Japan

BofA: "If You Go Down To The Woods Today It Will Be Full Of Bears"

What has professional investors so spooked? For the answer we look at the monthly survey question what FMS respondents believe is the biggest tail risk. Here, surprisingly, we find that after two months of everyone fretting about "quantitative failure", or the Fed losing control over markets more than anything, this is now only the third biggest concern and there is a new biggest "tail risk" - Brexit.

The Humungous Depression

We are not in a recession. We are in a depression, and have been since the turn of the century.

'Transitory' Excuses Destroyed As Mainstream Wakes Up To Crashing Yield Curve

The US Treasury yield curve is flattening again, with parts finally in 2016 surpassing the bearishness exhibited to start 2015. The mainstream is just now starting to notice likely because unlike last year there are no longer credible excuses to simply wish it away. “Transitory” is not a word you find much anymore, replaced instead by reluctant and forced acknowledgement that there is real economic peril here. Bearishness in the yield curve is not something new, however, only the notice of it.

Futures Fizzle After Oil Fades Bounce Above $48

It has been more of the same overnight, as global stocks piggybacked on the strong US close and rose despite the lack of good (or bad) macro news, propelled higher by the two usual suspects: a higher USDJPY and a even higher oil, if mostly early on in the trading session.

US Treasuries Account For A Stunning 60% Of All Global Positive Yielding Debt

Here is why US yields are, if anything, set to decline more: on the other hand, the US accounts for almost 60% of all positive yielding debt and 89% of the positive yielding debt which has a tenor less than 1YR (Figure 4). Also, US debt accounts for 74% of the positive yielding G10 debt in the 1 – 5YR sector.

The Mystery Of Saudi Treasury Holdings Solved: US Reveals Saudi Holdings For The First Time

One month ago, when the NYT reported that Saudi Arabia would liquidate as much as $750 billion in Trasurys should the US pursue legislation that could hold it liable for the September 11 bombings, many asked: does Saudi Arabia own that many Treasurys?  We now have the answer courtesy of a Bloomberg FOIA submission to the US treasury, and our estimate of "far less" Saudi holdings was indeed accurate. As Bloomberg reports, "the stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March."

Mutiny Among The "Magic People" - India Central Banker Admits "The Ammo Is Almost Gone"

The self-described "magic people" who "give to the markets" are facing a mutiny this morning as Raghuram Rajan, the head of the Indian central bank, admits central banks and governments of rich countries are running out of ammunition for stimulating their economies... but they can never admit as much. Crushing the dreams of "extreme monetary policy"-setters, Rajan goes on to discuss the sanity of 'helicopter money' warning that people will not be 'stimulated' to spend but will question: "What kind of world are we in when the central bank prints money and throws it out of the window?"

Key US Macro Events In The Coming Week

After last week's key event, the retail sales number, which the market discounted as being too unrealistic (and overly seasonally adjusted) after printing at a 13 month high and attempting to refute the reality observed by countless retailers, this week has a quiet start today with no data of note due out of Europe and just Empire manufacturing (which moments ago missed badly) and the NAHB housing market index of note in the US session this morning.

Frontrunning: May 16

  • European Stocks Fall as Chinese Economic Data Disappoint (WSJ)
  • Oil Climbs to Highest Since November as European Shares Retreat (BBG)
  • Yen weakens on Japan intervention talk before G7 meets (Reuters)
  • Wall Street’s Bond Forecasters Splinter as Fed Credibility Wanes (BBG)
  • Amazon to Expand Private-Label Offerings—From Food to Diapers (WSJ)
  • Oil prices rise on Nigerian outages, Goldman forecast (Reuters)

Futures Flat Despite China Scare As Oil Rebounds Over $47

The main risk over the weekend was that markets, which have now dropped for three consecutive weeks the longest negative streak since January, would focus their attention on the latest batch of negative Chinese economic news released over the weekend, which missed expectations across the board, most prominently in Retail Sales and Industrial Production, and following Friday's disappointing new credit loan data, would sell off as the Chinese slowdown once again becomes a dominant concern. However, after some initial weakness, the risks were all but gone when first the USDJPY jumped on another round of deflationary Japanese economic data which led to renewed hopes of more BOJ easing and a jump in the USDJPY and thus US futures.

Who Rules The World? Part 1

The Western picture of world order is that “ever since the end of the Cold War, the overwhelming power of the U.S. military has been the central fact of international politics.” This is particularly crucial in three regions: East Asia, where “the U.S. Navy has become used to treating the Pacific as an ‘American lake’”; Europe, where NATO -- meaning the United States, which “accounts for a staggering three-quarters of NATO’s military spending” -- “guarantees the territorial integrity of its member states”; and the Middle East, where giant U.S. naval and air bases “exist to reassure friends and to intimidate rivals.” The problem of world order today is that “these security orders are now under challenge in all three regions” because of Russian intervention in Ukraine and Syria, and because of China turning its nearby seas from an American lake to “clearly contested water.” The fundamental question of international relations, then, is whether the United States should “accept that other major powers should have some kind of zone of influence in their neighborhoods.”

The Endgame

There is a growing fear in financial and monetary circles that there is something deeply wrong with the global economy. Publicly, officials and practitioners alike have become confused by policy failures, and privately, occasionally even downright pessimistic, at a loss to see a statist solution. It is hardly exaggerating to say there is a growing feeling of impending doom. In short, growing evidence of price inflation and stagnant production can be expected to materially increase the risk of a global banking and currency meltdown. The best escape-route is ownership of anything other than purely financial assets and fiat currency deposits. No wonder the price of gold, which is the soundest of moneys, appears to have entered a new bull market.

Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing

"We expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q17."