With the ECB's December meeting just one week away, Mario Draghi and co. are still debating how best to package a new round of easing measures. As Reuters reports, the central bank is considering a tiered system for the application of negative rates in an effort to mitigate the effect on banks. Translation: the ECB may be preparing to "overwhelm" with an even larger cut to the already negative depo rate that analysts were expecting.
Having detailed the "perverted nonsense" that is the collapsing and negative US swap spreads (here, here, here, and here) and noted money manager's concerns that the big question remains whether there is "something bigger brewing under the surface that so far hasn’t been pinpointed yet," it appears Goldman Sachs feels the need to 'explain' the anomaly in what appears an effort to calm fears about the broken money markets. Of course, we don’t have to figure out what the “market” is saying about a negative spread because it isn’t saying anything other than “something” is wrong and even Goldman admits this signals funding and balance sheet strains are worsening since August.
Global Stocks Fall For 5th Day On Disturbing Chinese Inflation Data; Renewed Rate Hike Fears; Copper At 6 Year LowSubmitted by Tyler Durden on 11/10/2015 06:58 -0500
The ongoing failure of China to achieve any stabilization in its economy, after already cutting interest rates six times in the past year, and the prospect of a U.S. interest rate hike in December, had made markets increasingly jittery and worried which is not only why the S&P 500 Index had its biggest drop in a month, but thanks to the soaring dollar emerging market stocks are falling for a fourth day - led by China - bringing their decline in that period to almost 4 percent, and the global stock index down for a 5th consecutive day.
JS Kim Issues Critical Warning About Newly Introduced Global Banking "Gold Programs". Could Bankers Be Duping Us into Yet Another One of Their Reverse Alchemy Schemes?
- Dollar at three-month high as payrolls paralysis sets in (Reuters)
- 5 Things to Watch in the October Jobs Report (WSJ)
- China to Lift Ban on IPOs (WSJ)
- ArcelorMittal Is Latest Victim of China's Steel-Export Glut (BBG)
- 'Hope to see you again': China warship to U.S. destroyer after South China Sea patrol (Reuters)
- Giants Tighten Grip on Internet Economy (WSJ)
- Questions Surround Valeant CEO Pearson (WSJ)
Don't forget Forex is countertrend market (generally) - here's a strategy to play the Forex 'fix'
- Euro zone growth weak in October, China services rally (Reuters)
- Stocks Rise With European Bonds on Stimulus Outlook; Euro Falls (BBG)
- VW Sinks Deeper Into Crisis as Scandal Spreads to More Cars (BBG)
- Republicans ask IRS to audit Clinton charity's finances (Reuters)
- PBOC Inadvertently Boosts Stocks With Dated Zhou Comments (BBG)
- As China’s Economy Slows, Consumers Pick Up Some of the Slack (WSJ)
- Plane crashes in South Sudan, witnesses say dozens killed (Reuters)
At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread, as Bloomberg notes, what Fabozzi's bible of swap-pricing calls a "perversion" is now the rule all the way from 30Y to 2Y maturities. As one analyst notes, historical interpretations of this have been destroyed and if the flip to negative spreads persists, it would signal that its roots are in a combination of regulators’ efforts to head off another financial crisis, massive corporate issuance (which we are seeing), China selling pressure (and its impact on repo markets) and "broken" wholesale money-markets.
If you thought we'd seen the depths of NIRP, think again because as Deutsche Bank notes, the ECB, Riksbank, SNB, and Nationalbank will likely dive further into the monetary Twilight Zone in the months ahead. Only when rates become negative enough to spark a depositor revolt will we have reached the "real" lower bound, but at that point, it will be far too late...
News That Matters
- China economic growth seen slowing despite policy easing (Reuters)
- FBI, Justice Department Investigating Daily Fantasy Sports Business Model (WSJ)
- Obama to slow pace of withdrawal of U.S. troops from Afghanistan (Reuters)
- Corporate America's Epic Debt Binge Leaves $119 Billion Hangover (BBG)
- Islamic State battles insurgents as Syria army prepares assault (Reuters)
- Why Hillary Clinton Can’t Win by Going After the NRA (BBG)
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
And now the real shocker: there is over US$100bn in gross financial exposure to Glencore. From BofA: "We estimate the financial system's exposure to Glencore at over US$100bn, and believe a significant majority is unsecured. The group's strong reputation meant that the buildup of these exposures went largely without comment. However, the recent widening in GLEN debt spreads indicates the exposure is now coming into investor focus."
- How Iranian general plotted out Syrian assault in Moscow (Reuters)
- China FX reserves post record quarterly fall as cenbank steps up yuan support (Reuters)
- MSF calls for independent inquiry into U.S. attack on Afghan hospital (Reuters)
- Yen Advances as Bank of Japan Refrains From Adding to Stimulus (Reuters)
- Abu Dhabi Said to Explore Asset Sales After Slump in Oil Price (BBG)
- U.S. Oil Approaching $50 Boosts Stocks as Emerging Markets Surge (BBG)
This system is pure insanity, as are its prices... it wouldn’t bother us if the price of gold went negative, just like propane in Alberta (after all, we're not trading paper currency for gold, just to trade it back for more paper currency if the 'price' goes up). The idea behind buying gold is to swap paper money for something real. Banks can rig its 'price' all they want; gold’s true value comes from its function as a long-term form of savings and a hedge against a broken financial system. And the more ridiculous the system gets, the more valuable it becomes.