en Scandal Erupts At Euro Summit Over Scotland, While Draghi Says In "No Rush" To Ease Policy <p>For all the expectation of an imminent central bank intervention over the past two days, something which according to Bloomberg <a href="">was the main catalyst for the stock surge since Monday</a>, so far the world's money printers have been dead silent: not only is the BOJ trapped and unable to intervene with virtually its entire bond curve trading below 0% (and any further easing will only push it lower), but moments ago the ECB itself chimed in and shot down hopes of more stimulus from Frankfurt when Mario Draghi said moments ago that the ECB is in "no rush" to ease policy after the Brexit vote.</p> <p>But even more notable, and confirming just how profound the chaos in Europe is in the post-Brexit world, was the mini scandal that just erupted at the EU summit, now sans Cameron, over the fate of Scotland. Here, in an attempt to anger the UK some more, EU commission president Jean-Claude Juncker, in comments to reporters, said that “Scotland won the right to be heard in Brussels." This takes place just hours before Scottish First Minister Nicola Sturgeon is due to meet with Juncker later Wednesday</p> <p>But while Juncker's statement was meant to merely infuriate the UK even more, what he did instead is open a new Pandora's box, one which invites all secessionist movements in Europe to demand a comparable treatment. </p> <p>And, sure enough, just moments later, Spain's PM Rajoy immediately said that he opposes any negotiation by Scotland with the EU adding that "<strong>If the UK leaves, Scotland leaves." </strong></p> <p>Why the abrupt response? Because Rajoy knows that is Scotland will be heard - and allowed to become independent - then Catalonia and the Basque Country are next. </p> <p><a href=""><img src="" width="500" height="334" /></a></p> <p>What happens next? Nobody has any idea. This is what we said moments ago:</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Total mess in Europe right now</p> <p>— zerohedge (@zerohedge) <a href="">June 29, 2016</a></p></blockquote> <script src="//"></script><p>Just remember: buy stocks because it is month end, and because central banks which now explained they will not be intervening (unless stocks drop much further) may interecne.</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="1280" height="854" alt="" src="" /> </div> </div> </div> Bond Central Banks Total Mess Wed, 29 Jun 2016 12:53:44 +0000 Tyler Durden 564757 at April Spending Exuberance Plunges Back To Earth In May As Income Growth Slows <p>After an exuberant April, spiking hope that everything was awesome with a surge in spending, May has dragged US consumers back down to earth. <strong>The 1.1% (revised) jump in spending in April (highest since Aug 09) is over as May's 0.4% gain is back in the land of 'normal' once again</strong>. Income rose just 0.2% MoM (less than expected) slowing dramatically from last month to near the <strong>weakest YoY growth since March 2014</strong>. The savings rate fell once again on the back of this (down 0.1%) to 5.3%.</p> <p><a href=""><img src="" width="600" height="324" /></a></p> <p>&nbsp;</p> <p>With YoY Income growth almost the weakest since March 2014 and spending fading...</p> <p><a href=""><img src="" width="600" height="311" /></a></p> <p>&nbsp;</p> <p>Pushing the savings rate further down..</p> <p><a href=""><img src="" width="600" height="400" /></a></p> <p>&nbsp;</p> <p>As spending eats into income...</p> <p><a href=""><img src="" width="600" height="444" /></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="960" height="497" alt="" src="" /> </div> </div> </div> Savings Rate Wed, 29 Jun 2016 12:45:15 +0000 Tyler Durden 564756 at Silver Surges To Post-Brexit Highs <p>Despite the dead cat bounce in 'some' risk assets, bonds and bullion remain bid as Silver just broke back above the post-Brexit spike highs...</p> <p>Silver surges above the post-Brexit highs...</p> <p><img src="" width="600" height="386" /></p> <p>&nbsp;</p> <p>Gold is steady for now...</p> <p><a href=""><img src="" width="600" height="386" /></a></p> <p>&nbsp;</p> <p>But US equities are on a linear ramp back to utopia...</p> <p><a href=""><img src="" width="600" height="311" /></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="1432" height="922" alt="" src="" /> </div> </div> </div> Wed, 29 Jun 2016 12:33:52 +0000 Tyler Durden 564755 at Islamic State Blamed For Istanbul Terror Attack That Killed 41 <p>The death toll from Tuesday’s attack on this city’s main airport has risen to 41, including 13 foreign nationals, with 239 injured, the Istanbul governor’s office said Wednesday. Despite the attack, Istanbul Atatürk Airport resumed business Wednesday morning the WSJ reported. Television footage from inside the airport showed check-in lines functioning normally. Turkish Airlines, the country’s flag carrier, said its flight operations had resumed, though the airport’s arrivals and departures board showed heavy cancellations and delays.</p> <p>AbduRahman Hussein, a filmmaker from Sana’a, Yemen, was about to eat at one of the terminal’s second-floor restaurants when he heard shots and explosions. “I saw the smoke,” he said in a direct message on Facebook. “Then I started running away.” He posted pictures of shattered glass and people running. The dramatic explosion was caught on tape:</p> <p> <iframe src="" width="560" height="315" frameborder="0"></iframe></p> <p>And with the damage now largely accounted for, it's time to cast blame which Turkey was eager to do when Prime Minister Binali Yildirim said in televised remarks that the Islamic State is likely responsible for the killings. “<strong>Once again, it has been understood that terrorism is a global threat to all countries and nations and must be fought through mutual cooperation</strong>,” Yildirim said. “Our country has the necessary power and determination to overcome over these heinous attacks.”</p> <p>Erdogan said in an e-mailed statement that the Istanbul airport attack was an effort to hurt Turkey’s image. “For the terrorist organizations, there’s no difference between Istanbul and London, Ankara and Berlin,” he said, urging all countries to join forces against terrorism.</p> <p>What is odd is that the Islamic State, traditionally eager to immediately take responsibility for foreign terror operations, has kept silent: there was no immediate claim of responsibility. Both Islamist, leftist and Kurdish militants have carried out bomb attacks in Turkey in recent months, hammering the nation’s vital tourism. Tourist arrivals to Turkey fell almost 35 percent in May from a year earlier, the fastest drop in at least a decade and following a 28 percent decline in April.</p> <p>Here is what is known: three suicide bombers opened fire and then blew themselves up in rapid succession at the airport around 9:20 p.m., Yildirim said from the Istanbul airport, where he assessed the&nbsp; damage and met with emergency personnel. The attacks left more than 200 people wounded, the governor’s office in Istanbul said by phone on Wednesday. Many of Turkey’s children ended school terms this month, which coincides with the Islamic holy month of Ramadan.</p> <p><a href=""><img src="" width="560" height="528" /></a></p> <p>The assaults took place near security checkpoints at the entrance to the airport’s arrivals hall. Justice Minister Bekir Bozdag told lawmakers in parliament earlier that at least one attacker had sprayed gunfire from a Kalashnikov automatic assault rifle. None of the assailants got past security controls, according to a Turkish official who asked not to be identified because he’s not authorized to talk to the press. He said two of them detonated their vests at the arrival hall, and a third in a nearby parking lot.</p> <p>ISIS lack of confirmation aside, Turkey's insistence that the Islamic State was behind the latest terrorist act means Turkey has yet another pretext to forcibly cross the Syria border and do with the local "ISIS" forces as it sees fit. How that will affect the already tense geopolitical situation in the area, where both US and alliance forces are active as well as Russian troops and fighter jets, is unknown</p> <p>Turkey is likely to step up its border security and counter-terrorism cooperation with the U.S., according to Gonul Tol, a Turkey analyst at the Middle East Institute, a Washington research center. With Turkish-backed rebels in Syria on the defensive against Syrian government forces aided by Russia, the attacks “put a spotlight on the government’s unpopular Syria policy,” he added.</p> <p>“<strong>The government will do its best to control the way the media frames the attack and divert attention from the government’s Syria policy to external factors contributing to the growth of ISIS threat</strong>,” he said, using another acronym for Islamic State.</p> <p>As <a href="">Bloomberg adds</a>, the attack is also the latest to target airports and the aviation industry in the Middle East and Europe, coming three months after suicide bombers struck Brussels airport. It serves as reminder of the vulnerability of airport lobbies and other public places where large numbers of people congregate, said Hans Weber, an aviation consultant in San Diego.</p> <p>“The probability of copycat attacks goes way up high after one of those attacks,” said Weber, who advised the U.S. federal government on airport security issues following the Sept. 11 attacks. “From a terrorist perspective, Brussels was a success. You can see how they would be motivated to copy that.”</p> <p>This means that even more terrorist attacks are now likely not only in Turkey, but also in Europe, which has been in a heightened state of terror alerts ever since last November tragic suicide bombings in Paris and this year's attacks in Brussels. </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="959" height="639" alt="" src="" /> </div> </div> </div> Kalashnikov Middle East None Turkey Wed, 29 Jun 2016 12:15:58 +0000 Tyler Durden 564754 at Germany Just Blew Up Italy's Bank Bailout Plan <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><strong>"You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before."</strong></em></p> </blockquote> <p>Rahm Emanuel prophetic words were quickly put to use by Italy on Monday morning, which barely waited one full day before using Brexit as the scapegoat excuse to warn that a €40 billion bailout of Italian banks is coming.&nbsp; </p> <p>As a reminder, on Monday morning the local media reported that Renzi's<br /> government was pursuing a six-month waiver of EU state-aid rules,<br /> allowing it to shore up banks without forcing investors to share losses. Two days ago, when <a href="">we first reported </a>of Italy's proposed bank rescue plan, we said that the chairman of Lower House’s Finance Commission, Maurizio Bernardo, confirmed that the government is studying options to support the banking sector, including a capital injection, and said a law decree “with measures going in that direction” could be approved by the end of this week.&nbsp; </p> <p>We pointed out that how such an intervention would be implemented was unclear; it was is also unclear how such a direct state recapitalization of Italian banks <strong>using public funds would be permitted by current EU and ECB regulations, which prohibit state bailouts of insolvent banks, </strong>although Europe has a long and illustrious history of finding massive loopholes to that particular prohibition. "Last but not least it is unclear how existing stakeholders, shareholders, bondholders and uninsured depositors, would be impaired under such a bailout."</p> <p>Well, they wouldn't, despite Europe's recent implementation of bail-in rules. That was the whole point. </p> <p>However, while Italy was hoping it would get a "pass" on using public funding, mostly Eurozone generated and thus courtesy of Germany, this appears to have hit a dead end moments ago, <a href="">when Bloomberg reported that Germany opposes any attempt </a>to shield private bank investors from losses if Italy pushes ahead with plans to recapitalize lenders. Chancellor Angela Merkel’s government says that <strong>European Union rules on handling struggling banks should apply in any rescue effort, including forcing losses on shareholders and some creditors before public money can be injected, </strong>the person said, declining to be identified because the deliberations are private. </p> <p>And just like that Renzi's entire recapitalization plan has gone up in smoke, because if there is one person in Europe who can veto an Italian bailout, it's Merkel, which is precisely what she has done.</p> <p>As Bloomberg adds, any waiver of the rules would be complicated, <strong>as Germany insists that the EU’s Bank Recovery and Resolution Directive be applied. That will mean Italy must first avoid triggering a wind-down procedure. </strong>The assumption in BRRD is that the need for “extraordinary public financial support” for a bank indicates that a bank is “failing or is likely to fail, and therefore triggers the need for resolution,” according to the European Banking Authority.</p> <p>Also according to the source, Germany isn’t pushing for banks to be wound down, according to the person. <strong>The government does, however, want to ensure that private investors are tapped before any public money is put into the banks</strong>. EU state-aid rules normally require shareholders and junior creditors to share losses.</p> <p>That, as we noted on Monday, is a dead end: currently, it is practically impossible for Italian banks to raise capital. "They are caught in a pincer as the ECB simultaneously demands compliance with tougher capital adequacy buffers, in some case demanding fresh infusions of capital three or four times.&nbsp; The banking squeeze has become politically explosive in Italy after thousands of small depositors were wiped out at four regional banks late last year. They were classified as junior bondholders, even though most of them were just ordinary savers who did not realize what was being done with their money."</p> <p>But worst of all for Renzi, Merkel's government in Berlin rejects the argument that the U.K. vote to leave the EU constitutes an “exceptional circumstance” which, under EU basic law, can allow a national government to grant aid to a company outside of the state-aid rules.&nbsp; </p> <p><strong>Which simply means that Europe will need a bigger crisis, </strong>something which can be easily arranged, because recall as we concluded last time that the biggest winner from an Italian bank bailout would be none other than the ECB's Mario Draghi under whose tenure as governor at the Bank of Italy from 2005 until 2011 is when Italy's banks loaded up on all those €360 billion in bad and non-performing loans which Italy is now desperate to eliminate or at least offset. The last thing Draghi would want is for his legacy to one remember for the collapse of the Eurozone's most insolvent banking system.</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="690" height="388" alt="" src="" /> </div> </div> </div> Creditors European Union Eurozone Fail Germany Italy non-performing loans None Rahm Emanuel recovery Regional Banks Wed, 29 Jun 2016 11:51:30 +0000 Tyler Durden 564753 at Frontrunning: June 29 <ul> <li>Global stocks gain as Brexit nerves settle (<a href="">Reuters</a>)</li> <li>Draghi Wishes for a World Order Populists Will Love to Hate (<a href="">BBG</a>)</li> <li>Merkel Says No Way Back From Brexit as Cameron Regrets Loss (<a href="">BBG</a>)</li> <li>EU leaders meet without UK to plot Brexit response (<a href="">FT</a>)</li> <li>Division, confusion as EU rethinks future without Britain (<a href="">AP</a>)</li> <li>Goldman denies plans for Frankfurt office switch after Brexit (<a href="">Reuters</a>)</li> <li>Brexit Vote Roils Real-Estate Markets (<a href="">WSJ</a>)</li> <li>Will Brexit Actually Happen? (<a href="">BBG</a>)</li> <li>Donald Trump Lays Out Protectionist Views in Trade Speech (<a href="">WSJ</a>)</li> <li>Islamic State prime suspect after suicide bombers kill 41 at Istanbul airport (<a href="">Reuters</a>)</li> <li>Istanbul Airport Reopens Even as Attack Death Toll Rises (<a href="">WSJ</a>)</li> <li>European Banks Spend Billions to Get U.S. Units Fit for the Fed (<a href="">BBG</a>)</li> <li>Syria rebels battle IS at Iraqi border, aim to cut 'caliphate' in two (<a href="">Reuters</a>)</li> <li>5 Things to Watch in the Fed’s Stress Test Results (<a href="">WSJ</a>)</li> <li>Brexit Economic Fallout Worries Americans in Bloomberg Poll (<a href="">BBG</a>)</li> <li>Teachers Union and Hedge Funds War Over Pension Billions (<a href="">WSJ</a>)</li> <li>UK consumer borrowing growth hit 10-year high before Brexit storm (<a href="">Reuters</a>)</li> <li>Every Banker in the World Is Chasing the Saudi Aramco Deal (<a href="">BBG</a>)</li> <li>Energy Transfer Equity Calls Off Williams Merger (<a href="">WSJ</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>- British Prime Minister David Cameron began the tortuous process of extricating his country from the European Union at his last summit with leaders of the other 27 EU states, who told him there would be no special deals for ex-members of the bloc. <a href="" title=""></a></p> <p>- A federal judge has ordered Texas entrepreneur Sam Wyly to pay $1.1 billion in taxes and penalties for committing tax fraud using offshore accounts, even though the former billionaire's net worth has fallen to a fraction of that amount. <a href="" title=""></a></p> <p>- Federal officials made clear Tuesday that Volkswagen AG's deal to pay up to $14.7 billion to settle emissions-cheating claims with U.S. consumers and regulators won't end the auto giant's woes-nor stop scrutiny of other car makers. <a href="" title=""></a></p> <p>- IKEA has agreed to recall 29 million chests and dressers in the U.S. following a raft of injuries and the deaths of six toddlers caused by the furniture tipping over. <a href="" title=""></a></p> <p>- Turkey's busiest airport, Istanbul Atatürk Airport, was struck by suicide bombers late Tuesday, who killed at least 36 people and injured scores, on the eve of a major holiday, the deadliest in a string of attacks in Istanbul this year. <a href="" title=""></a></p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">FT</span></em></p> <p>Jeremy Corbyn refused to step down as leader of the labour party despite a vote of no confidence and resignations from his front bench.</p> <p>U.S. prosecutors said Volkswagen AG and its suppliers still face a criminal investigation for their role in the diesel emissions scandal, even as the company agreed to pay up to $15.3 billion in fines.</p> <p>U.S. online lender LendingClub Corp will cut about 12 percent of its workforce as it attempts to deal with a scandal that led to the departure of its founder.</p> <p>Apartment-sharing startup Airbnb is in talks for a new round of funding that would give it a valuation of $30 billion.</p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">NYT</span></em></p> <p>- Airbnb has charmed and strong-armed lawmakers around the world to allow it to operate in their communities. But two cities, Airbnb's hometown, San Francisco, and New York, the service's largest United States market, have not been so compliant. <a href="" title=""></a></p> <p>- Donald Trump vowed on Tuesday to rip up international trade deals and start an unrelenting offensive against Chinese economic practices, framing his contest with Hillary Clinton as a choice between hard-edge nationalism and the policies of "a leadership class that worships globalism." <a href="" title=""></a></p> <p>- Volkswagen AG solved one big problem stemming from its diesel emissions deception, agreeing on Tuesday to pay up to $14.7 billion to settle claims in the United States. But the final financial toll, once the company deals with a long list of fines, lawsuits and criminal investigations around the world, may well be far higher. <a href="" title=""></a></p> <p>- In a deal with federal regulators, Ikea announced Tuesday that it would recall 29 million chests and dressers in the United States after at least six toddlers were crushed to death in tip-over accidents. <a href="" title=""></a></p> <p>- The federal government has proposed adding a line to forms filled out by visitors to the United States that would ask them to voluntarily disclose their social media accounts, a step that it said would help in screening for ties to terrorism. <a href="" title=""></a></p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">Canada</span></em></p> <p>THE GLOBE AND MAIL</p> <p>** Canada ranks second in the world when it comes to turning economic prosperity into social progress, according to a report by Social Progress Imperative. (<a href="" title=""></a>)</p> <p>** Empire Co Ltd, the parent of grocer Sobeys Inc, posted a loss of $942.6 million as its problems deepened in its Western Canadian business in its fourth quarter and Chief Executive Marc Poulin warned of signs that Sobeys' sluggish sales are spreading to other regions of the country. (<a href="" title=""></a>)</p> <p>** BuzzFeed Canada is cutting its political reporting staff more than a year after its official launch, suggesting there are cracks in the social news company's plan to expand its reporting capabilities outside the United States. (<a href="" title=""></a>)</p> <p>NATIONAL POST</p> <p>** Canada has lodged a formal complaint with the Palestinian Authority over what it says were "baseless" accusations against Israel by President Mahmoud Abbas. The move came after Abbas alleged in a speech to the European Parliament in Brussels last week that Israeli rabbis had plotted to murder Palestinians by poisoning their wells - a claim that was quickly proven false. (<a href="" title=""></a>)</p> <p>** Last minute negotiations are underway to extend the closing date for Superior Plus Corp's acquisition of Canexus Corp after U.S. antitrust authorities launched a legal challenge that could quash the deal. Calgary-based Canexus announced Tuesday that it is still in talks to extend the closing date of the deal, which is set to expire Wednesday. (<a href="" title=""></a>) </p> <p>&nbsp;</p> <p><em><span style="text-decoration: underline;">Britain</span></em></p> <p>The Times</p> <p>The co-chief executive of Goldman Sachs International Richard Gnodde has warned that some of the bank's 6,500 staff in the UK may be moved to Europe following the referendum result.(<a href="" title=""></a>)</p> <p>Aston Martin is to stick to its plan to build a carmaking plant in south Wales, even arguing that the vote for Brexit has made the project more viable. (<a href="" title=""></a>)</p> <p>The Guardian</p> <p>Vodafone, one of Britain's biggest companies, has warned that it could relocate its head office outside the UK if the negotiations for a post-Brexit Britain do not give it freedom of movement across the EU for people, capital and goods.(<a href="" title=""></a>)</p> <p>Virgin billionaire, Richard Branson, says Chinese business partners are already pulling investment from the UK in the light of the EU referendum vote, and warned that "thousands of jobs will be lost". (<a href="" title=""></a>)</p> <p>The Telegraph</p> <p>The British Government is "committed" to expanding airport capacity in the south east, despite the political turmoil caused by Brexit, the transport secretary Patrick McLoughlin has said, signalling a decision on a controversial £17.6 billion ($23.49 billion) third runway at Heathrow could still be on the cards. (<a href="" title=""></a>)</p> <p>Lloyds Banking Group's boss has bought another 100,000 shares in the bank in a show of confidence that the lender's share price tumble is a short-term hit rather than a sign of long-term problems. (<a href="" title=""></a>)</p> <p>Sky News</p> <p>Hundreds of British-based jobs at the credit card giant Visa could be forced to relocate to the Continent in the wake of last week's EU referendum. (<a href="" title=""></a>)</p> <p>Tax rises and spending cuts will be needed within months to deal with economic challenges following the British vote to leave the EU, Chancellor of the Exchequer George Osborne has warned. (<a href="" title=""></a>)</p> <p>The Independent</p> <p>Fitch has downgraded the UK's credit rating to AA negative, after similar moves by Moody's and S&amp;P, following Britain's vote to leave the EU. (<a href="" title=""></a>)</p> <p>The Bank of England has injected £3.1 billion ($4.14 billion) into the UK banking system. The amount released on Tuesday was the last of the extra auctions announced by the Bank of England in March this year. (<a href="" title=""></a>) </p> Bank of England Donald Trump European Union Fitch goldman sachs Goldman Sachs Ikea Israel Lloyds Nationalism Reuters Stress Test Tax Fraud Volkswagen Wed, 29 Jun 2016 11:30:07 +0000 Tyler Durden 564752 at Don't Worry, You Are Not Alone: "No One Knows How To Price Brexit" Citi Admits <p>No idea how to trade Brexit, and simply following the momentum-driven crowd which in turn is trading on hopes of central bank intervention? Don't worry, you are not alone. As Citi admits "No one knows how to price the Brexit scenario going forward."</p> <p><em>Here is Citi's William Lee "clarifying" the prevailing market cluelessness:</em></p> <p>The UK vote to leave the EU surprised almost everyone, especially market participants. It left unprecedented uncertainty about future economic and political relations between the UK and the EU.</p> <p>From the US perspective, the market selloff has been large but orderly. Indeed, global markets began to stabilize today, after two days of probing for equilibrium prices and their implied trajectories going forward.</p> <p>Whereas spot prices have stabilized, there appears to be little conviction among traders and other financial market participants about the course of exchange rates and asset prices going forward.</p> <ul> <li>Market sentiment remains tentative; small catalysts can be very disruptive.</li> <li>A common trading floor comment is: "No one knows how to price the Brexit scenario going forward."</li> </ul> <p>Our past research has shown that uncertainty is pernicious: it can induce a significant drag on economic growth. The Brexit vote amplifies uncertainty with unprecedented economic and political considerations whose impact on global economic activity is difficult to discern. Fed policy remains sensitive to market sentiment, and the FOMC likely would not do anything that could be disruptive.</p> <p><a href=""><img src="" width="500" height="363" /></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="480" height="360" alt="" src="" /> </div> </div> </div> Market Sentiment Wed, 29 Jun 2016 11:12:11 +0000 Tyler Durden 564751 at Global Stock Surge Continues As "Investors Look To Central Banks For Support" <p>Now that a second UK referendum appears to be out of the question and as a result there is no need to further punish UK risk assets in hopes of "changing people's minds", the risk on rally (especially with quarter end looming) can return, and so it has, with global stocks and US equity futures staging another surge overnight led by Japan (+1.6%) and China (+0.7%), and certainly Europe where moments ago the Stoxx 600 and Dax hit session highs, rising 2.6% and 1.9% respectively. The move has sent US futures higher by another 14 points, or +0.7%, to 2043, now up 44 points from Monday's lows. </p> <p>Best, however, is that the FTSE is now back to its post-Brexit highs, rising 2.5% so far today to just shy of 6,300. A few more hours of this ramp and UK stocks will recover all Brexit losses. At that point the scaremongering campaign can officially be called off. </p> <p><a href=""><img src="" width="600" height="309" /></a></p> <p>This despite a warning from Credit Suisse that “<strong>the U.K. domestic sectors do not look cheap enough yet, with the exception of retailing</strong>. The trade and legal picture is very murky. The real hit to European growth if it there is another referendum (unlikely). The key is to watch PMI new orders to gauge the impact on corporate confidence”</p> <p>Why the ongoing rally? A squeeze, sure, and also month-end fund flows. But the fundamental driver remains one and the same, and we quote <a href="">Bloomberg:</a> "the relief rally endures as Asian and European stocks rally with crude oil <strong>amid speculation policy makers will use stimulus to blunt the impact of the U.K.’s decision to leave the European Union</strong>, including a pause in the Federal Reserve’s tightening cycle. <strong>Investors are looking to policy makers for support.</strong>" </p> <p>And confirming that it is all a bet on more easing, even gold was up today, while Japanese bond yields hit fresh record lows on expectations of more BOJ intervention. So once again, back to the old same old: <em>hope that central banks will step in and once again expand multiples now that global earnings are set to decline once more courtesy of Brexit. </em></p> <p>Not everyone is buying it of course: "While central banks assuring investors they’re ready to support the markets helps sentiment, it may be too early to turn optimistic,” said James Woods, a strategist at Rivkin Securities in Sydney. “We’ll probably continue to see heavy volatility. We’ll have to see what unfolds in the U.K. with the political situation after Brexit,” but for now the path of least resistance, not to mention short covering, is up and may well continue until the monthly window dressing process is concluded.</p> <p>What else: the MSCI All-Country World Index headed for its highest level since before the Brexit vote and U.S. equity-index futures advanced as odds indicated the Fed is more likely to cut rates than raise them over the rest of the year. Sterling erased earlier losses, having rebounded in the last session from near a 31-year low. Oil climbed above $48 a barrel and gold approached a two-year high, while the dollar retreated against most of its major peers. Emerging-market stocks and currencies climbed for a second day. Bond yields in Portugal and Italy slipped, while those on Japanese debt fell to a record low.</p> <p>The Stoxx Europe 600 Index climbed 1.9 percent, with banks and miners among the best performers. The equity gauge has recovered 4.6 percent after tumbling 11 percent over two days following the shock result of the U.K. referendum. It is still heading for a second quarterly decline. The FTSE 100 Index added 2.1 percent on Wednesday and is within 1.1 percent of its pre-Brexit close. Futures on the S&amp;P 500 Index rose 0.7 percent after the U.S. benchmark jumped 1.8 percent in the last session, its best performance in almost four months. Nike Inc. slid 3.6 percent in early New York trading after its future orders missed estimates, renewing concerns that the world’s largest sports brand has entered a period of slowing growth. </p> <p>EU leaders gather in Brussels on Wednesday for the second day of a two-day European Council summit to discuss Britain’s withdrawal from the bloc. <strong>They have already said that there can be no turning back for the U.K. and warned Cameron that delaying the period before formally activating the EU exit mechanism will prevent the start of negotiations over any future relationship</strong>.&nbsp; </p> <p>Also on today's docket, we get the May personal income and spending reports, as well as the PCE core and deflator readings (the latter two are both expected to have risen +0.2% mom). Also due out today in the US is the May pending home sales report. Elsewhere, a number of ECB speakers are due to speak at the ECB forum in Portugal again today, while the Fed is also due to release results from the second part of its bank stress tests this evening.</p> <p><strong>Market Snapshot</strong></p> <ul> <li>S&amp;P 500 futures up 0.7% to 2043</li> <li>Stoxx 600 up 2.6% to 324</li> <li>FTSE 100 up 2.5% to 6296</li> <li>DAX up 2.0% to 9635</li> <li>S&amp;P GSCI Index up 0.8% to 375</li> <li>MSCI Asia Pacific up 1.7% to 128</li> <li>Nikkei 225 up 1.6% to 15567</li> <li>Hang Seng up 1.3% to 20436</li> <li>Shanghai Composite up 0.7% to 2932</li> <li>S&amp;P/ASX 200 up 0.8% to 5142</li> <li>US 10-yr yield down less than 1bp to 1.46%</li> <li>German 10Yr yield down less than 1bp to -0.11%</li> <li>Italian 10Yr yield down 2bps to 1.38%</li> <li>Spanish 10Yr yield down less than 1bp to 1.31%</li> <li>Dollar Index down 0.22% to 96.04</li> <li>WTI Crude futures up 1.3% to $48.49</li> <li>Brent Futures up 1.2% to $49.16</li> <li>Gold spot up 0.6% to $1,320</li> <li>Silver spot up 2.4% to $18.25</li> </ul> <p><strong>Top Global News</strong></p> <ul> <li>Islamic State Blamed for Turkey Airport Attacks, 40 Killed: suicide bombers blew themselves up after police spotted them</li> <li>Cameron Makes Emotional Adieu as Sun Sets on U.K. EU Membership: British premier ‘genuinely sorry’ to bear Brexit news to EU</li> <li>Merkel Says No Way Back From Brexit as Cameron Regrets Loss: France says U.K. will have to ‘face consequences’ of exit</li> <li>Hollande Says Brexit to Hurt City of London in Clearing Warning: French Premier says City won’t be able to run euro clearing</li> <li>Fed’s Powell Says Brexit Shifts Global Risks Further to Downside: Powell says it’s far too early to judge effects of U.K. vote</li> <li>Victims of Brexit’s Real-Time Recession Already Feeling the Pain: hiring, expansion, investments all on hold after vote</li> <li>Who’ll Inherit Brexit? Tory Leader Candidates Break Cover: nominations to replace Cameron as premier open Wednesday</li> <li>Pound Records First Post-Brexit Gain as Historic Selloff Abates: sterling gets ‘brief reprieve,’ TD Bank’s McCormick says</li> <li>Editorial: British Parties Need to Move Faster to Choose Leaders</li> <li>Allergan Seeks Smaller M&amp;A for Growth After Pfizer Breakup: CEO Brent Saunders spoke in Bloomberg TV interview</li> </ul> <p><strong>Looking at regional markets, Asia equity markets traded positive, </strong>following the US rebound in which the S&amp;P 500 saw its largest intraday gain since March as energy was also bolstered. Nikkei 225 (+1.4%) shrugged off JPY strength and weak retail trade figures to outperform, while ASX 200 (+0.6%) was supported by gains in financials and after WTI climbed above USD 48/bbl. Elsewhere, Chinese markets complete the positive picture in Asia with the Hang Seng (+0.7%) conforming to the upbeat tone, while the Shanghai Comp (+0.3%) benefitted from another significant PBoC liquidity injection. Finally, 10yr JGBs traded relatively flat despite the heightened appetite for riskier assets in Japan, as the BoJ were in the market to acquire JPY 1.15trl in government debt.</p> <p><em>Top Asian News</em></p> <ul> <li>Nomura Joins Yen Capitulators as Forecast Raised 17% Post- Brexit: Japan’s biggest brokerage now sees 104 per dollar at year-end</li> <li>Offshore Yuan Surges on Bets Central Bank Supporting Currency: Nation will take steps to ensure market stability, Premier Li says</li> <li>Ex-Lehman Quant Wins Big on Bad China Loans That Scare Soros: Distressed debt investors buy as NPLs climb to 11- year high</li> <li>Hong Kong’s ‘Superman’ Li: My Empire Will Be Fine Without Me: Billionaire Li Ka-shing talks about not slowing down</li> <li>Wanda Property Deal Faces Hurdles as APG Balks Over Price: $460b Dutch fund manager says Wang’s offer is too low</li> </ul> <p><strong>European equities trade higher for a second day, with notable upside in material and financial names, </strong>allied with this, equities are likely to benefit from month-end rebalancing, according to Goldman Sachs . Additionally, peripheral banks continue to outperform in a similar fashion to yesterday relative to the heavy losses seen on Friday and Monday post the Brexit vote. Elsewhere, credit markets have been somewhat tame this morning as the German 10-yr benchmark trades in tight range with yields across the curve relatively unchanged, while peripheral yields continue to tighten amid the risk on sentiment.</p> <p><em>Top European News:</em></p> <ul> <li>Vodafone Weighs Post-Brexit Move as CEOs Seek Europe Access: ‘not yet possible to draw any firm conclusions’ on HQ location</li> <li>Ikea Recalls 29 Million Dressers After Six Children’s Deaths: 82 incidents are also linked to tip-over risk with furniture</li> <li>Homeserve Confirms it Continues to Trade in Line With Guidance: maintains long term expectation of achieving a 20% margin in U.S. business</li> <li>McCarthy &amp; Stone Says Brexit Vote Has Introduced Uncertainty: may hit timing, cost of conversion of orders into completions</li> <li>Swiss Re Sees Life Premium Growth in ’16, Slowdown in Em. Mkts: sees continuing pressure on non-life</li> </ul> <p><strong>In FX, the Bloomberg Dollar Spot Index slid 0.1% following a 0.5 percent loss in the last session, amid speculation about the path of Fed interest rates. </strong>Sterling advanced for a second day against the dollar as investors await Britain’s plan for its extrication from the 28-nations bloc. “Markets have calmed down somewhat,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “We may see some short term continuation of the recovery in the pound if there is an increased chance of a new prime minister who can secure the access of the U.K. to the single market. But uncertainty is still high and market participants are jittery.” The yen rose 0.1 percent following a 0.7 percent decline on Tuesday. Nomura Holdings Inc. became the latest brokerage to raise its year-end forecast for the currency and now expects a 17 percent increase after the U.K.’s decision to leave the EU spurred a rush for it as a haven. The MSCI Emerging Markets Currency Index added 0.5 percent. South Africa’s rand led the advance, rising 1.1 percent, followed by a 1 percent gain in South Korea’s won. Indonesia’s rupiah added 0.1 percent, extending this week’s increase to 1.6 percent and heading for the highest close in two months. <strong>The central bank said it will intervene in the foreign-exchange market </strong>to prevent the rupiah from gaining too much from a possible increase in inflows following a recently passed tax amnesty law. The offshore yuan strengthened for the first time in five days, gaining 0.3 percent in just over an hour. <strong>Chinese authorities intervened via banks to support the offshore yuan </strong>in morning trading, according to people with knowledge of the matter. The People’s Bank of China didn’t immediately respond to questions sent by fax from Bloomberg.</p> <p><strong>In commodities, the Bloomberg Commodity Index extended Tuesday’s 1.9 percent rally with a 0.3 percent advance. </strong>Gold recovered most of the previous session’s losses, adding 0.5 percent to $1,318.62 an ounce on speculation that the Fed’s interest rate policy will boost the precious metal’s allure. West Texas Intermediate crude climbed 1 percent to $48.35 a barrel, building on last session’s 3.3 percent jump. U.S. oil inventories fell by 3.86 million barrels last week, the American Petroleum Institute was said to have reported, ahead of government data due on Wednesday. Cotton futures for December delivery rose 0.4 percent to 66.1 cents a pound on ICE Futures U.S. in New York. Prices extended Tuesday’s 2.3 percent rally and are trading near the highest since August 2015. U.S. farmers probably planted fewer acres than previously expected, after rain disrupted fieldwork in some areas, according to a Bloomberg survey before the U.S. Department of Agriculture updates its estimate on Thursday. </p> <p><strong>Bulletin Headline Summary from RanSquawk and Bloomberg</strong></p> <ul> <li>European equities enter the North American crossover in positive territory with energy names leading the way higher following last night's API draw</li> <li>Following on from the calm seen on Tuesday, FX markets have again displayed a propensity towards steady risk sentiment, with the commodity currencies faring well in particular</li> <li>Looking ahead, highlights include US Pending home sales, PCE's and DOE's, ECB's Draghi (Dove)</li> <li>Treasuries mixed in overnight trading with long-end outperforming as global equities and gold rally on potential for monetary stimulus. </li> <li>European Union leaders said there could be no turning back for the U.K. after Prime Minister David Cameron used his last EU summit to express disappointment at his failure to win the referendum he called on Britain’s membership</li> <li>Brexit has thrust Scotland’s independence back into play just two years after the nationalists suffered defeat in a referendum to leave the U.K.</li> <li>The City of London is facing the first direct threat to its role as Europe’s dominant financial center as French President Francois Hollande takes aim at a key pillar of the U.K. industry</li> <li>France’s 2017 presidential election may hinge on a debate about the European Union membership in the aftermath of the U.K. vote to leave the bloc, President Francois Hollande said</li> <li>By voting to leave the European Union, Britons have delivered a potential windfall to tourists eager to snatch up Burberry trenchcoats, Harrods Stilton and Liberty scarves on the cheap</li> <li>Gold’s investment case has been strengthened by the U.K.’s vote to quit the European Union as the fallout may spur the world’s central banks to step up easing, hurting currencies and favoring bullion, according to Marc Faber</li> <li>Circle Jan. 31, 2018, on the calendar. That’s the soonest the Federal Reserve hikes next. At least if money market derivatives are to be believed.</li> <li>The number of Chinese bond defaults so far this year already is triple the figure for all of 2015. The number of downgrades has also tripled</li> <li>The PBOC intervened via banks to support the offshore yuan in morning trading as authorities wants to maintain stability in the currency, according to people with knowledge of the matter</li> <li>Puerto Rico and its agencies are facing $2 billion of bond payments due Friday, and Governor Alejandro Garcia Padilla has said the U.S. territory simply doesn’t have the money</li> </ul> <p><strong>US Event Calendar</strong></p> <ul> <li>7am: MBA Mortgage Applications, June 24 (prior 2.9%)</li> <li>8:30am: Personal Income, May, est. 0.3% (prior 0.4%)</li> <li>8:30am: Personal Spending, May, est. 0.4% (prior 1%)</li> <li>9:30am: Fed’s Yellen, ECB’s Draghi speak in Sintra, Portugal</li> <li>10am: Pending Home Sales m/m, May, est. -1.1% (prior 5.1%)</li> <li>10:30am: DOE Energy Inventories</li> </ul> <p><strong>DB's Jim Reid concludes the overnight wrap</strong></p> <p>Markets yesterday were certainly in a much improved mood as a tentative rally swept through risk assets following two days of heavy losses. Look no further than the Pound which closed up +0.90% versus the US Dollar at 1.3344, although it did actually tip above 1.340 in the early afternoon before paring gains again into the evening. Equity markets emerged from the abyss meanwhile. The FTSE 100 (+2.64%), Stoxx 600 (+2.57%), DAX (+1.93%), IBEX (+2.48%) and FTSE MIB (+3.30%) all closed up as beaten down banks staged a recovery. Indeed UK financials had a much better day although that was before Moody’s made the move to revise lower its outlook on 12 British banks and lenders, as well as cutting the outlook for the UK banking system to negative from stable.</p> <p>Across the pond the S&amp;P 500 closed up +1.78% which was actually the most since March 1st. Credit markets were in a similar vein of form with CDX IG rallying 6.5bps. Interestingly primary markets appeared to get the green light for the door to open again. Molson Coors was out with a four-tranche $5.3bn deal which is said to be the first US IG deal since the referendum last week. Notably the deal was said to be 6x oversubscribed so a good sign that appetite is still clearly strong for those with cash ready to be put to work.</p> <p>The other news to report this morning is the tragic event which unfolded in Turkey last night where a suicide attack at Istanbul’s main international airport has resulted in the death of at least 32 people, with a further 60 people said to be injured according to the BBC. Details are still sketchy but we’d expect further information to be released in due course.<br />That news emerged towards the US close last night and markets wise we’ve not seen too much of a reaction in Asia this morning. The bulk of bourses are instead following the lead from the European and US sessions yesterday. Leading the way is the Nikkei which is currently up +1.44%, while the Kospi (+1.39%) is closely following. The Hang Seng (+0.69%), Shanghai Comp (+0.45%) and ASX (+0.92%) are also up while credit markets are generally 2-3bps tighter. FTSE 100 futures are currently up over 1% too while Sterling is -0.20% weaker as we type.</p> <p>Yesterday’s economic dataflow didn’t add too much to the debate. In the US the third reading for Q1 GDP was revised up to +1.1 qoq from +0.8% which is a touch better than expected helped by stronger net exports, although consumption did disappoint a little. The upward revision to corporate profits caught our eye however, with profits revised up to +1.8% qoq from the previously reported +0.3% qoq gain. Meanwhile, also better than expected was the June consumer confidence index reading which printed at 98.0, a rise of 5.6pts from May after expectations had been for just a 1pt rise. That reading is actually the highest level since October last year although clearly it’s worth taking with a pinch of salt given the cut-off data for the survey was June 16th and a week prior to the UK referendum. Elsewhere, the Richmond Fed manufacturing PMI was disappointing at -7 (vs. +3 expected), a fall of 6pts. Lastly the S&amp;P/Case-Shiller house price index in April rose slightly less than expected during the month at +0.45% mom (vs. +0.58% expected).</p> <p>Looking at the day ahead, we’d imagine that much of the focus will again be at the EU Leaders summit in Brussels which continues for a second day. Datawise we’ve actually got a fair bit to get through. This morning in Europe we’ll get the latest consumer confidence report for Germany, as well as house price data in the UK. Later on we then get the money and credit aggregates numbers in the UK before the June confidence indicators for the Euro area are released. This afternoon we’ll firstly get the June CPI report in Germany, before attention turns across the pond where we will get the May personal income and spending reports, as well as the PCE core and deflator readings (the latter two are both expected to have risen +0.2% mom). Also due out today in the US is the May pending home sales report. Elsewhere, a number of ECB speakers are due to speak at the ECB forum in Portugal again today, while the Fed is also due to release results from the second part of its bank stress tests this evening.</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="2033" height="1046" alt="" src="" /> </div> </div> </div> Across the Curve Bond Case-Shiller Central Banks China Consumer Confidence CPI Credit Suisse Crude Crude Oil Equity Markets European Union Federal Reserve France Fund Flows Germany goldman sachs Goldman Sachs Italy Japan Jim Reid Nikkei Nomura Personal Income Portugal RANSquawk Recession recovery Richmond Fed Turkey Volatility Yen Yuan Wed, 29 Jun 2016 10:42:18 +0000 Tyler Durden 564750 at Nigel Farage Batters Obama: "He Came To Britain And Behaved Disgracefully" <p>Back in April President Obama took a trip over to the UK in order to lecture another country on how to vote - Obama of course was staunchly in the Remain camp. Obama <a href="">even penned an op-ed</a> titled: &quot;As your friend, let me say that the EU makes Britain even greater.&quot;</p> <p>Of course, we all know the historic outcome of the Brexit vote, and <strong><a href="">we have even asked </a>if it was Barack Obama who actually was the deciding factor:</strong></p> <p><a href=""><img height="318" src="" width="600" /></a></p> <p>UKIP leader Nigel Farage has never been shy of course, but lately has been making sure to remember all of those who tried to downplay or influence the vote. For example, in his first appearance in the European Parliament since the Brexit vote,<a href=""> Farage took the time </a>to make sure the audience knew he hadn&#39;t forgotten that everyone laughed when Farage said that he was going to lead a campaign to get Britain to leave the EU, saying &quot;You&#39;re not laughing now are you.&quot;</p> <p>Farage hadn&#39;t forgotten Obama&#39;s attempt to influence the vote either. In a recent interview with Fox News, Farage was asked what can be done about Putin if the UK isn&#39;t in the EU, to which Farage raged that Obama had behaved disgracefully when compared to Putin.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>Well ultimately let me say this, Vladimir Putin behaved in a more statesmanlike manner than President Obama did in this referendum campaign</strong>. <span style="text-decoration: underline;"><strong>Obama came to Britain and I think behaved disgracefully, telling us we&#39;d be at the back of the queue</strong></span>. Treating us, America&#39;s strongest, oldest ally, in this extraordinary way. Vladimir Putin maintained his silence throughout the whole campaign.&quot;</p> </blockquote> <p><iframe frameborder="0" height="315" src="" width="560"></iframe></p> <p>* * *</p> <p>Oh that does it, Obama won&#39;t be inviting Farage on any of the remaining 36-hold golf outings!</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="724" height="384" alt="" src="" /> </div> </div> </div> Barack Obama Fox News President Obama Vladimir Putin Wed, 29 Jun 2016 09:20:00 +0000 Tyler Durden 564734 at Is A New Banking Crisis Imminent? Recent Rise In Delinquency Rates Is Shocking <p><a href=""><em>Submitted by Olav Dirkmaat via UFM Market Trends,</em></a></p> <p>The delinquency rate on loans is key in understanding banking. It answers one question: what percentage of loans is overdue for payment? <strong>The delinquency rate is by far the most useful indicator for &ldquo;credit stress.&rdquo;</strong> It seems, however, as if delinquency no longer counts. Few are paying attention to the quick and sudden rise of the delinquency rate. <strong><em>What does it tell us and is a new banking crisis imminent?</em></strong></p> <h2><span style="text-decoration: underline;">This Is What Happened after Janet Yellen Hiked the Fed Funds Rate in December</span></h2> <p>I have said it many times over and I will repeat it here: the last time around, it took Fed-chairman Alan Greenspan <strong>over two years and seventeen rate hikes</strong> to bring the Fed funds rate from a then all-time-low of 1% to 5.25%, before the U.S. economy suffered the worst recession since the 1930s. We are not so lucky this time.</p> <p>Greenspan&rsquo;s rate hikes didn&rsquo;t affect delinquency rates straight away. Credit stress was subdued until a year after Greenspan&rsquo;s last hike. Only in the first quarter of 2007, delinquency rates began to move higher. The reason is as clear as the water surrounding the Bahamas: in the years preceding the Great Recession credit growth was mainly focused on the U.S. housing market.</p> <p>Credit growth was mostly driven by mortgage lending. Mortgages were generously provided by banks, but increasingly to subprime borrowers (subprime referring to their poor credit). Yet these subprime borrowers didn&rsquo;t pay higher interest rates on their mortgages the moment Alan Greenspan began hiking rates. But as soon as their (promotional) teaser rates resetted, they started &ldquo;feeling the Alan.&rdquo; Delinquency rates went through the roof and the U.S. economy into recession.</p> <p>Teaser rates, the low initial interest rate a borrower pays for the first few years, were responsible for the lag between Greenspan&rsquo;s rate hikes and the 2008 recession.</p> <h3><span style="text-decoration: underline;">More Fragile</span></h3> <p>Today, <strong>the Federal Reserve is ignoring a very inconvenient truth</strong>: the global economy is much more fragile than the last time around. And we have no teaser rates in today&rsquo;s subprime credit (unless we of course consider oil producers that hedged oil prices by buying futures as something akin to &ldquo;teaser rates&rdquo;).</p> <p>This time around, we will certainly <strong>not</strong> need seventeen rate hikes or three years before pushing the economy into recession.</p> <p>In fact, we now know what happened after Janet Yellen increased the Fed funds rate with a mere quarter-percentage point: <strong>the delinquency rate on commercial and industrial loans increased 50%</strong>. That is right. In a single quarter delinquency rates in the U.S. banking sector exploded from 1% to 1.5%. The cycle has turned.</p> <h2><span style="text-decoration: underline;">This Is Why Nobody Is Paying Attention</span></h2> <p>Why is nobody paying attention to this seemingly undeniable shift in the credit cycle? Why does the Federal Open Market Committee (FOMC) not even mention it? Why are the alarm bells not ringing in both Fed board rooms and the financial press?</p> <p>The only answer to these questions is that the Fed is committing a capital sin. The headline number, the delinquency rate on <em>all</em> loans, decreased in the first quarter of 2016 from 2.20% to 2.17%. That ignores, however, the underlying pressures building up inside banks&rsquo; balance sheets. Fed-officials seem to focus on the headline number, while ignoring the deteriorating fundamentals.</p> <p>With rising home prices, a vibrant housing market, increasing employment and interest rates at the lowest levels in world history, defaults on mortgage and credit card debt are reaching all-time lows. Yet delinquency on mortgages and credit cards tend to lag the business cycle. Typically, they only rise when we already <em>are</em> in recession, just as unemployment tends to be a lagging indicator.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="Delinquency Rate: Do Not Focus on the Headline Number" class="img-responsive aligncenter wp-image-845" height="368" src="" width="600" /></a></p> <p style="text-align: center;"><em><sup>The headline number is fooling Fed-officials; delinquency rates are still declining. But the delinquency rate on <strong>all</strong> bank loans (the headline number) has no predictive power; it just follows a random pattern. Source: St Louis Fed</sup></em></p> <p>&nbsp;</p> <p>Even if we are on the verge of a new banking crisis, the headline number will never tell us so.</p> <h2><u>Which Loans Are Increasingly Overdue?</u></h2> <p>If delinquency rates on consumer credit (mortgages and credit card debt) will not help us in estimating how probable a new banking crisis is, then which delinquency rates do matter? And why did I call them &ldquo;shocking&rdquo;?</p> <p>Let&rsquo;s first break down a bank portfolio. Bank loans can we divided into three groups:</p> <ul> <li>Consumers</li> <li>Businesses</li> <li>Real estate (both commercial and residential)</li> </ul> <p>(Just for the sake of comparison, U.S. banks currently hold $1,300 billion in consumer debt, $1,810 billion in commercial and industrial debt, and over $3,000 billion in real estate debt.)</p> <p>Banks lend money to consumers for buying homes (mortgages) or consumer goods (credit card debt). We concluded that delinquency rates on those loans tend to lag the business cycle.</p> <p>What&rsquo;s left?</p> <p>Loans to businesses, in whatever form or shape they come. Most of these loans are pegged to an interest rate benchmark, for instance the LIBOR. After the Fed&rsquo;s first rate hike in December, the U.S. dollar 12-month LIBOR went up from approximately 0.8% to 1.3%. <strong>Marginal borrowers are slowly getting pushed into bankruptcy</strong>.</p> <p>December&rsquo;s rate hike clearly resulted in a change of tides: delinquency rates have bottomed and are on their way up. And do not forget the following: the fact that delinquency rates no longer decrease but began to increase, <strong>has always been a clear warning signal for a recession </strong>&mdash; at least during the past twenty years. And over that same period, this indicator never gave a &ldquo;false positive,&rdquo; in contrast to many other (recession) indicators.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="Delinquency rate on bank loans is skyrocketing in the US" class="img-responsive aligncenter wp-image-846" height="361" src="" width="600" /></a></p> <p style="text-align: center;"><em><sup>A clear danger sign: delinquency rates on commercial and industrial loans are creeping up.&nbsp;Source: St Louis Fed</sup></em></p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="The dollar amount of delinquencies is already skyhigh" class="img-responsive alignnone wp-image-853" height="364" src="" width="600" /></a></p> <p style="text-align: center;"><em><sup>In dollar terms the shift is even more pronounced. This is of course the result of our staggering debt levels, which are not apparent in the relative numbers.&nbsp;Source: St Louis Fed</sup></em></p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="Charge-off rates on bank loans are starting to pick up as well" class="img-responsive aligncenter wp-image-854" height="364" src="" width="600" /></a></p> <p style="text-align: center;"><em><sup>In line with increasing loan delinquencies, charge-off rates on commercial and industrial loans are picking up as well (charge-off rates tend to lag somewhat). Source: St Louis Fed</sup></em></p> <p style="text-align: center;">&nbsp;</p> <h2><u>Delinquency Rates in Europe</u></h2> <p>The delinquency rate in Europe is also on the rise. Yet, we do have to single out the countries that skew this eurozone average. Italian banks in particular are suffering from an unbelievably high delinquency rate. The delinquency rate in Italy is at such extreme levels that the country might turn the euro crisis in front page news again (if for once Greece remains on the sidelines).</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="Delinquency rates in the Eurozone have been on the rise too" class="img-responsive aligncenter wp-image-855" height="353" src="" width="600" /></a></p> <p style="text-align: center;"><em><sup>The delinquency rate on bank loans in Europe is also on the rise; here too, at least in the periphery countries, it appears the credit cycle has turned. Source: European Central Bank (CBD2, &lsquo;gross non-performing debt instruments&rsquo;)</sup></em></p> <p style="text-align: center;">&nbsp;</p> <h2><u>Keep a Close Eye on Delinquency</u></h2> <p>What is next? We will have to wait and see to find out what delinquency rates have done in the second quarter. <strong>However, it is clear that the tide has turned</strong>. It is irrelevant whether the Federal Reserve will hike rates in July or September. Consensus currently says we should expect two more rate hikes this year. <strong>If that is true, we can expect delinquency rates to move up further in the coming quarters.</strong></p> <p>In 2006 it was exactly twelve months after delinquency rates bottomed that the recession began. If the same period applies, <strong>we are due for a recession</strong>. In the first quarter of the Great Recession in 2008, delinquency rates were only 1.45%. We are already above that level. On the flipside, however, we should not ignore that it took three years of rising delinquency rates before the economy entered into recession in 2001. Credit cycles are not an exact science. Yet the trend is clear and Fed chair Janet Yellen should be terrified about this disturbing development.</p> <p>The fact that increasing loan delinquency coincides with mountains of debt maturing in 2016 and 2017 is a topic for next time.</p> Alan Greenspan Consumer Credit European Central Bank Eurozone Federal Reserve Global Economy Greece Housing Market Italy Janet Yellen LIBOR Real estate Recession St Louis Fed St. Louis Fed Unemployment Wed, 29 Jun 2016 08:00:00 +0000 Tyler Durden 564749 at