark Carney slapping a further £11.5 bln capital requirement on UK banks to back up their consumer lending – a clear sign he’s concerned about the mismatch in flat-lined wages, expanding credit, and the threat something wicked this way comes that could trigger a wave of consumer defaults? Like..? Higher rates, an economic crash, a bursting bubble sentiment shift, or inflation? Carney senses a lack of balance! </p> <p>Or how about China. The perennial market threat everyone brings out when there is nothing else to panic about? Reading the press this morning, lots of rising concerns about China. Political distraction about how the next 5yr congress will “correct” mistakes of the past. How will the leadership’s attempts to consolidate their position in terms of the current crackdown on corruption” and capital outflows on overseas assets? While the consensus remains China can sort its complex financials out, it’s a political issue – the imposition of power vs economic growth. Misunderstood politics are deadly for markets. Any kind of exported China ructions will damage global sentiment!</p> <p>And I could go on…&nbsp; </p> <p>It’s the sense of mismatch between where the markets are, the comments of central bankers about normalisation, the threat of politically driven instability, and the doubts about a tangible economic recovery that are fuelling a sense of growing confusion and doubt. As I so often write.... Get Over It! </p> <p>Is this a growth market or do we face a looming recession with the risk of higher interest rates? My macro economist, Martin Malone, can show me pages and pages of solid market signals confirming a trend towards synchronised growth <strong>– he says I just worry too much about the noise surrounding it! He was listening to Yellen last night and came back positive in terms of sequencing and bullish on stocks! </strong></p> <p>So, should we wondering about the sustainability of current financial asset values, or the effect of a slowdown on stocks, or is it still full steam ahead on the basis central banks are unlikely to do anything that risks the wobbly global recovery? </p> <p>On the other hand, for a Fed Member (John Williams) to say: “<strong>The market rally is running on fumes</strong>”, was not particularly helpful. Markets are never <strong>“Priced to perfection</strong>”, as he said y’day. They anticipate based on what they see and hear…</p> <p>So this morning is not presenting a rosy picture in Global Tech Stocks, and a fug of weakness and uncertainty surrounds markets! Do the recent declines mean they are now in buy territory, or is something more fundamental underway? </p> <p>As stock markets tumble through moving averages, my stock picking guru, the redoubtable Steve Previs, says the “conventional” technical indicators are all on solid sell signals, and lower closes point to more downside ahead. </p> <p>Steve stares at charts. He understands the arcana of what the lines actually mean. He use’s exotic spells (and a ruler) to cast trend lines and discern the underlying cycles. </p> <p><strong>I’d say he’s in “concerned” mode. This is not a collapse, but it highlights the potential of one. </strong>Although some sentiment gauges (like equity call/put ratios) are flat, “indicating a complete lack of concern”, the VIX has risen to 11.06, and any rise in the “fear index” highlights less complacency about where the market is going. </p> <p>Steve has thrown his bag of market bones into the air, (I believe they once belonged to one of his investors who didn’t pay up), and based how they’ve landed, his market read is for the current cycle to bottom in the next few days and could well turn positive into August. <strong>He’s got a wary eye looking at 1 year, 4 year and 10-year cycles which don’t top out till mid-August – at which point… Be very afraid.. or something like that... </strong></p> <p><em><strong>(What he’s actually looking for is the right moment to step in and buy big! After the deluge!)</strong></em></p> <p>So what is the outlook for H2? </p> <p>Let’s be realistic – things are never as bad as we think they might be. The economic numbers do look suspiciously positive, but there are also good reasons to be wary. A big correction is probably coming, followed by some confusion and then a marvellous buying opportunity as the world continues on its merry new normal slow recovery would be my guess? The sun will rise every morning…. </p> <p>And on this note of confusion and uncertainty, let the march into H2 continue! </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="620" height="388" alt="" src="" /> </div> </div> </div> Bank of England Bank of England Banks Business Central bank Central Banks China Consumer lending Economic history of the Netherlands Economy Investment John Williams Moving Averages New Normal Recession recovery Stock market crashes Technical Indicators US Federal Reserve Wed, 28 Jun 2017 12:13:41 +0000 Tyler Durden 598811 at Frontrunning: June 28 <ul> <li>Global Bonds Sell Off, Sparking Fears of Further ‘Taper Tantrum’ (<a href="">WSJ</a>)</li> <li>Facing revolt on healthcare, GOP senators delay vote (<a href="">Reuters</a>)</li> <li>Global businesses dig out from latest cyber attack (<a href="">Reuters</a>)</li> <li>Companies Work to Contain Fallout From Cyberattack (<a href="">WSJ</a>)</li> <li>Cyber attack hits property arm of French bank BNP Paribas (<a href="">Reuters</a>)</li> <li>Obama Choked on Russia Long Before the 2016 Election (<a href="">BBG</a>)</li> <li>The EU May Need to Introduce a Bloc-Wide Tax After Brexit (<a href="">BBG</a>)</li> <li>iPhone Anniversary Edition Gives Analysts Pre-Party Jitters (<a href="">WSJ</a>)</li> <li>Some would-be immigrants left in limbo after Supreme Court travel ban order (<a href="">Reuters</a>)</li> <li>Macron Lights Fuse on ‘Mother of All Reforms’ to Renew France (<a href="">BBG</a>)</li> <li>Cash-Rich Sweden Squirrels Away Ahead of Demographic Time Bomb (<a href="">BBG</a>)</li> <li>Turn Off, Drop Out: Why Young Chinese Are Abandoning Ambition (<a href="">Sixth Tone</a>)</li> <li>FCA Proposes Single Fee for U.K. Asset-Management Industry (<a href="">BBG</a>)</li> <li>U.S. says it saw preparations for possible Syria chemical attack (<a href="">Reuters</a>)</li> <li>How America’s Aircraft Carriers Could Become Obsolete (<a href="">BBG</a>)</li> <li>Mystic Study Success Could Put Astra Ahead in Cancer Revolution (<a href="">BBG</a>)</li> <li>Rolls-Royce Drivers Are a Lot Younger Than You Think (<a href="">BBG</a>)</li> </ul> <p>&nbsp;</p> <p><strong>Overnight Media Digest</strong></p> <p><em><span style="text-decoration: underline;">WSJ</span></em></p> <p>- The European Union's antitrust regulator on Tuesday fined Alphabet Inc's Google a record 2.42 billion euros ($2.71 billion), saying its search engine stacks the deck in favor of its own comparison-shopping service.</p> <p>- Takata Corp's U.S. units Tuesday won approval for novel arrangements that will see the world's largest car makers step up to make sure the troubled parts maker stays in business despite massive product liability claims.</p> <p>- Nestlé SA on Tuesday announced plans to launch a $20.8 billion share buyback, focus its capital spending on categories like coffee and pet care and look for consumer health-care acquisitions, a move that comes after it found itself the target of activist investor Third Point LLC.</p> <p>- United Parcel Service Inc will freeze pension plans for about 70,000 nonunion employees, seeking to contain the burden of a retirement fund with a nearly $10 billion deficit.</p> <p>- Apollo Global Management LLC, the private-equity firm co-founded by billionaire investor Leon Black, has raised $23.5 billion for the world's largest-ever buyout fund.</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">FT</span></em></p> <p>* A major global cyber attack on Tuesday disrupted computers at Russia's biggest oil company, Ukrainian banks and multinational firms with a virus similar to the ransomware that last month infected more than 300,000 computers.</p> <p>* EU antitrust regulators hit Google with a record 2.4 billion euro ($2.72 billion) fine for favouring its own shopping service, taking a tough line in the first of three probes of its dominance in searches and smartphone operating systems.</p> <p>* Prime Minister Theresa May said on Tuesday Britain must hold a national investigation into exterior cladding used on high-rise buildings after all those checked after the deadly London tower block blaze this month failed safety tests.</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">NYT</span></em></p> <p>- Computer systems from Ukraine to the United States were struck on Tuesday in an international cyberattack that was similar to a recent assault that crippled tens of thousands of machines worldwide.</p> <p>- Nestlé SA said it was prepared to spend billions of dollars on buybacks — but the company also suggested that it might pursue a number of acquisitions in addition to shedding businesses.</p> <p>- Sarah Palin, former vice-presidential candidate, filed a defamation lawsuit against The New York Times Co, saying the newspaper had published a statement about her in a recent editorial that it "knew to be false."</p> <p>- Toshiba missed a self-imposed deadline to sell a piece of its valuable microchip business on Wednesday, inflicting a fresh wound on its efforts to repair its battered finances.</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">Canada</span></em></p> <p>THE GLOBE AND MAIL</p> <p>** Royal Bank of Canada will repay C$21.8 million to clients who were incorrectly charged investment fees for certain mutual-fund products and fee-based accounts. (</p> <p>** Mutual fund dealer Sterling Mutuals Inc has scooped up Michael Stanley, former CEO of Quadrus Investment Services Ltd, as its new president. (</p> <p>** A British Columbia judge has rejected Ottawa's last-minute attempt to adjourn a landmark lawsuit challenging the use of solitary confinement in federal prisons, clearing the way for the trial to begin next week. (</p> <p>NATIONAL POST</p> <p>** The United States may have turned up the heat on the softwood dispute this week by imposing new tariffs on Canadian lumber products, but sources on both sides suggest the key players are coming closer together and there is renewed political will to strike a deal. (</p> <p>** Prime Minister Justin Trudeau says he made the "difficult but necessary" choice to break his promise on electoral reform because the other parties refused to compromise and accommodate the Liberal preference for ranked ballots, and that he's always felt proportional representation would be bad for Canada. (</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">Britain</span></em></p> <p>The Times</p> <p>- The British government will ask companies for their advice on the process of leaving the European Union under a new forum that brings business back in from the cold since Theresa May took over as prime minister last year.</p> <p>- The Bank of England has tightened up mortgage rules first implemented in 2014, saying that some lenders had forgotten the lessons of the past.</p> <p>The Guardian</p> <p>- The European Union has handed Google a record-breaking 2.42 billion euro ($2.74 billion) fine for abusing its dominance of the search engine market in building its online shopping service, in a dramatic decision that has far-reaching implications for the company.</p> <p>- Ladbrokes could face an investigation from the gambling regulator over an incident in which confidential information about betting addicts, including photos, names and addresses, was found in a bin bag on the street.</p> <p>The Telegraph</p> <p>- Co-operative Bank is poised to unveil a £700m rescue deal with its US hedge fund owners that will avert a collapse of the loss-making lender.</p> <p>- Kit Kat maker Nestlé has launched a 20 billion Swiss francs ($20.82 billion) share buyback program just days after prolific US activist investor Dan Loeb disclosed a huge stake in the company.</p> <p>Sky News</p> <p>- A "powerful" cyberattack that started in Ukraine has spread across the world, hitting banks, government IT systems and energy firms. British advertising group WPP said its computer networks in several locations had been targeted.</p> <p>- Addressing company executives at an event, David Davis has suggested that the UK will be out of the customs union and single market after March 2019.</p> <p>The Independent</p> <p>- Consumer confidence has collapsed following the General Election as household finances have come under renewed pressure and fears grow over the housing market according to Data from YouGov and the Centre for Economics and Business Research. </p> <p>&nbsp;</p> .ly Bank of Canada Bank of England Bank of England Bitly British government Business Business Centre for Economics and Business Research Consumer Confidence European Union European Union Food and drink France Gambling Google Google Housing Market Leon Black Nestlé New York Times Newspaper operating systems Republican Party Reuters search engine smartphone Supreme Court Third Point Ukraine World Wide Web YouGov Wed, 28 Jun 2017 12:02:50 +0000 Tyler Durden 598808 at Trump Goes After "Fake News" NYTimes, Slams Media Criticism On Healthcare: "I Know The Subject Well" <p>One day after he repeatedly lashed out at CNN, on Wednesday President Trump blasted the the NYT in particular, and the broader press in general, for reporting that he is "not totally engaged" on healthcare.</p> <p>"Some of the Fake News Media likes to say that I am not totally engaged in healthcare," Trump tweeted shortly before 7am. "Wrong, I know the subject well &amp; want victory for U.S."</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Some of the Fake News Media likes to say that I am not totally engaged in healthcare. Wrong, I know the subject well &amp; want victory for U.S.</p> <p>— Donald J. Trump (@realDonaldTrump) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>Trump's angry outburst followed an earlier tweet in which the president specifically targeted The New York Times. "The failing @nytimes writes false story after false story about me. They don't even call to verify the facts of a story. A Fake News Joke!" </p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">The failing <a href="">@nytimes</a> writes false story after false story about me. They don't even call to verify the facts of a story. A Fake News Joke!</p> <p>— Donald J. Trump (@realDonaldTrump) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>Trump's fury appears to have been focused on a Times story published on Tuesday titled "<a href=";action=click&amp;pgtype=Homepage&amp;clickSource=story-heading&amp;module=first-column-region&amp;region=top-news&amp;WT.nav=top-news&amp;_r=0">On Senate Health Bill, Trump Falters in the Closer's Role</a>," in which the Gray Lady said that the president was "largely on the sidelines" as the Senate leadership sought to attract votes for its healthcare bill.&nbsp; It added that the president's team's "heavy-handed tactics have been ineffective in the Senate."</p> <p>As the <a href="">Hill reports</a>, a Republican senator who supports the Senate GOP's healthcare bill <strong>reportedly does not think President Trump has a clear understanding of the plan.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The New York Times reported that a senator left a White House meeting Tuesday with the feeling that the president didn't fully understand some basic parts of the plan, citing an aide who received a detailed readout of the exchange. </p> <p>&nbsp;</p> <p>The senator felt Trump "seemed especially confused" after a moderate Republican said those who were against the bill would say it appeared to be a "massive tax break for the wealthy," according to The Times. Senate Majority Leader Mitch McConnell (R-Ky.) after the White House meeting ignored a question regarding Trump’s command of the details of the negotiations and smiled blandly, the newspaper noted. </p> <p>&nbsp;</p> <p>Trump met with Republican senators just hours after GOP leaders decided on Tuesday to postpone a vote on its healthcare legislation. The huddle came as one GOP strategist with close ties to the White House told The Hill that Trump had not yet fully engaged with the effort to pass a bill in the upper chamber. </p> <p>&nbsp;</p> <p>Trump said Tuesday he had a "great meeting" with Republican senators, adding that they "really want to get it right."</p> </blockquote> <p>Trump is likely to be particularly sensitive to healthcare criticism today, one day after the Senate GOP leaders delayed a vote to repeal and replace ObamaCare after it became clear the measure - again - lacked the votes for passage. On Tuesday afternoon, Trump met with Republican senators at the White House, just hours after the GOP leaders decided to postpone the vote on the healthcare legislation. It was not immediately clear if Trump had managed to change any holdouts' opinions on the vote. </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="180" height="90" alt="" src="" /> </div> </div> </div> American people of German descent Business Climate change skepticism and denial Donald Trump Donald Trump presidential campaign Draft:Hector Sarmiento Fake news Health New York Times Newspaper Obamacare Politics Politics of the United States Republican Party Senate The Apprentice The Times United States White House White House WWE Hall of Fame Wed, 28 Jun 2017 11:41:20 +0000 Tyler Durden 598807 at How The "Enigma Network" Led To A Historic Crash In One Hong Kong Market <p>Yesterday morning <a href="">we discussed the sudden crashes </a>amid 17 small cap Hong Kong firms, which collectively lost over $6 billion in market cap, on what we dubbed was a marketwide margin call, as confidence in the entire sector vaporized instantly, sending the small cap Growth Enterprise Market (GEM) plunging by over 9%, with some stocks plunging over 90%. Quoted by Bloomberg, Francis Lun, the CEO of HK's Geo Securities said “<strong>we’re seeing a domino effect; all the companies in the same network got cut</strong>. These shares are owned by the same group of people so they must be <strong>experiencing a liquidity crunch and they don’t have the money to support the share prices."</strong></p> <p><img src="" width="500" height="282" /></p> <p>&nbsp;</p> <p>It turns out there was more to this story, at the heart of which is a report issued six weeks ago titled <strong>“<a href="">The Enigma Network: 50 stocks not to own” </a></strong>by David Webb, a former director of the Hong Kong stock exchange, whose argument is that companies which crashed were entwined in a complex web of cross-shareholdings that had pushed their valuations to unsustainable levels. As Reuters adds, "<strong>Webb's report mapped out a complex web of cross-shareholdings between companies listed on both the main board and its sibling, the Growth Enterprise Market, which he said created a breeding ground for volatility.</strong>"</p> <p>In other words, Webb mapped out the margin call domino effect whose impact was not a question of if but when. It is shown in the chart below.</p> <p><a href=""><img src="" width="500" height="318" /></a><br /><em>David Webb’s graphic representation of ‘The Enigma Network.’</em></p> <p>And, as <a href="">Bloomberg notes</a>, if investors ignored him until now, they’re paying the price, and not just on Tuesday when the first hit stuck, but also on Wednesday, when the selloff in the GEM continued with many stocks dropping a further 20-30%, and this time starting to impact the broader Hang Seng index.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">HK Penny Stocks that evaporate billions of HKD yesterday continue to plunge today, -15%~30%... Dragging down the entire HK stock market now.</p> <p>— Simon Ting (@simonting) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>The turmoil once underscored how the Hong Kong Stock Exchange and its sibling, the Growth Enterprise Market, have become a breeding ground of wild volatility according to Bloomberg, a phenomenon which has raised red flags for the city’s regulators, who have warned small-caps can be black boxes and, at times, subject to manipulation. </p> <p><img src="" width="500" height="333" /></p> <p><em>David Webb</em></p> <p>Webb, who is an activist investor who’s been a vocal critic of the Hong Kong exchange since he quit the board in 2008, has been calling on authorities to do more to protect investors. <strong>“What this really points to is the ongoing problems with our legal and regulatory system for listed companies,” </strong>he told Bloomberg in an interview on Tuesday.</p> <p>While the Hong Kong’s Securities and Futures Commission said it couldn’t comment on whether it’s pursuing any investigations, the regulator did note note that Tuesday’s biggest decliners tended to have characteristics conducive to extreme volatility and market misconduct: <strong>multiple relationships between different companies and listed brokerage firms, high shareholding concentrations, low volume and small public floats</strong>. Oh, and questionable underlying collateral value, which due to cross-asset holdings, means that a selloff in one company would promptly hit the entire sector. </p> <p>That's precisely what heppened on Tuesday and again on Wednesday, when the selloff continued and the GEM market fell to a new record low as a swathe of small-cap stocks continue to tumble in the wake of Tuesday’s $6bn drop.&nbsp; On Wednesady, the S&amp;P/HKEX Growth Enterprise Market index fell as much as 2.3% to 279.17 on Wednesday, the lowest intraday level on record for the index and down 11.8% in the week to date.</p> <p></p> <p><a href=""><img src="" width="500" height="254" /></a></p> <p>According to the FT, among the worst-hit GEM stocks on Wednesday was GreaterChina Professional Services, down another 39.1% on Wednesday, while fellow GEMs WLS Holdings and Hao Wen Holdings had dropped 56.3% and 48.7% , respectively.</p> <p>As noted previously, Hong Kong Exchanges &amp; Clearing Ltd., which proposed sweeping changes to its small-cap market earlier this month to revive confidence in the venue, said it couldn’t explain Tuesday’s moves. It was unable to add more color on Wednesday either. </p> <p>Demonstrating once again just how incapable of fundamental analysis the market has become, while the stocks highlighted by Webb barely budged when he released his report in May, they accounted for all but three of Tuesday’s 20 biggest losers in Hong Kong.</p> <p><a href=""><img src="" width="500" height="278" /></a></p> <p>In total, 38 of the 50 stocks flagged by Webb fell on Wednesday. By the close, the S&amp;P/HKEX GEM Index dropped another 0.8%, following Tuesday’s 9.6% rout.</p> <p>Ultimately, as Bloomberg notes, "whatever the catalyst for the selloff, investors can’t say they weren’t warned. As Webb flagged six weeks ago and reiterated on Tuesday: “A lot of the stocks were very overvalued.”</p> <p>Ironically, the market is now ignoring similar warnings by none other than Yellen, Fischer and Dudley. We wonder how long until a similar "post-mortem" phrasing will be applied to the broader S&amp;P market, when "nobody could have possibly foreseen the coming crash." </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1939" height="1241" alt="" src="" /> </div> </div> </div> Business David Webb Economy Economy of Hong Kong Finance Finance in China GEM Hang Seng 40 Hang Seng Index Hong Kong Hong Kong Exchanges and Clearing Hong Kong Stock Exchange Kong’s Securities and Futures Commission None Reuters S&P Stock market Volatility Wed, 28 Jun 2017 11:27:48 +0000 Tyler Durden 598806 at Euro Surges As Europe Stocks Slump; Yields Rise After Central Bankers Spook Markets <p>U.S. index futures point to a slightly higher open, as markets in both Europe and Asian fall.The EUR surges to one year highs as markets continue to reverberate from Draghi's hawkish comments while yields rose around the globe following similar hawkish comments from Fed speakers on Tuesday.</p> <p>Asian stocks closed softer overall with benchmark yields sharply higher following hawkish comment from Draghi and Yellen. The MSCI Asia Pacific Index fell 0.3 percent as declines in technology shares overshadowed gains in banks and raw-materials companies. Samsung Electronics Co., Taiwan Semiconductor and Tencent led the selloff with losses of at least 1.2 percent.</p> <p>Australian 10-year yield jumps as much as nine basis points, their biggest rise since November; while CAD and AUD lead gains in broad-based dollar pullback. PBOC skipped open market operations for fourth day, and drained liquidity fro the market for the 6th day while strengthening the daily CNY fixing by most in almost four weeks; Shanghai Composite closed modestly in the red as Dalian iron ore ended near unchanged after yesterday's torrid gains. Of note were comments by a PBOC adviser, who said he sees no further tightening in 2H monetary policy.</p> <p>In the start of the overnight session, as usual eyes were on the yuan, which was on deck for its biggest two-day gain since June 1, with China’s central bank strengthening its daily fixing by the most in almost four weeks after an overnight drop in the dollar, and the PBOC strengthened its daily reference rate by 0.35% to 6.8053.&nbsp; The yuan continued to rise on speculation of central bank intervention, with the offshore currency up 0.2 percent after surging 0.6 percent Tuesday. As a reminder, on Tuesday the Yuan surged in afternoon trade amid talk of PBOC intervention. Speaking of the PBOC, the central bank drained a net 50 billion yuan in open-market operations, pulling funds from the financial system for the sixth day in a row.</p> <p>The big action however continues to be the follow through from Draghi's comments on Tuesday which unleashed a hawkish avalanche on Tuesday. As a reminder, Draghi said that “as the economy continues to recover, a constant policy stance will become accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance, but to keep it broadly unchanged”. In other words if prices rise as the ECB expect in 2018 ECB policy will become more accommodative as inflation picks up. Draghi also added that “all the signs now point to a strengthening and broadening recovery in the Euro area” and that “deflationary forces have been replaced by reflationary ones”. The ECB President also cited that risks of “hysteresis effects” had diminished and that “now we can be confident that our policy is working and that those risks have abated”. Draghi also suggested that political winds are now becoming tailwinds. As DB strategists called it, <strong>the speech seemed to mark a transition from the “whatever it takes” period to “it will take less” and a potential slow turning point in the direction of travel towards tighter policy. </strong>The final day of the Sintra ECB forum is today and a as reminder a policy panel between Draghi, the BoE’s Carney, BoJ’s Kuroda and BoC’s Poloz is due at 1.30pm BST which will be worth watching.</p> <p>The market reaction to Draghi's comments was violent with <strong>10y Bund yields surged +12.5bps to close at 0.368% and back to the highest yield since May 24th. That was the weakest day for Bunds since August 25th 2015 or 22 months. </strong>Comparable OATs rose 13.7bps to 0.732% which matches the sell-off on November 10th last year when yields surged higher post Trump’s election victory. Prior to that you’d have to also go back to August 2015 to find as big a sell-off. It was a similar story in the periphery too with yields in Italy, Spain and Portugal up +16.7bps, +12.2bps and +13.3bps respectively. 10y Gilts also surged +7.9bps to 1.088% while the moves also weighed on US Treasuries with 10y yields darting up +6.8bps to 2.206%.</p> <p>Fast forward to Wednesday when the euro touched a one-year high and government bond yields climbed as investors digested a series of hawkish messages from central banks. European stocks sank in early trading as the global selloff in technology companies spread, while German 10Y yields rose as high as 0.40%, nearly doubling in two days, as the curve steepened sharply.</p> <p><a href=""><img src="" width="500" height="521" /></a></p> <p>The Euro rose to the highest level since last June's Brexit vote and most bonds extended declines. The currency is now up almost 10% this year. The head of the Federal Reserve, Janet Yellen, and one of her lieutenants, Patrick Harker, said on Tuesday that they expected to continue raising U.S. interest rates, but it couldn't rally the dollar. </p> <p>That provoked the banking world's single biggest cheerleader for a stronger dollar, Deutsche Bank, to declare the end of the greenback's bull run which dates back to 2014. </p> <p>"I do think the euro now has got quite significant momentum behind it and I think that will build towards the confirmation of some tapering announcement this year. So I would be long the euro on a tactical basis for the rest of the year," JPMorgan Asset Management's Global Market Strategist, David Stubb, said.</p> <p>At the same time core European bonds are the significant area of vulnerability to better euro zone growth and to changes in ECB policy, <a href="">he told Reuters</a>. "If you are looking at a 10-year maturity and further out, it is a global bond market and the extremely low yields in core Europe stick out alongside Japan and Switzerland as the places that seem stretched in terms of valuation." </p> <p>Not helping the doves this morning was the latest M3 and loan growth data out of Europe, which rose again, with M3 up 5% Y/Y, while Loan Growth rose by 2.6% Y/Y, up from 2.4% the month before, and once again suggesting that Draghi risks falling behind the curve if he doesnt tighten soon.</p> <p><a href=""><img src="" width="500" height="266" /></a></p> <p>Janet Yellen added to the hawkish momentum as she noted asset valuations look rich and signaled the U.S. economy can withstand higher interest rates, and Treasury yields rose again after the biggest increase since January. Speaking in London, Yellen made a reference to asset valuations being “somewhat rich” by some metrics contributing to a late leg lower for risk assets in the US. However, the big negative catalyst had taken place earlier when the news that the healthcare legislation vote was to be pushed back beyond July 4th hit. Senate majority leader McConnell reflecting what is almost certainly still a lack of votes and clear divisions within the party. That was seen as another blow to the Trump fiscal trade while away from that markets were also spooked by the news of a fresh global cyberattack which has spread and hit government and corporate systems alike.</p> <p>And while Yellen qualified her assessment that asset valuations look high by some measures, the note of caution came just as markets were buffeted by a series of events, including an IMF cut to its U.S. growth forecast, Google suffering the biggest ever EU antitrust fine, a fresh blow to the Republican agenda in Washington and a global cyberattack.</p> <p>“Central banks taking the punch bowl of liquidity away does not bode well for the outlook for volatility in the short term, leading to position adjustments,” Morgan Stanley strategists including Hans Redeker wrote in a note. “Conditions for the emergence of a proper bear market are not yet in place, even so, yesterday’s high trading volume suggests that corrective activity may stay with us for several days.”</p> <p>Futures on the Nasdaq 100 Index retreated in a sign that the selloff in technology shares may not be over, while a drop in oil also weighed on equity markets.&nbsp; Nasdaq 100 futures expiring in September fell 0.2 percent at 6:03 a.m. in New York, with shares of chipmakers down in premarket trading. </p> <p>Overnight, Wall Street's S&amp;P 500 posted its biggest one-day drop in about six weeks and closed at its lowest point since May 31. It was spooked after the U.S. Senate delayed voting on a healthcare reform bill, rekindling worries about the timeline of Donald Trump's business-friendly policies. Futures on the S&amp;P 500 Index were higher by 0.1% as of 6:30am EDT. The index lost 0.8% Tuesday, the most since May 17.</p> <p>In currencies, the euro rose 0.2 percent to $1.1358 as of 10:02 a.m. in London, after briefly touching $1.1379, the highest level since June 2016. The currency surged 1.4 percent on Tuesday. </p> <p>The dollar index, which gauges the U.S. currency against a basket of six major counterparts, edged down 0.2 percent to 96.227, well below its previous session high of 97.447. The Bloomberg Dollar Spot Index fell less than 0.1 percent after declining 0.6 percent in the previous session. The Canadian dollar strengthened 0.4 percent, adding to a 0.4 percent gain on Tuesday. Bank of Canada Governor Stephen Poloz said in a CNBC interview that interest rate cuts “have done their job” and that levels are now “extraordinarily low.”</p> <p>The weaker dollar helped bolster spot gold, which was up 0.4 percent at 1,251.59 per ounce, and also boosted crude. Oil’s winning streak ended as industry data showed American stockpiles rose: WTI futures fell 0.6 percent to $43.99 after climbing 4 percent in the previous four sessions. Gold rose 0.5 percent to $1,252.84 an ounce, climbing for a second day. </p> <p>In rates, the yield on 10-year Treasuries added three basis points to 2.23 percent after jumping seven basis points Tuesday. The yield on German bunds climbed one basis points, after rising 13 basis points in the previous session for the biggest surge since December 2015. British yields rose four basis points.</p> <p>While there are no major events or central bank speeches, the Fed is set to announce the results of the second part of its annual bank stress test, which will determine whether lenders can increase dividends and share repurchases. </p> <p><strong>Bulletin Headline Summary From RanSquawk</strong></p> <ul> <li>EUR/USD breaches 1yr highs post-Draghi yesterday (due again today at 1430BST)</li> <li>EU equities continue to slip with healthcare names seen softer</li> <li>Highlights include comments from slew of central bank speakers including Carney and Poloz, DoE Crude inventories</li> </ul> <p><strong>Markets Snapshot </strong></p> <ul> <li>S&amp;P 500 futures up 0.1% to 2,422</li> <li>STOXX Europe 600 down 0.3% to 384.76</li> <li>MXAP down 0.3% to 154.79</li> <li>MXAPJ down 0.5% to 504.23</li> <li>Nikkei down 0.5% to 20,130.41</li> <li>Topix down 0.3% to 1,614.37</li> <li>Hang Seng Index down 0.6% to 25,683.50</li> <li>Shanghai Composite down 0.6% to 3,173.20</li> <li>Sensex down 0.4% to 30,843.25</li> <li>Australia S&amp;P/ASX 200 up 0.7% to 5,755.70</li> <li>Kospi down 0.4% to 2,382.56</li> <li>German 10Y yield rose 0.8 bps to 0.378%</li> <li>Euro up 0.3% to 1.1376 per US$</li> <li>Brent future up less then 0.1% to 46.69</li> <li>Italian 10Y yield rose 15.9 bps to 1.768%</li> <li>Spanish 10Y yield fell 2.5 bps to 1.47%</li> <li>Gold spot up 0.5% to $1,252.94</li> <li>U.S. Dollar Index down 0.2% to 96.22</li> </ul> <p><strong>Top Overnight News</strong></p> <ul> <li><strong>Yellen says asset valuations ’somewhat rich’, rates to rise very gradually; Kashkari says economy not on verge of overheating, inflation low</strong></li> <li>BOC’s Poloz expects Canada’s growth to stay above potential; looks as though ’rate cuts have done their job’</li> <li>PBOC adviser sees no further tightening in 2H monetary policy</li> <li>China 2Q economic growth may be 6.8%, CPI 1.4%: Business Herald</li> <li>Japan PM Abe said to ditch balanced budget pledge to delay sales tax hike</li> <li>RBA could raise rates 8 times in two years, ex-board member Edwards says</li> <li>API inventories according to people familiar w/data: Crude +0.9m; Cushing -0.7m; Gasoline +1.4m; Distillates +0.7m</li> <li>Rate-Cutting Race Among BRICS Outliers Pits Russia, Brazil</li> <li>McConnell Scrambles to Win GOP Votes for Troubled Health Measure</li> <li>Moon Enlists Chaebol Execs to Disarm Trump’s Trade Threat</li> <li>Buffett Renews Attack on Health Bill as ‘Relief for Rich Act’</li> <li>Toshiba Sues Western Digital for 120 Billion Yen in Damages</li> <li>F-35 Unreliability Risks Strain on Pentagon Budget, Tester Says</li> <li>Google News Redesigns With a Focus on Facts, More User Control</li> <li>Australia Signs A$70m Sustainment Contract for C-17A With Boeing</li> <li>Bluebird Bio Prices 3.81m Shares at $105 Apiece</li> <li>Mattel Accused of ‘Loading Up’ Stores to Bolster Financials</li> <li>Dow, DuPont to Sell Some Assets in Competition Bureau Agreement</li> <li>International Paper to Pay $354m in Kleen Products Settlement</li> <li>Accenture Plans to Spend $1.8B on Acquisitions in 2017: Mint</li> <li>Glenview Said to Call for Changes in Dow-DuPont Deal Plan: WSJ</li> </ul> <p><strong>Asian equity markets traded mixed </strong>after a slight improvement from the losses on Wall Street where there was a renewed sell-off in tech names and healthcare suffered after the Senate delayed the vote to repeal and replace Obamacare. This weighed on Nikkei 225 (-0.3%) from the open although downside was stemmed by yesterday's JPY weakness, while ASX 200 (+0.6%) was kept afloat by strength in miners and materials stocks. Shanghai Comp. (+0.1%) and Hang Seng (-0.3%) were both initially lower after the PBoC refrained from liquidity operations for the 4th consecutive session, before mainland sentiment gradually recovered amid an optimistic forecast of 6.8% growth for China this year by Bank of China and after reports that a PBoC adviser expects no further tightening of monetary policy during H2. 10yr JGB are marginally lower despite the risk averse tone in Japan and a moderate BoJ Rinban announcement of JPY 880b1n, while a slight underperformance was seen in the long-end resulting to a mildly steeper curve.</p> <p><em>Top Asian News</em></p> <ul> <li>China Prepares Bigger Opening to Its $9 Trillion Bond Market</li> <li>Worst Likely Over For Malaysian FX and Rates Markets, CIMB Says</li> <li>H.K. SFC Investigates Short Sellers Who Issue Research Reports</li> <li>Small China Banks Rally As Investors Seen Seeking Low Valuations</li> <li>Japan’s FTC to Take ‘Strict Action’ on LNG Antitrust Violations</li> <li>Cofco, ADM Hit by New Cyberattack That’s Spreading Worldwide</li> <li>Japan Tobacco Faces Supply Shortage as Rivals Pile On In Japan</li> </ul> <p><strong>In European stocks, there has been a modest extension seen in EUR/USD this morning, </strong>stretching the lead gains to a little shy of 1.1390. The hawkish European equities are trading lower across the board (Eurostoxx 50 -0.8%) in a continuation of the some of the price action seen yesterday, most notably on Wall Street. More specifically, healthcare names are seen softer in Europe after yesterday's announcement that the US healthcare bill vote is to be delayed until after Independence Day. Tech names continue to face selling pressure in the wake of the Supreme court ruling earlier in the week regarding the Trump travel ban while energy names are also adding pressure to indices after yesterday's 851 k build in the API's. From a fixed income perspective, prices have continued their descent (GE 10yr yield +2.4bps) seen since yesterday's more hawkish than anticipated leaning from ECB President Draghi. That said, some market participants have raised the question over whether the central bank head will try and redress the market later to at 1430BST given the extent of the moves yesterday. In terms of performance elsewhere, spreads are broadly tighter to the German benchmark with 10yr French paper tighter by 0.7bps with BTPs bucking the trend (1bps wider to GE 10yr) amid impending supply on Friday.</p> <p><em>Top European News</em></p> <ul> <li>JPMorgan Reshuffles European Management as Casanueva Retires</li> <li>Asset Management Fee Pressure to Intensify After FCA Report: RBC</li> <li>Draghi Gets Backing in Argument Over How to Best Spur Reforms</li> <li>May’s New U.K. Government to Face First Test on Austerity</li> <li>Deutsche Bank Raises EUR/USD Forecast After Draghi’s Speech</li> <li>Philips to Buy Spectranetics, Starts Buyback of Up to EU1.5B</li> <li>Maersk Has Shut Down Some Systems to Help Contain Cyber Attack</li> </ul> <p><strong>In currenices, </strong>a modest extension seen in EUR/USD this morning, stretching the lead gains to a little shy of 1.1390. The hawkish takeaways from president's Draghi's speech at the ECB forum continue to ring in the ears, and we continue to wrestle for position for a test on 1.1400, with selling interest aplenty all the way through to 1.1500. EUR gains have been added against the major counterparts across the board, and have been underpinned by the EUR/CHF move above 1.0900 again. EUR/GBP put another dent into the upside ahead of 0.8900, but as we have reported, strong resistance will be reinforced by even stronger levels ahead of 0.9000. This serves to prop up Cable, which tested through 1.2850 in NY yesterday, but with liquidity improved, buyers are having a tough time of it this morning. CAD still probing the downside as we challenge lows ahead of 1.3100. Oil prices, and indeed all commodities have edged higher — partly down to USD weakness — and this 'cycle' has generated the move lower to put the key 1.3000 level on the radar, but it is proving slow going in the meantime.</p> <p><strong>In commodities,</strong> as a function of the weaker USD, we see another round of gains seen across the commodity spectrum, where we will lead with the metals market as Copper extends above USD2.65. The lack of momentum is a clear sign of caution, and at these levels unsurprisingly so as the ongoing concerns over global demand linger despite a broadly optimistic outlook from central banks globally. On the day, we are seeing prices coming off better levels — Zinc pulling back a little more than the rest after recent bouts of outperformance. WTI is back above USD44.0 this morning, but we sense USD45.0 will be a challenge as there is no change in the fundamental driver that is the growing rate of US shale production. Gold is close to returning back to levels seen Monday morning, just before the sharp USD20.0 hit, with Silver moving decidedly hesitantly inside a USD16-17 range for now.</p> <p><strong>Looking at the day ahead, </strong>in the US data includes the May advance goods trade balance reading, wholesale inventories for May and pending home sales data for May. Away from the data the main focus for markets today will likely be the aforementioned ECB panel debate between Draghi, Carney and Kuroda. Speaking of the Fed, the results from the second part of the Fed’s stress test (known as the Comprehensive Capital Analysis and Review) will also be out late this afternoon which determines whether banks can increase dividends and conduct share repurchases.</p> <p><strong>US Event Calendar</strong></p> <ul> <li>7am: MBA Mortgage Applications, prior 0.6%</li> <li>8:30am: Advance Goods Trade Balance, est. $66.0b deficit, prior $67.6b deficit, revised $67.1b deficit</li> <li>8:30am: Wholesale Inventories MoM, est. 0.2%, prior -0.5%; Retail Inventories MoM, prior -0.3%</li> <li>10am: Pending Home Sales MoM, est. 1.0%, prior -1.3%; NSA YoY, est. 0.5%, prior -5.4%</li> </ul> <p><strong>DB's Jim Reid concludes the overnight wrap</strong></p> <p>After a strange few weeks of incredible weather and steamy politics here in the UK I landed back in London late last night to see that normal service has been resumed. Yes it was cold with heavy rain and England had just lost to Germany on penalties in a major football tournament!! After last night's Euro U-21 semi-final loss a quick Google search revealed that Germany has virtually the best penalty shoot-out record in major world football and England one of the worst. If anyone in Germany can tell me why I'd be delighted to know. At the end of every school day are penalties compulsory? Talking of Google there were hundreds of correct answers to my quiz from yesterday as to which song (from one of my favourite albums of all time) is virtually the only song in history to mention one of the most famous economists of all time. The answer was Dignity by&nbsp; Deacon Blue which mentions Maynard Keynes. I mention Google as it was difficult to ascertain which of the correct answers were a product of knowledge and which were a product of an internet search. Quizzes have certainly got easier and less fun in the internet age. The most amusing answer was those that suggested my favourite song of all time might be "When will I be famous?" by 80s boyband Bros. This song mentions Karl Marx. Thankfully this wasn't the answer I was looking for.</p> <p>Yesterday's comments from Mr Draghi at the ECB forum in Sintra seemed to indicate that he thought the last ECB meeting ended up in a draw and that he wanted to take the first penalty kick in the aftermath. He certainly seemed more upbeat yesterday than in his more balanced press conference that obviously more reflected the views of the committee. The changes were subtle but significant. Before we discuss his comments the impact was clear as bonds across the continent saw one of the biggest sell-offs for many months. Indeed 10y Bund yields surged +12.5bps to close at 0.368% and back to the highest yield since May 24th. That was the weakest day for Bunds since August 25th 2015 or 22 months. Comparable OATs rose 13.7bps to 0.732% which matches the sell-off on November 10th last year when yields surged higher post Trump’s election victory. Prior to that you’d have to also go back to August 2015 to find as big a sell-off. It was a similar story in the periphery too with yields in Italy, Spain and Portugal up +16.7bps, +12.2bps and +13.3bps respectively. 10y Gilts also surged +7.9bps to 1.088% while the moves also weighed on US Treasuries with 10y yields darting up +6.8bps to 2.206%.</p> <p>Specifically, Draghi said that “as the economy continues to recover, a constant policy stance will become accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance, but to keep it broadly unchanged”. In other words if prices rise as the ECB expect in 2018 ECB policy will become more accommodative as inflation picks up. Draghi also added that “all the signs now point to a strengthening and broadening recovery in the Euro area” and that “deflationary forces have been replaced by reflationary ones”. The ECB President also cited that risks of “hysteresis effects” had diminished and that “now we can be confident that our policy is working and that those risks have abated”. Draghi also suggested that political winds are now becoming tailwinds.</p> <p>As our rates strategists’ aptly called it, the speech seemed to mark a transition from the “whatever it takes” period to “it will take less” and a potential slow turning point in the direction of travel towards tighter policy. The final day of the Sintra ECB forum is today and a as reminder a policy panel between Draghi, the BoE’s Carney, BoJ’s Kuroda and BoC’s Poloz is due at 1.30pm BST which will be worth watching.</p> <p>Staying with central banks, it’s not often that Mrs Yellen gets overshadowed but that was the case yesterday with nothing of real interest policy wise to emerge from her London speech. However a reference to asset valuations being “somewhat rich” by some metrics from the Fed Chair did contribute to a late leg lower for risk assets in the US. In fairness though the damage had already been done for markets following a trifecta of other factors earlier in the day. The most significant was perhaps the news that the healthcare legislation vote was to be pushed back beyond July 4th. Senate majority leader McConnell reflecting what is almost certainly still a lack of votes and clear divisions within the party. That was seen as another blow to the Trump fiscal trade while away from that markets were also spooked by the news of a fresh global cyberattack which has&nbsp; spread and hit government and corporate systems alike.</p> <p>The final variable for markets to deal with was a renewed sell-off in the tech sector. It appeared that the news of a €2.4bn antitrust fine for Google from the European Commission over abusing its near-monopoly&nbsp; position for online searches in order to give the company an “illegal advantage” played a big role. Alphabet’s share price fell nearly -2.50% while the Nasdaq tumbled -1.61%. That retreat for tech names sent the S&amp;P&nbsp; 500 down -0.81% for its worst day in 6 weeks. Markets were also weak in Europe with the Stoxx 600 closing -0.79%. Credit also gave back some recent performance. CDX IG closed 2bps for its worst day in 6 weeks too while in Europe the iTraxx Main finished 1.5bps wider. It’s worth noting that these moves came despite commodities having a rare strong day across the board. WTI Oil (+1.98%) continued its bounce back, Iron Ore&nbsp; rallied +5.20%, Copper firmed +1.10% and Gold was +0.20% better off.</p> <p>Refreshing our screens now, with little new news to note, the falls in equity markets in Europe and on Wall Street yesterday has continued this morning into Asia for the most part. The Nikkei (-0.29%), Hang Seng&nbsp; (-0.71%), Shanghai Comp (-0.41%) and Kospi (-0.30%) have all dropped into the red however the ASX (+0.32%) has bucked the trend in firming up. Bonds have been heavily sold across Asia with 10y yields in the likes of Australia and New Zealand 7bps higher Moving on. On Monday my team published a report “iTraxx Financial Senior: Where Next?” which should be in your inbox. The report looks at what is behind the recent strong outperformance of the iTraxx Financial Senior index. Firstly, it explains the basics of the regulatory changes that have resulted in a change of the index rules for the upcoming roll, as announced last week, which will change the risk of the index meaningfully. It looks into single-name CDS repricing within the index following the announcement and also contrasts the performance of the index with cash bonds. Finally, it concludes with views about where the index is heading in the near term, where the September roll might price and the likely performance of the current series after the roll. Email <a href="" title=""></a> if you'd like a copy.</p> <p>In terms of other news from yesterday, there was some focus also on the BoE following the release of the semi-annual Financial Stability Review. The most notable takeaway was an increase in the counter-cyclical capital buffer applied to banks to 0.5% from 0% and a guide to a possible increase to 1% in the November meeting. The BoE pointed to ‘pockets of risk’ despite the overall risk environment being classified as at a ‘standard level’. Specifically there was mention of the rapid increase in consumer credit and also – unsurprisingly – the prevailing uncertainty from Brexit negotiations.</p> <p>Before we look at the day ahead, yesterday’s macro data – while flying mostly under the radar – was actually relatively upbeat. The conference board’s headline consumer confidence index for June was reported as rising 1.3pts to 118.9 with the current conditions index rising 5.7pts to 146.3 and the highest since 2001. Offsetting that however was a drop in the expectations index of 1.7pts to 100.6 and to the lowest since January. Away from that the Richmond Fed’s manufacturing index rose 6pts in June to +7 (vs. +5 expected). Meanwhile the S&amp;P/Case-Shiller house price index revealed that house prices rose +0.3% mom in April the 20 largest cities. Finally closer to home in the UK the CBI’s distributive trades survey for June revealed that a net 12% of retailers reported sales growth in June which was up 3% from May.</p> <p>Looking at the day ahead, this morning the early data due to be released is out of Germany with the May import price index reading and then the UK with the latest Nationwide house price index data for June. M3 money supply data for the Euro area is then out later this morning. Across the pond in the US this afternoon's data includes the May advance goods trade balance reading, wholesale inventories for May and pending home sales data for May. Away from the data the main focus for markets today will likely be the aforementioned ECB panel debate between Draghi, Carney and Kuroda. The Fed’s Williams also speaks this morning. Speaking of the Fed, the results from the second part of the Fed’s stress test (known as the Comprehensive Capital Analysis and Review) will also be out late this afternoon which determines whether banks can increase dividends and conduct share repurchases.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="996" height="502" alt="" src="" /> </div> </div> </div> API ASX ASX 200 Australia Bank of Canada Bank of England Bear Market Bloomberg Dollar Spot BOE Bond BRICs Business CAD Canadian Dollar Case-Shiller CDS Central Banks China Consumer Confidence Consumer Credit Copper CPI Crude Currency Deutsche Bank Distillates Draghi Economy of the European Union Equity Markets Euro Europe European Central Bank European Commission European Union European Union EUROSTOXX 50 Eurozone federal government Federal Reserve Federal Trade Commission fixed Germany Gilts Gold Spot Google Hang Seng 40 International Monetary Fund Italy Janet Yellen Janet Yellen Japan Jim Reid M3 Maynard Keynes Monetary Policy Money Supply Morgan Stanley MSCI Asia Pacific NASDAQ Nasdaq 100 NASDAQ 100 New Zealand Nikkei Nikkei 225 Obamacare Open Market Operations Pentagon People's Bank of China Portugal Price Action recovery Renminbi Republican Party Reserve Bank of Australia Reuters S&P 500 S&P/ASX 200 S&P/Case Senate Spur Reforms May’s New U.K. Government Stoxx 600 Stress Test Supreme Court Switzerland Trade Balance United States Senate US Federal Reserve Volatility Wholesale Inventories Yen Yuan Wed, 28 Jun 2017 10:48:12 +0000 Tyler Durden 598804 at Investing Legend Calls Cryptocurrencies "Biggest Bubble Of A Lifetime"... But There Is A Catch <p>Former Fortress Principal Michael Novogratz left the firm&#39;s colossal macro hedge fund almost two years ago, but has <a href="">been discussing investments in virtual currencies since 2013 when he told a UBS conference...</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&quot;Put a little money in Bitcoin...Come back in a few years and it&rsquo;s going to be worth a lot.&quot;</strong></p> </blockquote> <p>He was of course correct, Bitcoin was trading around $200 at the time and as recently as two weeks ago was worth $3000.</p> <p><a href=""><img height="426" src="" width="600" /></a></p> <p>But today, <a href="">Bloomberg reports</a> that at the CB Insights Future of Fintech conference in New York, Novogratz told attendees that<strong> he has cut holdings (in Bitcoin and Ethereum) after the cryptocurrencies&#39; latest &quot;spectacular run,&quot; warning that &quot;Euthereum had likely hit its highs for the year,&quot; and &quot;cryptocurrencies were likely the biggest bubble of his lifetime.&quot;</strong></p> <p><a href=""><img height="312" src="" width="600" /></a></p> <p>However, while this all sounds desperately downbeat, Novogratz is still very <strong>&quot;positively constructive&quot; on the space</strong> overall. He should be - he has <strong>10% of his net worth invested in the sector</strong>.</p> <p><a href="">As Bloomberg reports,</a> <strong>Novogratz says cryptocurrencies could be worth north of $5 trillion in five years</strong> -- if the industry can come out of the shadows.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;The Nasdaq got to $5.4 trillion in 1999, why couldn&rsquo;t it be as big?&quot; the former hedge fund manager said in an interview, referring the Nasdaq Composite Index.</p> <p>&nbsp;</p> <p><strong>&quot;There&#39;s so much human capital and real money being poured into the space and we&rsquo;re at the takeoff point.&quot;</strong></p> <p>&nbsp;</p> <p>To get there, though, <strong>companies need to develop sound business principles to satisfy regulators</strong> and lend legitimacy to the budding industry, as Novogratz says<strong> cryptocurrencies face &quot;monster regulatory risk.&quot;</strong></p> </blockquote> <p>Novogratz said he <strong>took some profits on his bitcoin and ether holdings as prices surged, but still has 10 percent of his net worth invested in the sector,</strong> including blockchain-based assets he bought in fundraising mechanisms known as initial coin offerings.</p> <p>He&rsquo;s looking to <strong>add more ether if it falls between $200 and $150...</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 343px;" /></a></p> <p>and more bitcoin if it falls to $2,000...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>Novogratz ended with some more serious advice...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>Pay your taxes, because nobody in that space pays taxes.</strong> It&rsquo;s a bunch of libertarians,&quot; he said, adding he thought a core group of developers have good intentions.</p> <p>&nbsp;</p> <p><strong>&quot;There really is a revolutionary spirit amongst the guys that are building this system.&quot;</strong></p> </blockquote> <p>Concluding that Bitcoin could become a viable store of wealth, similar to gold, while ethereum could be the platform underpinning the Googles and Facebooks of the future, while money transfers to securities settlement will probably be done using blockchain technology.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="962" height="501" alt="" src="" /> </div> </div> </div> Bitcoin Bitcoin Block chain Blockchains Business Computing Cryptocurrencies Ethereum Finance Financial technology Michael Novogratz Money NASDAQ NASDAQ 100 NASDAQ Composite NASDAQ Composite using blockchain technology Wed, 28 Jun 2017 10:40:00 +0000 Tyler Durden 598784 at Venezuela's Maduro Says Armed Group "Started A Coup", Used Helicopter To Drop Grenades <p>In an incident that is oddly reminiscent to the "failed coup" in Turkey from last June, late on Tuesday a rogue Venezuelan police helicopter strafed the Supreme Court and the interior ministry on Tuesday, in what President Nicolas Maduro called an attack by "<strong>terrorists seeking a coup</strong>" and which major news agencies said was an escalation of the OPEC nation's political crisis, although to some local Venezuelans this was a staged attempt to justify ongoing repression at Venezuela's National Assembly. </p> <p>According to <a href="">Reuters</a>, the helicopter fired 15 shots at the Interior Ministry, where dozens of people were gathered at a social event, <a href="">after dropping four grenades on the Supreme court </a>during a meeting of judges, although there were no reports of injuries. Opponents to Maduro view the symbolic Interior Ministry as a bastion of repression and also hate the Supreme Court for its string of rulings bolstering the president's power and undermining the opposition-controlled legislature.</p> <p>President Nicolas Maduro, speaking on state television after the incident, said people flying a helicopter conducted an “armed terrorist attack against the country’s institutions” and added that "this is the kind of armed escalation I have been denouncing.”</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en"><a href="">#Venezuela</a> President <a href="">#Maduro</a> says an armed group has started a coup, with a stolen helicopter used to drop grenades. <a href=""></a></p> <p>— Kevin Rincon (@KevRincon) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>Maduro said one of the helicopter pilots served as pilot for former Interior Minister Migue Rodriguez Torres, a critic of Maduro, and said that an air defense plan was immediately activated while calling on the pPblic Prosecutor’s office to take action against “terrorist attack.”</p> <p>"Sooner rather than later, we are going to capture the helicopter and those behind this armed terrorist attack against the institutions of the country," Maduro said. "They could have caused dozens of deaths."</p> <p>After Maduro's speech, Venezuela's government confirmed the helicopter was stolen by "investigative police pilot" Oscar Perez, who declared himself in rebellion against Maduro. Images posted on social and local media show Perez waving a banner from the helicopter reading "Liberty", and the number "350" in large letters. The number refers to the constitutional article allowing people the right to oppose an undemocratic government.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en"><a href="">#Venezuela</a> | Oscar Perez flying stolen helicopter that dropped grenades on Supreme Court. pics via twitter. <a href="">#OOTT</a> <a href=""></a></p> <p>— Lee Saks (@Lee_Saks) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>A video posted on Perez' Instagram account around the same time showed him standing in front of several hooded armed men, saying an operation was underway to restore democracy. </p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en"><a href="">#Venezuela</a> | Oscar Perez declares war after attacking supreme court. says theres union bet citizens police &amp; soldiers to topple Maduro <a href="">#OOTT</a> <a href=""></a></p> <p>— Lee Saks (@Lee_Saks) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>Perez said in the video he represented a coalition of military, police and civilian officials opposed to the "criminal" government, urged Maduro's resignation and called for general elections. "This fight is ... against the vile government. Against tyranny," he said. Local media also linked Perez to a 2015 action film, Suspended Death, which he co-produced and starred in as an intelligence agent rescuing a kidnapped businessman.</p> <p>Additionally, on Tuesday, witnesses reported hearing several detonations in downtown Caracas, where the pro-Maduro Supreme Court, the presidential palace and other key government buildings are located. Roughly at the same time, Venezuela National Guard shut down major roads concerned about potential coup, with various small clashes reported breaking out.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en"><a href="">#Venezuela</a> National Guard shut down major roads concerned about potential coup. Small clashes already reported <a href="">#27J</a> <a href=""></a></p> <p>— Kevin Rincon (@KevRincon) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>The alleged "terrorist coup" caps a volatile period of three months of often violent protests from opposition leaders who decry the 54-year-old socialist leader as a dictator who has wrecked a once-prosperous economy. More troubling for Maduro, in recent weeks there has also been growing dissent too from within government and the security forces, which have traditionally been aligned with the regime.&nbsp; At least 75 people have died, and hundreds more been injured and arrested, in the anti-government unrest since April according to Reuters.</p> <p>While demonstrators have been demanding general elections, as well as measures to alleviate a brutal economic crisis, freedom for hundreds of jailed opposition activists, and independence for the opposition-controlled National Assembly legislature, Maduro has responded that the locals are seeking a coup against him with the encouragement of a U.S. government eager to gain control of Venezuela's oil reserves, the largest in the world.</p> <p>* * * </p> <p><strong>And yet this is where the comparisons emerge with the "failed Turkish coup" to "remove" Erdogan last summer, </strong>which most admit was a staged attempt meant to further entrench the despotic president.</p> <p>While Venezuela opposition leaders have long been calling on Venezuela's security forces to stop obeying Maduro, following yesyerday's event, there was speculation among opposition supporters on social media that the attack could have been staged to justify repression <strong>or cover up drama at Venezuela's National Assembly, where two dozen lawmakers said they were being besieged by pro-government gangs.</strong></p> <p>Earlier in the day, Bloomberg reported that pro-government “violent groups” shot fireworks into the National Assembly gardens under the watch of security forces, opposition lawmaker Henry Ramos Allup wrote on Twitter.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">National Guard bursting into National Assembly building in <a href="">#Venezuela</a>. Apparently beating up lawmakers <a href="">#27Jun</a> <a href=""></a></p> <p>— Mariana_Atencio (@marianaatencio) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>Allup wrote that National Guard officers had stored boxes belonging to the electoral council in their National Assembly offices.Opposition lawmaker Delsa Solorzano wrote on Twitter that National Guard officers assaulted lawmakers at National Assembly, while opposition lawmaker Amelia Belisario said lawmakers were assaulted for “demanding responses regarding electoral material” National Guard brought into National Assembly.</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Military attack senators of national congress in <a href="">#Venezuela</a> ???????? <a href="">#27June</a> <a href=""></a></p> <p>— Oscar Contreras? (@oscarcontrera) <a href="">June 28, 2017</a></p></blockquote> <script src="//"></script><p>As Reuters adds, earlier on Tuesday, Maduro warned that he and supporters would take up arms if his socialist government was violently overthrown by opponents. "If Venezuela was plunged into chaos and violence and the Bolivarian Revolution destroyed, we would go to combat. We would never give up, and what couldn't be done with votes, we would do with arms, we would liberate the fatherland with arms," he said. </p> <p>"If Venezuela was plunged into chaos and violence and the Bolivarian Revolution destroyed, we would go to combat. We would never give up, and what couldn't be done with votes, we would do with arms, we would liberate the fatherland with arms," he said.&nbsp; And what better way - at least in his eyes - to generate some empathy ahead of the "great war" with the domestic and international community, than to be cast as the tragic victim of a "terrorist coup" attempt. </p> <p>Additionally, Maduro is pushing a July 30 vote for a special super-body called a Constituent Assembly, which could rewrite the national charter and supersede other institutions such as the opposition-controlled congress. He has touted the assembly as the only way to bring peace to Venezuela. But opponents, who want to bring forward the next presidential election scheduled for late 2018, say it is a sham poll designed purely to keep the socialists in power. They have announced a boycott of the coming vote, and protesting daily on the streets to try and have it stopped.</p> <p>Finally, for good measure, Maduro decided to threaten the US, which he has repeatedly accused of being behind the social turmoil and said the "destruction" of Venezuela would lead to a huge refugee wave dwarfing the Mediterranean migrant crisis.</p> <p><strong>"Listen, President Donald Trump," </strong>he said earlier on Tuesday. <strong>"You would have to build 20 walls in the sea, a wall from Mississippi to Florida, from Florida to New York, it would be crazy ... You have the responsibility: stop the madness of the violent Venezuelan right wing."</strong></p> <p>Opposition to the July 30 vote has come not just from Venezuelan opposition parties but also from the chief state prosecutor Luisa Ortega and one-time government heavyweights such as former intelligence service boss Miguel Rodriguez. As Reuters notes, Rodriguez criticized Maduro for not holding a referendum before the Constituent Assembly election, as his predecessor Chavez had done in 1999.</p> <p>"This is a country without government, this is chaos," he told a news conference on Tuesday. "<strong>The people are left out ... They (the government) are seeking solutions outside the constitution."</strong></p> <p>While many are skeptical, if today's "coup" attempt was legitimate, and if opposition to Maduro is indeed at a tipping point among the security forces and military, then not only are Maduro's days numbered, but in the political and power vacuum that will result following the change in regime, the last thing Venezuela will be able to focus on is maintaining oil production (even if China were to paradrop a group of engineers to its oil vendor state). In which case, crude oil may once again become a barometer of geopolitical tensions; as such keep an eye on the price of oil for the best indication of how close Maduro is to vacating the Caracas presidential palace for the last time.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="882" height="538" alt="" src="" /> </div> </div> </div> 2014–17 Venezuelan protests Bolivarian Revolution China Constituent Assembly Crude Crude Oil Donald Trump Florida Interior Ministry Mediterranean National Assembly National Assembly legislature Nicolás Maduro OPEC Organization of Petroleum-Exporting Countries Politics Politics Politics of Venezuela Reuters Saks Supreme Court Turkey Twitter Twitter US government Venezuela Venezuela National Guard Venezuela's government Venezuela's National Assembly Venezuelan constitutional crisis Venezuelan police Venezuelan protests War Wed, 28 Jun 2017 10:03:27 +0000 Tyler Durden 598802 at Goldman Raises S&P500 Year-End Price Target From 2,300 To 2,400 <p>Throughout the first half of the year, as stocks kept grinding ever higher and Goldman issued one after another bearish equity strategy note, the bank's chief equity analyst David Kostin stubbornly kept Goldman's S&amp;P price target at 2,300. Now, "unexpectedly" with stocks finally cracking with some violent moves in the tech sector after repeated warnings by top Fed bankers that stock "valuations are too rich", <strong>moments ago Kostin just raised Goldman's year end price target from 2,300 to 2,400. "reflecting a 1% decline over the next six months."</strong></p> <p>Key highlights from his note below:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>We raise our year-end 2017 S&amp;P 500 price target to 2400 from 2300, reflecting a 1% decline over the next six months. This return would represent a 27th percentile event since 1975. </strong>We expect EPS growth of 9% this year will be offset by a 4% contraction in the forward P/E multiple to 17.3x from 18.1x. The prospect of accelerating inflation, higher policy rates, and rising 10-year bond yields will weigh on S&amp;P 500 valuation. Our 12-month price target of 2450 represents a 1% price gain (+3% total return including dividends). A lower-than-expected rate of inflation and persistently low bond yields would support a higher level of the market.</p> <p>&nbsp;</p> <p><strong>We increase our S&amp;P 500 adjusted EPS estimates to $129 in 2017 and $139 in 2018 (from $123 and $129). </strong>The increase stems from strong 1Q results and higher expected growth in Financials and Info Tech. We expect S&amp;P 500 sales will grow by 5% in 2017 and 2018 and margins will expand by 22 bp to 9.7% in 2017 before peaking at 9.9% in 2018. Our forecast assumes average 2017 US GDP growth of 2.1%, average 10-year US Treasury yields of 2.6%, and no change in corporate tax rates. See Exhibit 9 for a sensitivity of our EPS estimates to macro variables.</p> </blockquote> <p>Here are the details on why, just as the IMF slashed its US GDP forecast, Goldman is expecting even more profit upside: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>We lift our 2017 and 2018 S&amp;P 500 adjusted EPS estimates to $129 and $139 (from $123 and $129), representing annual growth of 9% and 7%. </strong>The increase is driven by stronger than expected results in 1Q and higher&nbsp; estimates in Financials and Info Tech. We raise our operating EPS estimates to $121 and $130 in 2017 and 2018 (from $116 and $122). We expect S&amp;P 500 sales will grow by 5% in 2017 and 2018 reflecting modest US GDP growth and accelerating inflation. We lift our S&amp;P 500 profit margin forecast on the back of solid 1Q economic activity, strong Info Tech margins, and a rebound in Energy margins.</p> <p>&nbsp;</p> <p><a href=""><img src="" width="500" height="277" /></a></p> <p>&nbsp;</p> <p><strong>Our sales, margins, and earnings models incorporate forecasts for a variety of macroeconomic variables</strong>. Our US Economics team expects modest economic growth in 2017 and 2018. They also forecast that a tight labor market will push wages and inflation higher, with core CPI and core PCE reaching 2.2% and 1.9% in 2018, respectively.<br /><a href=""><img src="" width="591" height="315" /></a></p> <p>&nbsp;</p> <p><strong>Following a rebound in 2017, we expect S&amp;P 500 sales and EPS growth will decelerate through 2020</strong>. 2017 sales growth of 5% and EPS growth of 9% would represent the fastest pace of growth since 2011. However, given late-cycle dynamics, we expect positive but decelerating sales and earnings growth going forward.<br /><a href=""><img src="" width="500" height="207" /></a></p> <p>&nbsp;</p> <p><strong>We expect S&amp;P 500 margins will rise modestly to 9.7% in 2017, before peaking at 9.9% in 2018</strong>. After reaching an all-time high of 9.7% in 3Q 2015, the decline in Brent oil prices from $53 to $28 drove S&amp;P 500 margins lower. However, excluding Energy, S&amp;P 500 margins continued to move higher and reached a peak of 10.4% in 1Q 2017. We expect margins will gradually expand through 2018, in part due to the rebound in Energy margins, but our estimates remain below consensus expectations of 9.8% in 2017 and 10.4% in 2018. In 2019 and 2020, slowing economic growth, a tight labor market and rising wages, and higher inflation will result in S&amp;P 500 margin contraction.</p> <p><a href=""><img src="" width="500" height="256" /></a></p> </blockquote> <p><strong>As a result of the above changes, Goldman has increased its S&amp;P 500 operating EPS estimates to $121 and $130 (from $116 and $122). </strong>The 69% collapse in oil prices from $115 in 2014 to $36 in 2015 prompted ceiling cost write-downs by Energy companies, increasing the gap between S&amp;P 500 operating and adjusted EPS to a peak of $17 (or 18% of EPS). The gap narrowed to $13 in 2016 alongside a rebound in commodity prices and we estimate it will continue to fall to $9 in 2017 and 2018. To this Goldman believes that the period of significant Energy asset write-downs is likely behind us, unless of course oil plunges back under $40 as UBS calculates on Monday, in which case all bets are off. "We expect stock-based compensation (Information Technology) and the amortization of goodwill (Health Care) will continue to be the key drivers of the roughly $8 annual gap going forward."</p> <p><a href=""><img src="" width="500" height="211" /></a></p> <p>Finally, this is what the revision in EPS outlook means to the S&amp;P, or how Goldman goalseeked its 100 points S&amp;P price target increase from 2,300 to 2,400:</p> <p>We continue to expect that solid S&amp;P 500 earnings growth will be offset by a contraction in the forward P/E multiple. Concurrent with our upward EPS revisions, we lift our year-end 2017 price target to 2400 from 2300&nbsp; previously. We also increase our 2018 and 2019 S&amp;P 500 price targets by 100 points each year to 2500 and 2600, respectively. Accelerating inflation, rising interest rates, and stretched valuations relative to history will weigh on valuation and lead to a decline in the forward P/E from 18.1x currently to 17.3x in 2017 and 17.1x in 2018. Our year-end 2017 target suggests a slight 1% decline in price, which would rank as a 27th&nbsp; percentile six-month return since 1975. Downside risks include a more hawkish Fed than priced in the futures market, higher-than-expected inflation, and upcoming political uncertainty surrounding the federal debt ceiling. Looking further in the future, our price targets imply 4% annual price gains in 2018 and 2019 (6% annual total return including dividends).</p> <p><a href=""><img src="" width="500" height="566" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="534" height="313" alt="" src="" /> </div> </div> </div> Bond Business Core CPI CPI Debt Ceiling Earnings growth Economy Finance Financial crises Futures market Inflation Information Technology International Monetary Fund Macroeconomics Money Price–earnings ratio S&P 500 U.S. Treasury US Federal Reserve Wed, 28 Jun 2017 09:42:52 +0000 Tyler Durden 598803 at Yellen: "I Don't Believe We Will See Another Crisis In Our Lifetime" <p>If there was any confusion why the Fed intends to keep hiking rates, even in the face of negative economic data and disappearing inflation, it was put to rest over the past 2 days when not one, not two , not three, but four Fed speakers, including the three most important ones, made it clear that the Fed's only intention at this point is to burst the asset bubble.</p> <p>First there was SF Fed president John Williams who said that "<strong>there seems to be a priced-to-perfection attitude out there” and that the stock market rally "still seems to be running very much on fumes.</strong>" Speaking to Australian TV, Williams added that "<strong>we are seeing some reach for yield, and some, maybe, excess risk-taking in the financial system with very low rates. </strong>As we move interest rates back to more-normal, I think that that will, people will pull back on that,</p> <p>Then it was Fed vice chairman Stan Fischer's turn, who while somewhat more diplomatic, <a href="">delivered the same message</a>: "<strong>the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites</strong>.... Measures of earnings strength, such as the return on assets, continue to approach pre-crisis levels at most banks, <strong>although with interest rates being so low, the return on assets might be expected to have declined relative to their pre-crisis levels--and that fact is also a cause for concern</strong>."</p> <p>Fischer then also said that the corporate sector is "notably leveraged", that it would be foolish to think that all risks have been eliminated, and called for "close monitoring" of rising risk appetites. </p> <p>All this <a href="">followed the statement by Bill Dudley</a>, who many perceive as the Fed's shadow chairman, who yesterday warned that rates will keep rising as long as financial conditions remain loose: "when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened.&nbsp; On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation."</p> <p>And finally, it was Yellen herself, who speaking in London acknowledged that some asset prices had become “<strong>somewhat rich" </strong>although like Fischer, she hedged that prices are fine... if only assumes record low rates in perpetuity: <strong><br /></strong></p> <p>“<strong>Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios</strong>, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” she said.</p> <p>It was not all doom and gloom. </p> <p>Responding to a question on financial system stability, Yellen said post-crisis regulations (and $2.5 trillion in excess reserves which just happen to be fungible and give the banks the <em><strong>impression </strong></em>that they are safe) had made financial institutions much “safer and sounder.”</p> <p>"Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer <strong>and I hope that it will not be in our lifetimes and I don’t believe it will.</strong>"</p> <p>Some were quick to compare this statement to Neville Chamberlain infamous - and very, very wrong - 1938 prediction of "peace in our time." </p> <p>Others drew comparisons to a <a href="">similar bold prediction by Ben Bernanke</a>, who in 2014 predicted during one of his $250,000/hour speeches that "rates would not normalize during my lifetime." </p> <p>Yet others, who noted Janet Yellen's 70 years of age, asked her to "define <em><strong>our </strong></em>lifetime." But perhaps the most actionable question, if indeed valuations at 2420 on the S&amp;P are somewhat rich, would the Fed be so kind as to disclose what level in the index does the central bank consider no longer rich. </p> <p>As for Yellen tempting fate, today's LOD market close may just be the beginning of how much more Janet Yellen has to live.</p> <p><a href=""><img src="" width="500" height="252" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="932" height="470" alt="" src="" /> </div> </div> </div> Ben Bernanke Ben Bernanke Bill Dudley Business Economy Excess Reserves federal government Federal Reserve System Fellows of the Econometric Society Finance Financial markets Janet Yellen John Williams Monetary Policy Monetary policy Money Wed, 28 Jun 2017 09:15:23 +0000 Tyler Durden 598787 at