Germany

Draghi’s Friday talk of a “no limit” ECB balance sheet must have Weidmann and responsible members of the ECB at their wits end. It’s the nature of monetary inflations that there’s always a need for more. Throughout history, it’s been ‘just one more round of ‘printing’’ or ‘just one more year and then we’ll rein things in’. But things spiral out of control – and there’s a lot of currency with a lot more zeros. It can end in hyperinflation, at least when monetary inflation is afflicting the real economy. Today’s strange variety is inflating securities market Bubbles. It will end with Bubbles bursting and confidence collapsing. Integral to the bursting Bubble thesis is that policymakers are losing control. Granted, such analysis has about zero credibility when markets are in melt-up mode. But perhaps the markets’ response to Draghi is a forewarning.

"In the year ahead, geopolitics likely poses the greatest potential to disrupt markets in terms of event risk. There is also the potential for geopolitical risks to intersect with economic fragility in the event of a downturn, amplifying both."

Saudi Arabia is at risk of becoming a major destabilizing influence in the Arab world, German intelligence has warned. Internal power struggles and the desire to emerge as the leading Arab power threaten to make the key Western ally a source of instability, according to the BND intelligence service. “The current cautious diplomatic stance of senior members of the Saudi royal family will be replaced by an impulsive intervention policy,” a BND memo widely distributed to the German press reads.

Magic ‘Super Mario’, the ECB’s monetary magician, disappointed markets yesterday as continuing and unprecedented monetary easing failed to prevent a sharp sell-off in stock and bond markets yesterday which has continued today.

In a 445 “for”, 146 “against” (seven abstentions) vote, German lawmakers approved the use of six Tornado reconnaissance jets, and the deployment of a frigate to help "protect" the French aircraft carrier Charles de Gaulle off the coast of Syria. Berlin will also send refueling aircraft and up to 1,200 military personnel.

Optimism in US equity futures appears to have returned, and as of this moment US equity futures are higher by 9 points to 2060 as the attention shifts to what, according to BofA, is truly the most important ever. It is unclear just how the algos would take a second consecutive major disappointment in a row: should today's NFP print be well below the 200,000 consensus, December rate hike odd will tumble and the EUR will surge even more after declining modestly from overnight highs just below 1.10, leading to even more losses in European equities and spilling over to the US. 

"The outcome is a defeat both for the Danish government and the main opposition parties who had urged voters to back the proposal, arguing it was necessary for Denmark to combat cross-border crime and remain a member of Europol even after a planned overhaul of the intergovernmental police agency next year."

"Given the surge back towards the all-time highs in the S&P 500, we think that the best might be over for US equities and that indices might range trade more in 2016. We have downgraded US equities to neutral. This takes our overall equity weighting down to neutral, in many respects an extension of what we’ve been doing for most of this year as richer and richer asset markets, against a global background of economic risks, have made us more cautious."

They aren`t about to stand for a strong dollar in a world where it is a competitive advantage to devalue currencies from a multinational profits, tourism and global trading perspective.

Mario Draghi is on deck Thursday morning and market expectations could scarcely be higher. In fact, Draghi is widely expected to execute the Keynesian trifecta, i) a rate cut, ii) expansion of QE, and iii) extension of QE duration. The ECB has indeed gained a reputation for over-delivering, but as SocGen puts it, "with high expectations comes a high risk of disappointment." 

Yesterday's market swoon which unwound all of Tuesday's gains on concerns about a hawkish Fed and fears about terrorism in the US, are now completely forgotten, and have been replaced with the latest daily round of pre-ECB euphoria, driven by hopes that Mario Draghi will announce even more dovish details to Europe's Q€ 2 than just a 10 bps rate cut and a boost to QE more than €10 billion, both of which have been already priced in.

"Where in such cases the overall functioning of the area without internal border control is put at risk, and insofar as the exceptional circumstances constitute a serious threat to public policy or internal security within the area without internal border control or within parts thereof, the period for the reintroduction of internal border control may be extended up to a total maximum of two years."

The very first major economic collapse in recorded history occurred in 218-202 BC when the Roman Empire experienced money troubles after the Second Punic War. As a result, bronze and silver currencies were devalued. As HowMuch.net depicts in the video below economic collapses date back thousands of years. While many countries today still feel the effects of the most recent Global Financial Crisis, it is important to note that economic troubles are not unique to the present-day, but rather date back to some of the oldest civilizations.

The lack of fear in risky assets is another way of saying that risk premia have been low, or as we also like to put it, that complacency has been high. Not fully appreciative of this inherent risk, it seems many investors have refrained from rebalancing their portfolios, and bought the dips instead. We believe the Fed’s efforts to engineer an exit from its ultra-low monetary policy should get risk premia to rise once again, that if fear should come back to the market, volatility should rise, creating headwinds to ‘risky’ assets, including equities. That said, this isn’t an overnight process, as the ‘buy the dip’ mentality has taken years to be established. Conversely, it may take months, if not years, for investors to shift focus to capital preservation, i.e. to sell into rallies instead.

The EU is warning Greece it faces suspension from the Schengen passport-free travel zone unless it overhauls its response to the migration crisis by mid-December, as frustration mounts over Athens’ reluctance to accept outside support. Meanwhile non-EU member Turkey gloats as it gets a soon to be embezzled wire transfer of €3.0 billion for its "proactive" refugee response.