Brazil's Supreme Court green lighted House Speaker Eduardo Cunha's Rousseff impeachment bid on Wednesday, even as the high court is also considering a request for his removal. Meanwhile, the economy continues to deteriorate as we just got the highest unemployment reading for the month of November in seven years."
Heading into the Fed's first "dovish" rate hike in nearly a decade, the consensus was two-fold: as a result of relentless telegraphing of the Fed's intentions, the hike is priced in, and it will be a "dovish" hike, with the Fed lowering its forecast for the number of hikes over the next year. Consensus was once again wrong on both accounts: first the rate hike was far more hawkish than most had expected (see previous post), and - judging by the surge in Asian, European stocks and US equity futures - the "market" simply is enamored with such hawkish hikes which will soon soak up trillions in liquidity from the financial system.
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.
As a result of the global commodity weakness, global stocks have fallen for the first time in six days as the sell-off in commodities continued, dragging both US equity futures and European stocks lower. However, putting this in context, last week the MSCI All Country World Index posted its biggest weekly gain in six weeks: alas, without a coincident rebound in commodity prices, it will be merely the latest dead cat bounce.
There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Some still recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007. Meanwhile, the foundation of the economy continues to look rotten (the newest round of Fed surveys has begun with another bomb and other manufacturing-related data continue to disappoint as well). This isn’t going to end well, if history is any guide.
In what sounds like the plot of a McCarthy-era propaganda spy novel, the Socialists and Communists have overthrown the government in Portugal. That means it's time for the troika to start pushing back against the undesirables by threatening the country with financial ruin. Just call it "tough love."
"While traditional bank loans are not Chu’s prime focus -- she looks at the wider picture, including shadow banking -- she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher."
26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax. None of the happened. Instead the only "back to the future" moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news leading to surging stocks.