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.
Overview of the investment climate and the likey impact from data and events, delivered in dispassionate, even if dry prose.
Although the US seems intent in playing the drums of war, perhaps realizing that its economic power is slowly headed for oblivion, to join the likes of Japan and the UK, American firms waving international flags don’t have the appetite for war that neocon elitists in the State Department or star-studded bellicosarians in the halls of the Pentagon have. Not at all! And here is where the feared industrial-military complex hopefully falls apart as globalist firms give their overall support to peace as a preferred alternative to the specter of a nuclear holocaust. Russia doesn’t want any military confrontation, nor does China, nor do American and European corporate entities that see no future in suicide. Americans need not drink the kool-aid offered by John McCain and his ilk in the Pentagon, Congress or the State Department; nor should they listen to the sad sack windmill-mouthpiece they have enlisted in the White House: Barack Obama.
The latest sheer brilliance from Japan: in order to avoid dumping radioactive water into the Pacific, Japan has to... dump radioactive water into the Pacific.
Overview of the price action in various currencies, S&P 500, Treasuries and the CRB Index
Gold Breaks Out As Tensions In Middle East, With Russia Intensify - Technicals and Fundamentals PositiveSubmitted by GoldCore on 08/08/2014 17:06 -0400
Gold is nearly 2% higher this week and its technical position has further improved (see key charts). On Wednesday, gold broke out of bullish descending wedge chart pattern that has formed in recent months. Another buy signal for gold came when gold rose above the 20 EMA and 50 EMA (exponential moving averages). Also positive is the fact that the price momentum oscillator (PMO) has turned up, indicating that a positive momentum shift has occurred.
So, globally interest rates are at ZERO or even negative and the markets have realized that QE doesn’t do much. What exactly does this leave for Central Banks to do?
If you are getting a strong sense of déjà vu from current news flow, well, join the club. Everything feels so… familiar. And not necessarily in a good way. When we hear phrases like “Bubble markets”, “M&A cycle”, “historically low yields”, and “retail investor buying”, our minds automatically flash back to prior periods of history when those phrases last dominated the headlines. It isn’t hard to come up with a “Top 10” list of phrases with strong historical - and emotional - antecedents. So, today we did just that. Fair warning, however: just because a tune sounds familiar doesn’t mean you actually know the song. It could just be what the kids today call a “Sample” – a snippet of a song put in another song. Yep, what we’ve got here is something out of hip hop, not rock. Don’t especially like rap? Too bad, homey.
Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector. Depositors in some Cyprus banks saw 50% or more of their life savings confiscated overnight. Moodys largely ignored, as did much of the media coverage of their report, the real risk that bail-ins pose to people’s life savings and companies capital, the likely negative impact of this on consumer sentiment and employment in already fragile economies.
Pentagon Confirms Russia Violated US Airspace 16 Times In Last 10 Days, "Not Just Training Missions"Submitted by Tyler Durden on 08/07/2014 12:47 -0400
Having admitted that a Russian fighter jet flew within 30 meters of a US spy plane (on the border of Russia) a month ago, The Washington Times reports defense officials confirming Russian strategic nuclear bombers conducted at least 16 incursions into northwestern U.S. air defense identification zones over the past 10 days - an unusually sharp increase in aerial penetrations.
This represents a tectonic shift in the financial markets. It does not mean that Central Banks will never engage in QE again. But it does show that they are increasingly aware that QE is no longer the “be all, end all” for monetary policy.
Yesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation. Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!
The worst possible approach is to give Putin more credibility at home...
Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.
Just in case the legacy of Abenomics wasn't clear enough (it should have been after we reported that its legacy is "Japan's Greatest "Misery" In 33 Years"), here is another confirmation that in the New Normal, only bad things happen when you forget to BTFD.