We noted previously that last week's face-ripping rally was the biggest short-squeeze sicne 2011, but, as SocGen notes, this "savage reversal" - as the biggest losers rebounded - was the worst price momentum whiplash since 2009. Bear market rallies are typically characterised by sharp reversals and elevated levels of volatility, and as SocGen warns there are several things which point to this being a technical bounce (rather than longer-term supportive value-seeking).
While the US bond market, if not equities, is enjoying the day off on a day in which there is no economic data just more Fed speakers including the Fed's Evans who on Friday uttered what may be the dumbest thing a central planner has ever said, the week's macro docket starts in earnest on Tuesday when China releases much anticipated September trade data. Here are the key events for the rest of the week.
Despite its dubious track record, oil prices are stumbling after Goldman Sachs releases a report calling for oil prices to remain lower for even longer, calling for a drop to $50 within the next 6 months.
Just when you thought the M&A boom is over after a surge in bond yields that Goldman has repeatedly dubbed as "recessionary", and which will make the debt cost of any funding so high that there is barely any room for execution error, moments ago as had been extensively leaked previously, private Dell announced it would acquire tech giant EMC in a deal valued roughly $67 billion, while maintaining VMWare as a publicly-traded corporation. Good luck with raising the tens of billions in debt the deal will require: our best wish to Barclays, BofA, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, RBC who will all be underwriting the required debt financing to Dell.
With the "adult supervision" of US markets gone today as bond markets are closed for Columbus day, and the USDJPY tractor beam also missing with Japan also offline for Health and Sports day, stocks took their cues from China where speculation was rife that in lieu of cutting RRR, the PBOC has unleashed even more incremental QE by expanding its Collateral Asset Refinancing Program (CAR). Specifically, the central bank said this weekend it will expand a program allowing lenders to use loan assets as collateral for borrowing from the central bank, opening it up to nine more cities from the program's test in Shandong province and Guangdong. The new areas for the program include Beijing and Shanghai. According to some estimates released several trillions in liquidity into the market, and not only sent government bond futures to new highs, but pushed the Shanghai Composite up over 3% overnight.
RANsquawk Week Ahead video: 12th October - BoJ minutes are released on Tuesday, while investment banks are in focus as earnings season reaches full swing, with analysts looking for any effects of the global slowdownSubmitted by RANSquawk Video on 10/12/2015 05:11 -0500
- BoJ minutes are due to be released on Tuesday with multiple central bank speakers on the slate to supplement the calendar
- Investment Banks are in focus as earnings season starts in full swing, with analysts looking for whether the global slowdown had an impact on results
Austerity: Also known as “sado-fiscalism”. A forlorn attempt to stave off government bankruptcy.
Keynesians: Economists “who hear voices in the air (and) are distilling their frenzy from some academic scribbler of a few years back” (John Maynard Keynes).
As we pointed out previously, the growing convergence between BLS-reported initial jobless claims (at 42 year lows) and reported job cuts (highest since 2009) suggests someone is lying. It appears we have found the cuplrit as Goldman Sachs confirms that changes in gross labor market flows (e.g. gross hires and quits), as well as changes in the unemployment insurance benefit take up rate, affect the relationship between jobless claims and employment growth over the cycle. For this reason, today’s low level of jobless claims should probably not be taken as a sign of a booming labor market.
Hot on the heels of Deutsche Bank's admission that all is not well, Credit Suisse's announcement last night of a major capital raise was greeted by buying pressure from investors. However, reality punched them in the face this morning as CS releasaed its investor day details and, as Bloomberg reports, is looking to raise up to CHF8 billion (almost 50% larger than Goldman Sachs investor survey suggested). Clearly, CS' has a much more massive capital shortfall than expected.
- Global stocks eye biggest rally in four years on Fed relief (Reuters)
- FOMC Minutes Sap Confidence in Fed's 2015 Rate Hike Resolve (BBG)
- Glencore to cut annual zinc production by a third (FT)
- Tea Party wave that lifted Republicans threatens to engulf them (Reuters)
- Why Kevin McCarthy Came to Quit Speaker Race (WSJ)
- A U.S. Recession Just Got a Little More Likely (BBG)
News That Matters
Just a day after no lesser world-renowned newsletter writer than Dennis Gartman went full bull-tard of crude oil (in $29.95 terms), Goldman Sachs has come out with a "lower for longer" warning about the crude complex noting that the gains have been exacerbated by still large short positioning and the break of key technical levels. Despite the magnitude of this rally, Goldman does not believe that data releases over the past week suggest a change in oil fundamentals. In fact, high frequency data continue to point to an oversupplied market despite a gradual decline in US production.
Day After Deutsche Bank Admits Not All Is Well, Swiss Giant Credit Suisse Also Admits It Needs More CashSubmitted by Tyler Durden on 10/08/2015 07:51 -0500
Not everything is "fine" in the land of European banks, in fact quite the opposite.
- Congress probing U.S. spy agencies' possible lapses on Russia (Reuters)
- Defense Ministers From NATO Hit Out at Russian Action in Syria (WSJ)
- U.S. Rules Out Cooperation With Russia as Moscow Launches First Naval Strikes on Syria (WSJ)
- Man Who Called China's Boom and Bust Says Use This Rally to Sell (BBG)
- For Volkswagen, New Questions Arise on U.S. Injury Reporting (BBG)
- Deutsche Bank May Swell $14 Billion Selloff in China Bank Stakes (BBG)
- Emerging market slowdown hits German exports (FT)
Deutsche Bank warned it expects to record a third-quarter loss of $7 billion, tied to a huge write-down in its corporate-banking-and-securities segment. The bank said the charges are driven by the impact of expected higher regulatory capital requirements and its disposal of Postbank. It also said it will consider reducing or eliminating its common dividend for fiscal 2015.
DEUTSCHE BANK SEES 3Q NET LOSS EUR 6.2 BLN
DEUTSCHE BANK TO RECOMMEND DIVIDEND CUT OR POSSIBLE ELIMINATION