Morgan Stanley

The best headline to summarize what happened in the early part of the overnight session was the following from Bloomberg: "Asian stocks extend global rally on stimulus bets." And following the abysmal data releases from the past three days confirming that the latest centrally-planned attempt to kickstart the global economy has failed, overnight we got even more bad data, first in the form of Australia's trade deficit, and then Germany's factory orders which bombed, and which as Goldman said "seems to reflect genuine weakness in China and emerging markets in general and this will weigh on the German manufacturing sector."

Of all sectors the one which may pose the biggest surprise to investors is financials: it is here that Q3 (and Q4) earnings estimates have hardly budged, and as of September 30 are expected to rise by 10% compared to Q3 2014. This may prove to be a stretch according to Morgan Stanley whose Huw van Steenis is seeing nothing short of a bloodbath in banking revenues, with the traditionally strongest performer, Fixed Income, Currency and Commodity set for a tumble as much as 25%, to wit: "we think FICC may be down 10- 25% YoY (FX up, Rates sluggish, Credit soft), Equities marginally up but IBD also down 10-20%."

Despite the arguably undemocratic, obfuscating nature of our nation’s campaign finance laws and the blatant corporatist agenda mandated by the Supreme Court, let’s attempt to break down the major sources of political spending so far in the 2016 presidential election. You may be surprised to find out who is donating money to your candidate — and how that contribution may affect future policy positions.

With the Federal Reserve still hinting at raising interest rates, but trapped by weak economic growth, will the next big move by the Fed be another form of monetary accommodation instead? Or, are the underlying dynamics of the economy and market really strong enough to shake off the recent weakness and continue its bullish ascent?

• U.S., Allies Demand Russia Stop Attacks on Syria Opposition (BBG)
• Russian Airstrikes Defend Strategic Assad Regime Stronghold on Syria’s Coast (WSJ)
• Emerging Stocks Head for Weekly Advance Before U.S. Jobs Data (BBG)
• Wage Strife Clouds Car-Sales Boom (WSJ)
• Oregon town reels from classroom carnage (Reuters)
• Oregon shooter came from California, described as shy and skittish (Reuters)

It has been a cruel summer, with lots of leverage, for Bill Ackman and his Pershing Square hedge fund.

As Bloomberg reports, "JPMorgan Chase & Co. is set to pay almost a third of a $1.86 billion settlement to resolve accusations that a dozen big banks conspired to limit competition in the credit-default swaps market, according to people briefed on terms of the deal."

News That Matters

As WSJ reports, "Bank of America Corp. is expected to announce layoffs in its global banking and global markets unit as early as Tuesday, according to people familiar with the matter."

Unlike previous gold probe cases, this one will have major consequences. How do we know? Because just like in LIBOR-gate, just like in FX-gate, it is the biggest rat of all, Swiss megabank UBS, that is about to turn on its former criminal peers.  As Bloomberg reported earlier "UBS was granted conditional leniency in Swiss antitrust probe of possible manipulation of precious metal prices." Why would UBS do this? The same reason UBS did so on at least on two prior occasions: the regulators have definitive proof it is involved, and gave it the option to turn evidence and to rat out its cartel peers, or face even more massive financial penalties. UBS, as usual, choice the former.

With Janet Yellen choking back the vomit as she shifted The Fed's stance to a "hawkish hold," markets remain just as confused (and disconnected) as they were after The FOMC's "dovish hold." The problem, as Deutsche explains, is The Fed's reliance on 'conventional' inflation dynamics (and its mean-reversion - higher in this case) as opposed to actual market expectations (which are collapsing), leaving them open to a major Type II policy error -  the risk of rejecting something that is, in actuality, true. The Fed's credibility is teetering on the brink as inflation 'reflexivity' - that is, Fed expectations strengthen the dollar, depress risk in general and commodities in particular, with lower commodities driving headline inflation lower - raises the prospect that the Fed fails to raise rates at all in 2016.

US equity futures have retraced the late-day ramp from Friday with Dow down around 65pts. Asia is opening weaker (NKY -900 from Thursday highs) with EM FX appearing not to get the "but we didn't hike" message from The Fed with MYR the worst hit for now (after a few days of strength). EM outflows accelerated according to Morgan Stanley, down 6% AUM in 12 weeks. PBOC devalued the Yuan fix by 0.11% (the most in 2 weeks). While Fed uncertainty and fears about China have caused global derisking, PBOC chief Fan says "the economy is stable," and China's Beige Book suggests 'everything is awesome', as the survey summarizes, "perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy." If that's the case, then why is Janet in panic mode?

She's a block away from the ghost of Steve Jobs. It's a lovely neighbhorhood, to be sure. But...........thirty million dollars???