Barclays

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Frontrunning: August 13





  • Obama says Missouri shooting death tragic, reflection needed (Reuters)
  • U.S. Weighs Iraq Rescue Mission to Save Yazidis (WSJ)
  • Maliki says Abadi's appointment as Iraqi PM 'has no value' (Reuters)
  • Iran Joins U.S. in Backing Replacement for Iraq’s Maliki (BBG)
  • Kurds Push Attack in North Iraq as Maliki Clings to Power (BBG)
  • Obama Donors Embrace Corporate Inversions He Criticizes (BBG)
  • Syrian Forces Advance on Aleppo, Rebels Fear Another Siege (WSJ)
  • Israel, Palestinians pursue Gaza deal with ceasefire clock ticking (Reuters)
  • Ebola Drug’s Success Bolsters Approach for Other Diseases (BBG)
  • With Natural Gas Byproduct, Iran Sidesteps Sanctions (NYT)
  • Kazakhs to Hoard Food as Putin Sanctions Rattle Alliance (BBG)
 
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Just The Right Amount Of Bad Overnight News To Ramp Global Equities





If it was crashing German business confidence yesterday setting the somber mood for European economic "growth" in the second half, with a European GDP decline if not outright contraction now almost practically inevitable, then overnight it was disappointing data from virtually every other spot in the globe (and Europe again) to hammer the message in, starting with a historic 6.8% drop in Japanese GDP driven by a record plunge in consumption, quickly followed by total social financing out of China which in aggregate rose by only RMB273.1bn in July, or just 18% of what was expected, with missing industrial production and retail sales just the cherry on top. Then it was Europe's turn again, where June Industrial Production contracted -0.3% on expectations of a 0.4% increase, to set the stage for tomorrow's Eurozone GDP print which, following Italy's triple-drip recession shocker last week, probably means it will be not only Japan but also Europe which are about to have taken a sharp move for the worse. All of which of course, explains why just as Europe opened, the USDJPY blasted off and took both EuroSTOXX and US equity futures higher with it, and at last check ES was some 10 higher.

 
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Frontrunning: August 12





  • Gunshots, tear gas in riots over shooting of black Missouri teen (Reuters)
  • Russia sends big aid convoy to Ukraine, West sounds warnings (Reuters)
  • Maliki Bid to Block Successor Escalates Crisis in Iraq (BBG)
  • Poor German data pushes euro toward 9-month lows against dollar (Reuters)
  • Derivatives Reincarnate Boosting Debt Wagers in New Era  (BBG)
  • Israel Says No Gaza Talks Progress as Hamas Warns on Truce (BBG)
  • Traders brace for research crackdown as easy money dries up (Reuters)
  • U.S. Bank Profits Near Record Levels (WSJ)
  • Unproven Ebola Drugs Are Ethical to Use in Outbreak: WHO (BBG)
  • Caesars’ CEO Loveman Says No Qualified Bidders for Revel (BBG)
 
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Enough Bad News Overnight To Send Futures Higher On Turbo Tuesday





If the global equity "markets" were in need of a sharp "horrible news is great news" boost overnight, it came courtesy of Germany's ZEW investor confidence survey, which printed at a stunning 8.6, a plunge from the 27.1 in July and far below the 17.0 expected - the lowest print since December 2012 -largely suggesting that a European triple-dip is all but assured. And if that wasn't enough, strong language from John Kerry, assured to fan the flames of geopolitical instability, came hours ago when the US SecState said even more Russian sanctions may be coming. And just to make sure the NY Fed trading desk has to come up with a new narrative is the latest development in the Russian "humanitarian convoy" saga, which as we reported last night, has departed Russia but which Ukraine is now refusing to allow into its country. All in all, it's is setting up to be another super bullish day in the rigged markets for which all that matters is... Tuesday.

 
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Futures Higher On Geopolitical Tensions Which Are Either Easing Or Looming





Since there is nothing on today's data docket, it will be all about, you guessed it, geopolitical risks, where "consensus" is best summarized by these two Bloomberg headlines:

  • Stay USD Long as Geopolitical Risks Loom
  • USD is mixed and world stock markets rise as concerns over geopolitical risks ease

That pretty much covers it, although in addition to the Ukraine civil war one can now add an Iraq coup to the list of geopolitical fiascoes instigated by US foreign policy.

 
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This Is The Longest Streak Of High-Yield Outflows On Record (And Why It May Get Worse)





When we first brought the market's attention to high-yield credit's flashing red warning, it was shrugged off as unimportant by most - stocks are rallying so who cares (even though we explained in detail why equity investors should care). Now that the mainstream media has all become high-yield bond experts we thought it worth considering how much worse this could get. As Barclays notes, for those keeping track, retail funds have thus far seen 22 consecutive days of redemptions for a total of $16.9bn in assets - the longest streak in history and while the effect of retail selling on valuations has not been negligible, it has also not been proportionate to the magnitude of the outflows (yet).

 
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Russia "Fold" Hope Fades - Stocks Tumble To Red





Update: and the reason why stocks just surged:

  • 2Q GDP Tracking Est. Cut to 3.9% From 4.2% at Goldman Sachs
  • 2Q GDP Tracking Est. Cut to 3.9% From 4.2% at JPMorgan Chase
  • 2Q GDP Tracking Est. Cut to 4.1% From 4.3% at Barclays

Despite the concreteness of a tweet 'proving' Putin was ready to fold, US equities are giving up hope and are now red on the day (led by Nasdaq). US Treasury yields have remained notably lower all night and are fading lower once again. Gold and silver and rebounding and oil's modest early slip has stabilized. DAX futures have broken back below 9,000 and 2Y Bund yields touched -0.5bps early on.

 
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European Stocks Enter Correction, Though Strong USDJPY Levitation Cuts Most Of US Futures Losses





Late yesterday, after Nobel peace prize-winning president Obama revealed his latest military incursion, years of pent up can-kicking almost caught up with futures, which dared to tumble by a whopping 0.7%, a move which hit Europe far more than the US, and shortly after Europe's open, the Euro Stoxx 50 Index dropped 10% from its 2014 high, marking an official correction in Europe where the Dax continues to be the key risk indicator, and which dropped as low as 8,903 before recovering to a drop of only 0.9% while German Bunds continues to print record highs day after day on fears what the escalating Russian trade war will do to the German economy, and other such "costs." US futures meanwhile have seen most of their losses recovered thanks to the usual relentless low volume USDJPY levitation, which pushed ES down to just -0.2% after a nearly four times greater drop. Still, while futures may be surging, the 10 Year has not gotten the memo and remains stuck just above 2.36% or its lowest print since June 2013, a clear indication that at least the bond market has given up all hope of a so-called US recovery for the conceivable future. What is most important however, is that at this pace, the Friday confidence effect, i.e., a green close, may be recovered: let's all just wait and see what the NY Fed trading desk decides to do, and escalating world wars aside, let's just pretend that HY didn't just sugger the biggest weekly HY outflow in history didn't just take place.

 
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Frontrunning: August 6





  • So that's what Obama meant by "costs" - Italy Recession, German Orders Signal Euro-Area Struggle (BBG)
  • Russia worries, weak German data weigh on Europe (Reuters)
  • Hedge Funds Betting Against Banco Espírito Santo in Line for Big Gains (WSJ)
  • Bankers Called Up for Ukraine War as Rolls-Royce for Sale (BBG)
  • Double Punch for 'Inversion' Deals (WSJ)
  • Statist Strongmen Putin-Xi See History’s Capitalism Clash (BBG)
  • China bans beards, veils from Xinjiang city's buses (Reuters)
  • BATS to Settle High-Speed Trading Case (WSJ)
  • Second Ebola patient wheeled into Atlanta hospital for treatment (Reuters)
 
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Futures Tumble On Abysmal European Data, Euro Stocks Turn Red For 2014; German 2Y Bunds Negative





With everyone focused on China as the source of next systemic risk, most forgot or simply chose to ignore Europe, which through Draghi's verbal  magic was said to be "fixed." Or at least everyone hoped that the rigged European bond market would preserve the "recovery" illusion a little longer giving the world some more time to reform pretend it is doing something to fix it. Turns out that was a mistake, confirmed earlier not only by the plunge in German Factory Orders which cratered -4.3%, down from 7.7% and below the 1.1% revised, and UK Industrial production which missed expectations of a 0.6% boost, rising only 0.3%, but most importantly Italy's Q2 GDP shocker, which as we reported earlier, dropped for the second consecutive quarter sending the country officially into recession. As a result, European stock markets, Stoxx600, has joined the DJIA in the red for the year while Germany's 2 Year Bund just went negative on aggressive risk aversion, the first time since 2012.

 
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Must Read: Fear And Loathing On The Marketing Trail





Today, everyone believes that market price levels are largely driven by monetary policy and that we are all being played by politicians and central bankers using their words for effect rather than direct communication. No one requires convincing that market price levels are unsupported by real world economic activity. Everyone believes that this will all end badly, and the only real question is when.... There’s absolutely nothing sincere about the public sphere today, in its politics or its economics, and as a result we have lost faith in our public institutions, including public markets. It’s not the first time in the history of the Western world this has happened … the last time was in the 1930’s … and over time, perhaps a very long period of time, a modicum of faith will return. This, too, shall pass... It’s the public markets where faith has been lost, and that’s why the Golden Age of the Central Banker poses existential risks for firms and business strategies based on trading activity within those public markets.

 
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Three Chart Alarm: The Fed Has Set-Up The Corporate Bond Market For A Big Fall





The three charts below are still another reminder that the Fed’s heedless fueling of the third financial bubble this century has done enormous damage to the internals of financial markets.  In this case, investors and savers being brutally punished by ZIRP were herded into bonds funds in a desperate scramble for yield. Yet the market’s structural liquidity condition has gone in the opposite direction. Dealer inventories of corporate bonds have plummeted by nearly 75% from pre-crash levels, meaning that the ratio of dealer inventories to bond fund assets has virtually been vaporized. The implication is no mystery. When the financial markets eventually succumb to a “risk-off” selling panic, the corporate bond market will gap down violently, "everyone is hoping to be first through the exit,” warns Citi's Matt King, "by definition, that’s not possible."

 
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Central-Planners Fail To Herd Money Market Funds Into Overpriced Stocks





Sadly for the central planners, while they succeeded in the first part of their plan, namely getting investors to flee from money market funds, they failed in getting the money to flow into the desired asset class: stocks. Instead, money market funds are rushing at an unprecedented pace into that other most hated by the Fed, after precious metals of course, asset: Treasurys. Most hated because declining yields disprove all the propaganda about an improving economy as they do, or at least did, imply deflation down the road: hardly the stuff robust 3%+ recoveries are made of.... But before we declare victory over central planning, don't forget that the "regulators", the Fed and the SEC, are already contemplating the next step: recall that as we reported in June, "the Fed is preparing to impose "exit fee" gates on bond funds, in what, the official narrative goes, is an attempt to prevent a panicked rush for the exits. Of course, this is diametrically opposite of what the truth is."

 
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Weak Chinese And European Macro Data Briefly Halts Futures Levitation





It is unclear how much of this morning's momentum-busting weakness in futures is the result of China's horrendous Service PMI, which as we reported last night dropped to the lowest print on record at the contraction borderline, but whatever low volume levitation was launched by the market after Europe's close yesterday may have fizzled out if only until Europe close (there is no POMO today). Still, futures may have been helped by yet another batch of worse than expected European data, namely the final Eurozone PMI prints, which in turn sent the EURUSD to day lows and the offsetting carry favorite USDJPY to highs, helping offset futures weakness. Because in the New Normal there is nothing like a little bad macro data to goose the BTFATH algos...

 
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Frontrunning: August 4





  • New War Risk on Russia Fringes Amid Armenia-Azeri Clashes (BBG)
  • Palestinians accuse Israel of breaking seven-hour Gaza truce (Reuters)
  • Argentine Default Sours Outlook for Peso as Talks Ordered (BBG)
  • Espírito Santo Saga Entangles Swiss Company (WSJ)
  • Booming African Lion Economies Gear Up to Emulate Asians (BBG)
  • CME Profit Falls as Trading Volume Declines (WSJ)
  • Why Recalled Cars Stay on the Road (WSJ)
  • London Renters Win in Billionaire Backyard as Prices Soar (BBG)
  • Junk-Debt Liquidity Concerns Bring Sales (WSJ)
  • Rescuers race to find survivors after 400 die in China quake (AFP)
 
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