Everything went from bad to worse once Europe opened, and things started going "bump in the morning" across the European banking sector, where not only has it been more of the same with CDS spreads for major banks - most notably Deutsche Bank - continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014, and other peripheral nations following.
Following years of QE-inspired excess returns, investors in 2016 suddenly find themselves embroiled in a broad and brutal bear market. The 10-year rolling return loss from commodities (-5.1%) is currently the worst since 1938, and equal-weighted US stock index down 25% from recent highs. However, in BofAML's view, the pertinent question for investors is whether the current bear market represents a healthy "reset" of both profit expectations and equity and credit valuations, or more ominously, the onset of a broader economic malaise that will require a major policy intervention in coming months to reverse.
Following a rerun of September 2015, when Draghi sent market expectations about ECB action sky-high only to massively disappoint in December (we will have to wait until March to see if it is deja vu all over again) last week, this week is just as big for central bank jawboning with the FOMC (Wednesday) and the BoJ meeting on Friday, with hopes that they will at least hint of more easing if not actually do much.
Things are looking increasingly shaky for central planners around the globe.
Today's batch of housing data, namely the December update of housing starts and permits, which as a reminder has a quite substantial "confidence interval" was relatively uneventful.
Well, it’s been a rotten month.
With the US closed today for Martin Luther King Holiday, global risk tone has once again been set entirely by oil, which opened sharply lower at fresh 12 year lows on fears of an Iran oil glut, but has steadily rebounded on the latest OPEC comments, and at last check both WTI and Brent were unchanged trading in the low $29's on muted volume. With Asian markets mixed, European shares swung between gains and losses, while the yen weakened as China stepped up efforts to curb foreign speculation against its currency. Crude oil rose from a 12-year low after the Organization of Petroleum Exporting Countries forecast a decline in supplies from rival producers.
While it is two months delayed (and home sales have tumbled since), Case-Shiller reports that home prices rose 0.84% MoM in October, beating expectations and the biggest monthly rise since March. While the YoY gains barely missed expectations at +5.54%, Miami, Tampa, and San Francisco all saw the biggest gains as Chicago, Cleveland, and San Diego saw the biggest drops in home prices.
Three years after 2012, Goldman has finally admitted that all the talk about a major exodus of your Americans from parental houses and into the harsh crony capitalist world, was nothing but hot air. As the chart below shows, the share of 18-34-year-olds living with their parents has never been higher.
Futures Jump After Friday Drubbing, Despite Brent Sliding To Fresh 11 Year Lows, Spanish Political UncertaintySubmitted by Tyler Durden on 12/21/2015 06:55 -0500
In a weekend of very little macro newsflow facilitated by the release of the latest Star Wars sequel, the biggest political and economic event was the Spanish general election which confirmed the end of the PP-PSOE political duopoly at national level. As a result, there was some early underperformance in SPGBs and initial equity weakness across European stocks, which however was promptly offset and at last check the Stoxx 600 was up 0.4% to 363, with US equity futures up nearly 1% after Friday's oversold drubbing. In other key news, the commodity slide continues with Brent Oil dropping to a fresh 11-year low as futures fell as much as 2.2% in London after a 2.8% drop last week.
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.
Housing Starts rose 10.5% in November (after plunging 12% in October) as it appears weather-weakened construction caught back up with single-family starts recovering from the plunge in October. The South saw the biggest spike (up 21%) and Northeast fell 8.5%. Building Permits rose 11% MoM (after a 5.1% last month) as multi-family spiked from 446 to 566 (driven by a 22% spike in The Midwest and The West). This is the biggest MoM gain since Dec 2010.
The day has come when the boxed-in Fed has no choice: with the vast majority of the market expecting a rate hike, Yellen has to deliver or suffer a crushing confidence blow like no other. And deliver she will, with expectations that said hike will be "as dovish as possible." For now however, the market is desperate to convince itself that just as more easing and more QE were bullish for the market, so rate hikes are just as bullish. Recall from late 2013: "tapering is not tightening," then the 2015 version of this refrain is "tightening is not tightening."