Credit Suisse

"Assuming selling in accordance to the average allocation of FX Reserve Managers and SWF across asset classes, we estimate that the sales of bonds by oil producing countries will increase from -$45bn in 2015 to -$110bn in 2016 and that the sales of public equities will increase from -$10bn in 2015 to -$75bn in 2016."

From EM darling to depression, it's been a rough ride for the "B" in BRICS. As we kick off 2016, analysts are growing increasingly concerned that Brazil's economic downturn could well be deeper and longer than anyone expected. The market's collapsing expectations are summarized in one stunning chart.

As SOE profits continue to deteriorate at the expense of maximizing jobs and employment (recall the biggest threat facing China is a working class insurrection, or simply said, "lower and middle-class revolution") debt at these same SOEs just hit a new record high: according to the same FinMin numbers, total SOE debt rose by CNY393 billion to CNY78.3 trillion, or over $12 trillion - well above 100% of total Chinese GDP.

• Battered oil wins respite, lifts stocks (Reuters)
• Oil Halts Decline as Emerging Market Stocks Climb on China (BBG)
• Bonds Set to Beat Stocks Globally in 2015 After China Falters (BBG)
• SpaceX Falcon rocket nails safe landing in pivotal space feat (Reuters)
• China Leaders Flag More Stimulus After Top Economic Meeting (BBG)
• SEC to Retrench Case Against SAC’s Steven A. Cohen (WSJ)

It has been a seesaw session with U.S. stock index futures following their dramatic buying burst in the last half hour of market trading yesterday by first rising, then falling, then rising again alongside European equities both driven almost tick for tick with even the smallest move in the carry trade of choice, the USDJPY, even as Asian shares trade near intraday highs after China’s leaders signaled they will take further steps to support growth.

If you had any doubt about whether the doomsayers were telling the truth about soaring NPLs in China, look no further than Huarong Asset Management Co, which is set to auction some $8 billion in sour loans on Taobao. As Barclays notes, "AMCs in general will more frequently resort to a “wholesaling model” for distressed asset disposal, given the increasing NPL supply amid the current credit cycle."

Brazil has a new finance minister and the market is not happy. As BofAML puts it, "the focus turns now to the direction of the fiscal policy under the new FinMin, which should affect the recovery in confidence and thus growth. With mounting downside risks to growth that heavily weigh on the government’s revenues and the ongoing challenges in passing fiscal measures in Congress, tangible results over statements will now be needed to improve expectations over primary fiscal results ahead."

"The interest of firms in both borrowing and spending continues to decline, suggesting it’s past time the ‘stimulus mafia’ rethinks its Pavlovian responses. Reform or bust."

The writing has been on the wall since the S&P "junking" in September, and now Fitch has jumped on the bandwagon, cutting Brazil to BB+, outlook negative. 

Soaring junk bond redemptions; rising investment grade (and high yield) yields pressuring corporate buybacks; record corporate leverage and sliding cash flows; Chinese devaluation back with a vengeance; capital outflows from EM accelerating as dollar strength returns; corporate profits and revenues in recession; CEOs most pessimistic since 2012, oh and the Fed's first rate hike in 9 years expected to soak up as much as $800 billion in excess liquidity. To Wall Street's strategists none of this matters: as Bloomberg observes, virtually every single sellside forecasts expects "no end to the bull market."

Despite the rear-view-mirror-gazing optimists proclamations that default rates have been low (which matters not one jot when pricing the future expectations of default into corporate bond cashflows), Fitch just released its forecast for 2016 defaults and notes that more than $5.5 billion of December defaults has increased the trailing 12-month default rate to 3.3% from 3% at the end of November, marking the 13th consecutive month that defaulted volume exceeded $1.5 billion, closing in on the 14-month run seen in 2008-2009.

High yield bond ETFs are down for the 8th day in the last 9, retracing the modest bounce from Friday afternoon, plunging to new multi-year lows. In fact, at current levels HYG is trading below the lows it hit in the immediate aftermath of the Lehman collapse (Sept 2008).

With Nattie down 6% in early trading, the most in 2 months, pressing to new record lows and oil prices continuing their carnage, the energy complex is a mess. OilPrice.com's Nick Cunningham warns, while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning...

"1Q16 bears potential downside risks, while 2Q16 Street estimates seem unrealistic: TSMC saw 10% order cuts in November, which we believe is from Apple business with the impact during the end of 1Q16 or early 2Q. We believe 45-50mn is a more reasonable target. We expect to see meaningful stock price corrections for Apple supply chain names in 1Q16 with lowered Street expectations and disappointing Apple sell-through numbers."