With few in the market knowing what to do in the aftermath of Brexit (aside for chasing quarter end widow dressing of course) at least according to Citi, one voice of confidence has emerged: that of Dennis Gartman. For those interested in the “world-renowned commodity expert’s” take, here is what the CNBC fast money staple is doing as of this morning.
REGARDING GLOBAL EQUITIIES DEAD CATS DO INDEED BOUNCE, and that is the lesson one is the learn from the massive, sharp rally that has taken place in the global equity markets as all ten of the markets comprising our International Index have risen in the course of the past twenty four hours, with nine of those ten rising by more than 1% and with two of them rising by more than 2%. However, in light of the massive declines that had taken place the previous two trading sessions we are willing to see the strength of the past twenty four hours as a much needed “Dead Cat Bounce,” and nothing more. Further, it is very worth noting that the volumes on the bounces yesterday were demonstrably less then were the volumes on the breaks Friday and Monday, and if the trend is to follow the volume then the trend is still down.
Yesterday we asked the question, “Can the S&P futures rally back toward 2040-2050 in the course of the next few days?” We asked if the EUR StOXX 50 futures could make its way back toward 2825-2850 and could the Nikke futures “bounce” to 15,750-15,850? Our answer was in all three cases, “Of course they can and again it shall be proper to be a seller there.” As we write, the S&P futures are trading 2034;the EURO STOXX 50 futures are trading 2788 and the Nikkei futures are trading 15,645, so all are approaching our targets to the upside. We shall have orders in the markets today to sell the mid-points of all three indices; that is, we’ll sell the S&P futures today if 2045; we’ll sell the EUR STOXX 50 at 2837 and we’ll sell the Nikkie futures at 15,800… two thirds of a unit for each so that we’ll be short of two units in total if all are filled, risking only 2% on each position from the outset.
Another day, another report of a US encounter with Russia – it is certainly becoming a routine event. In a statement made on Tuesday, the USS Gravely approached the Yaroslav Mudry, a Russian frigate, on June 17, passing at a distance of 55 meters (180ft), the Defense Ministry said in a statement.
The US guided-missile destroyer Gravely breached international safety rules by coming withing dangerous proximity of the Yaroslav Mudry in the eastern Mediterranean, the Russian Defense Ministry said.
According to the statement, the warship's captain and crew violated the international Regulations for Preventing Collisions at sea (COLREGS) which govern the conduct of two or more vessels when they meet at sea in order to prevent dangerous situations.
“The US sailors, in particular, neglected Rule 13, which stipulates that an overtaking vessel must keep out of the way of the vessel being overtaken,” the Defense Ministry said. It added that the USS Gravely had also violated Rule 15, which says that a vessel that has another vessel on the starboard side must yield and avoid crossing ahead of her.
The ministry also said the Pentagon should take note of such incidents rather than accuse the Russian Air Force and Navy of unprofessional conduct. “US sailors allow themselves to neglect key foundations of navigation safety without thinking of the consequences that dangerous maneuvering in a heavily trafficked maritime area might involve.”
The USS Gravely is an Arleigh Burke-class guided missile destroyer capable of carrying an Aegis missile defense system. She was commissioned in 2010 and sent to her first overseas deployment in the eastern Mediterranean three years later.
Yaroslav Mudry, a Russian-made Neustrashimy-class frigate, has seen service with the Russian Navy’s Baltic Fleet. She was spotted near Malta Earlier in June, reportedly heading to the eastern part of the Mediterranean to join Russia’s maritime task force off Syrian shores.
Unlike many of the claims made recently by the US regarding unsafe incidents, Russia has what is allegedly a video of the event.
If the Brexit vote tells us next to nothing about domestic U.S. politics, it did reveal a strange contradiction among many left-leaning American commentators. Liberals and progressives overwhelmingly voiced solidarity with the Remain camp, often invoking as a great thing the European Union’s impressive (if far from perfect) creation of a free-trade zone in which goods and services flowed freely among member states.
Ironically, many of the same people who bemoaned the Leave side winning in the United Kingdom are highly critical free-trade agreements that the United States is either already part of or trying to join. So, for instance, before the Brexit vote, an advisor for Hillary Clinton told British media that she was firmly on the Remain side of the battle: “She has always valued a strong United Kingdom in a strong EU. And she values a strong British voice in the EU.” After the vote, her campaign ran an ad attacking Donald Trump for his strong support for the Leave position.
And yet, when it comes to liberalizing trade with foreign countries, both Trump and Clinton hold essentially the same position of being adamantly opposed. Trump has denounced the North American Free Trade Agreement (NAFTA), signed into law by Clinton’s husband in 1993, and has said his first order of business if elected will be to renegotiate its terms or pull out of it. As it happens, Clinton has been attacking NAFTA as a mistake since at least 2007, when she first started running for president. Her campaign website for the 2008 race proclaimed, “NAFTA was negotiated more than 14 years ago, and Hillary believes it has not lived up to its promises.” And at a 2007 presidential debate, she said, “NAFTA was a mistake to the extent that it did not deliver on what we had hoped it would.” Indeed, she even called “for a trade timeout.”
Let’s leave aside for the moment that both Trump’s and Clinton’s negative evaluation of NAFTA is entirely wrong. The U.S. economy and job market flourished in the wake of its implementation in 1994 and most economists say that it has had smaller but positive effects than either its champions or detractors feared.
Clinton and Trump also see eye-to-eye on the Trans-Pacific Partnership (TPP), the other big trade deal that’s front and center in the 2016 election. Trump, who in an early GOP debate didn’t seem to realize that China was the target of the pact and not a participant in it, describes TPP as “a continuing rape of our country.” Clinton’s rhetoric is milder, but her position is just as plain. Despite supporting the Obama administration’s continuing efforts to broker the 12-nation deal while secretary of state, she is now absolutely against it. “I am not in favor of what I have learned about it,” she told CNN last fall:
I have said from the very beginning that we had to have a trade agreement that would create good American jobs, raise wages and advance our national security and I still believe that is the high bar we have to meet… I don’t believe it’s going to meet the high bar I have set.
Fact-checker sites agree that Clinton has flip-flopped on this issue, almost certainly in reaction to Bernie Sanders’ unrestrained and popular denunciations of anything related to free-er trade during the Democratic primaries. But there’s no reason to believe she will be changing her tune anytime soon.
So both of the presumptive nominees for the two major parties are anti-free-trade deals. As important, neither of them has a kind word to say about free trade in principle. Each of them sees trade as a means by which powerful nations exert pressure on less-powerful nations to do things a certain way, whether it’s pricing items so they’re not competitive with American products or enacting all sorts of environmental and labor regulations that will drive up costs (that “high bar” of which Clinton speaks).
Interestingly, Donald Trump’s position is actually in line with how the typical Republican feels about free trade agreements. In research released earlier this spring, Pew found that 53 percent of voters who identify as Republican or who lean Republican agree that free trade deals “have been a bad thing for the United States.” Only 38 percent disagreed. When it comes to Democrats and those who lean Democrat, only 34 percent think trade deals have been a bad thing, while fully 56 percent think they have been a good thing.
Thus Trump—who has often been accused of “stealing” the Republican Party from its rightful establishment—is in lockstep with actual GOP voters. And Hillary Clinton, who bemoans the end of the United Kingdom’s membership in the planet’s largest free-trade zone, is at loggerheads with what the large majority of rank-and-file Democrats believe. That Democrats, long considered the party of unions and economic protectionism, actually favor free trade more than Republicans is yet one more sign that the two major parties no longer represent viable coalitions of ideologies and interest groups. The current iterations of each party traces back to the mid-1960s, when Southern Democrats started to swith allegiances and Republicans embraced Goldwaterism. What broad agreements each party reached with its constituents seem to have frayed to a point where party leadership seems to be radically out of touch with what members actually believe. That, along with general disbelief in the competency of either party to govern, explains the huge and continuing fall in voter identification with either the Dems or the Reps.
If you are looking for a presidential candidate who believes that free trade and free trade agreements are generally good things, there’s only the Libertarian nominee Gary Johnson, who has consistently criticized Trump’s calls for trade wars with China and other countries and says Clinton’s “answer for everything is more government.”
doesn’t mean forcing Apple to make their iPads and iPhones in the United States, that doesn’t mean a 35% tariff on imported goods….Let’s rule the world with free trade. Let’s bring peace to the world. Let’s involve ourselves diplomatically.
Stocks may have decided to put Brexit in the rear view mirror, but as Deutsche Bank’s Jim Reid lists, there are still numerous outstanding questions.
When will Article 50 be triggered?
Will it ever be triggered?
Will there ever actually be a Brexit?
Who is the next Conservative leader?
Will there be a snap general election?
Will Jeremy Corbyn cling on to the leadership of the Labour Party in spite of a stunning 172/212 MPs in his party supporting a no confidence vote in him? Will the UK have a 2nd referendum?
On any negotiations will Europe play hard ball or compromise?
Will the UK let down swathes of the ‘leave’ voters and strike a compromise deal (eg like Norway) that doesn’t address the immigration issue at the heart of many voters’ fears?
Elsewhere will Italy lose the senate reform referendum in October and could Italy have an EU referendum after a fresh election?
And will the French elections next year be another spoke in the wheel for Europe?
Keep in mind, these are only the known unknowns. As Jim Reid writes, these questions and many more will remain mostly unanswered for many months which is sure to keep risk premiums on the higher side. However yesterday was a day for thinking the glass as being 10% full rather than 90% empty as various theories were distributed about whether Brexit would actually ever happen or whether some market friendly outcome would eventually be seen.
There’s a possibility of such outcomes but we won’t know that for many many months and possibly much longer so expect lots of mood swings ahead as the prevailing mood changes but there was definitely an air that full Brexit wasn’t necessarily a done deal yesterday.
My favourite comment across the day though was from the Luxembourg PM Xavier Bettel who said “Married or divorced, but not something in between. We are not on Facebook with ‘it’s complicated’ as a status”. Those were the days!!
That came alongside a flurry of other chatter from various EU leaders, all of which appeared to turn up the pressure valve on Cameron and the UK. Late in the evening we heard German Chancellor Merkel come out and say that ‘as of this evening, I see no way back from the Brexit vote’ and that ‘this is no time for wishful thinking, but to rather grasp reality’. Leaders from Belgium, Sweden and Denmark all voiced their frustrations and urged the UK to move quickly towards exit so as to reduce the uncertainty. Meanwhile French President Francois Hollande also added that the ‘UK won’t be able to access the single market without applying the rules of freedom of movement’. Interestingly, yesterday French press Le Figaro released an opinion poll which showed 45% of French citizens would be in favour of remaining in the EU, versus 33% against. Given all of the events of the last week, polls like this will only take on more and more focus.
Or not. Judging by the market’s reaction, and assuming the current pace of low-volume levitation, the S&P may be back at pre-Brexit levels in just 2 more days, at which point the entire Brexit episode will be completely forgotten by the algos.
Hillary Clinton said she would do everything she could to “figure out how we can give victims” of revenge porn the support they need, but did not answer directly when asked if she supported a federal law against it.
A U.S. District Court dismissed a lawsuit against Rolling Stone magazine alleging the publication had defamed fraternity brothers from Phi Kappa Psi at the University of Virginia, the purported site of a gang-rape in a now-discredited and retracted 2014 story.
Sen. Ron Wyden (D-Ore.) said he helped author the infamous Section 230 of the Communications Decency Act “to allow the internet to grow and flourish, and prevent lawsuits from crushing new platforms for commerce, education and speech.”
Don’t read too much into the relief rally of the past 24 hours, warns Bloomberg’s Mark Cudmore. While the initial panic may have passed, markets are very far away from having fully priced the impact of the referendum. For a start, there’s still little firm grasp of exactly what the impact will be…
In any major bout of risk-aversion, the sell-offs don’t happen in a straight line; bear markets see declining liquidity and hence heightened volatility.
In that context, perhaps the most notable thing has been the meekness of the relief rally in some assets. European financial services and bank stocks performed well on Tuesday, with their respective industry groups rising more than 2.5%, but those moves are nugatory when viewed against the 17%-plus retreats seen by both sectors through Friday and Monday.
[Doesn’t exactly look like a ‘normal’ buyer is back]
Meanwhile, havens have barely budged, with gold solidly above $1,300 an ounce, German yields are negative out to 15 years and no Japanese government bond pay more than 0.1%.
The situation is further clouded by the quarter-end which means portfolio rebalancing flows are “distorting” the market.
Central banks around the world have also made it abundantly clear they are willing to act to support markets if needed – another complication for the risk-reward decision around trading this event from the short side.
While we can’t put a scale on the economic damage until we know what the future U.K.-EU framework will be, we do know that the economies of the U.K. and many other European countries will be negatively hit.
However, it’s also important to emphasize that this is now a European issue.
Sure, Europe makes up a sizeable portion of the world economy and there’s no doubt this will dent global growth. But with the specific shock-moment behind us, the rest of the world can soon move on and adapt, supported by the fact that global yields have dropped further yet again.
Before the vote, investor cash levels were at the highest level since November 2001 according to BofA Merrill Lynch’s Fund Manager Survey. Once the new quarter begins, that cash will be put to work in a relatively aggressive fashion – just predominantly outside Europe.
Where markets will finish on Friday isn’t clear. Focus on the economics rather than the price-action. There’s an abundance of assets that will flourish in the second half of 2016 – just not in Europe.
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A glance at the very recent market action and once could be forgiven for thinking tradewrs are positiioning for another Fed-QE trade.
For all the expectation of an imminent central bank intervention over the past two days, something which according to Bloomberg was the main catalyst for the stock surge since Monday, so far the world’s money printers have been dead silent: not only is the BOJ trapped and unable to intervene with virtually its entire bond curve trading below 0% (and any further easing will only push it lower), but moments ago the ECB itself chimed in and shot down hopes of more stimulus from Frankfurt when Mario Draghi said moments ago that the ECB is in “no rush” to ease policy after the Brexit vote.
But even more notable, and confirming just how profound the chaos in Europe is in the post-Brexit world, was the mini scandal that just erupted at the EU summit, now sans Cameron, over the fate of Scotland. Here, in an attempt to anger the UK some more, EU commission president Jean-Claude Juncker, in comments to reporters, said that “Scotland won the right to be heard in Brussels.” This takes place just hours before Scottish First Minister Nicola Sturgeon is due to meet with Juncker later Wednesday
But while Juncker’s statement was meant to merely infuriate the UK even more, what he did instead is open a new Pandora’s box, one which invites all secessionist movements in Europe to demand a comparable treatment.
And, sure enough, just moments later, Spain’s PM Rajoy immediately said that he opposes any negotiation by Scotland with the EU adding that “If the UK leaves, Scotland leaves.”
Why the abrupt response? Because Rajoy knows that is Scotland will be heard – and allowed to become independent – then Catalonia and the Basque Country are next.
What happens next? Nobody has any idea. This is what we said moments ago:
Just remember: buy stocks because it is month end, and because central banks which now explained they will not be intervening (unless stocks drop much further) may intervene.
After an exuberant April, spiking hope that everything was awesome with a surge in spending, May has dragged US consumers back down to earth. The 1.1% (revised) jump in spending in April (highest since Aug 09) is over as May’s 0.4% gain is back in the land of ‘normal’ once again. Income rose just 0.2% MoM (less than expected) slowing dramatically from last month to near the weakest YoY growth since March 2014. The savings rate fell once again on the back of this (down 0.1%) to 5.3%.
With YoY Income growth almost the weakest since March 2014 and spending fading…
The death toll from Tuesday’s attack on this city’s main airport has risen to 41, including 13 foreign nationals, with 239 injured, the Istanbul governor’s office said Wednesday. Despite the attack, Istanbul Atatürk Airport resumed business Wednesday morning the WSJ reported. Television footage from inside the airport showed check-in lines functioning normally. Turkish Airlines, the country’s flag carrier, said its flight operations had resumed, though the airport’s arrivals and departures board showed heavy cancellations and delays.
AbduRahman Hussein, a filmmaker from Sana’a, Yemen, was about to eat at one of the terminal’s second-floor restaurants when he heard shots and explosions. “I saw the smoke,” he said in a direct message on Facebook. “Then I started running away.” He posted pictures of shattered glass and people running. The dramatic explosion was caught on tape:
And with the damage now largely accounted for, it’s time to cast blame which Turkey was eager to do when Prime Minister Binali Yildirim said in televised remarks that the Islamic State is likely responsible for the killings. “Once again, it has been understood that terrorism is a global threat to all countries and nations and must be fought through mutual cooperation,” Yildirim said. “Our country has the necessary power and determination to overcome over these heinous attacks.”
Erdogan said in an e-mailed statement that the Istanbul airport attack was an effort to hurt Turkey’s image. “For the terrorist organizations, there’s no difference between Istanbul and London, Ankara and Berlin,” he said, urging all countries to join forces against terrorism.
What is odd is that the Islamic State, traditionally eager to immediately take responsibility for foreign terror operations, has kept silent: there was no immediate claim of responsibility. Both Islamist, leftist and Kurdish militants have carried out bomb attacks in Turkey in recent months, hammering the nation’s vital tourism. Tourist arrivals to Turkey fell almost 35 percent in May from a year earlier, the fastest drop in at least a decade and following a 28 percent decline in April.
Here is what is known: three suicide bombers opened fire and then blew themselves up in rapid succession at the airport around 9:20 p.m., Yildirim said from the Istanbul airport, where he assessed the damage and met with emergency personnel. The attacks left more than 200 people wounded, the governor’s office in Istanbul said by phone on Wednesday. Many of Turkey’s children ended school terms this month, which coincides with the Islamic holy month of Ramadan.
The assaults took place near security checkpoints at the entrance to the airport’s arrivals hall. Justice Minister Bekir Bozdag told lawmakers in parliament earlier that at least one attacker had sprayed gunfire from a Kalashnikov automatic assault rifle. None of the assailants got past security controls, according to a Turkish official who asked not to be identified because he’s not authorized to talk to the press. He said two of them detonated their vests at the arrival hall, and a third in a nearby parking lot.
ISIS lack of confirmation aside, Turkey’s insistence that the Islamic State was behind the latest terrorist act means Turkey has yet another pretext to forcibly cross the Syria border and do with the local “ISIS” forces as it sees fit. How that will affect the already tense geopolitical situation in the area, where both US and alliance forces are active as well as Russian troops and fighter jets, is unknown
Turkey is likely to step up its border security and counter-terrorism cooperation with the U.S., according to Gonul Tol, a Turkey analyst at the Middle East Institute, a Washington research center. With Turkish-backed rebels in Syria on the defensive against Syrian government forces aided by Russia, the attacks “put a spotlight on the government’s unpopular Syria policy,” he added.
“The government will do its best to control the way the media frames the attack and divert attention from the government’s Syria policy to external factors contributing to the growth of ISIS threat,” he said, using another acronym for Islamic State.
As Bloomberg adds, the attack is also the latest to target airports and the aviation industry in the Middle East and Europe, coming three months after suicide bombers struck Brussels airport. It serves as reminder of the vulnerability of airport lobbies and other public places where large numbers of people congregate, said Hans Weber, an aviation consultant in San Diego.
“The probability of copycat attacks goes way up high after one of those attacks,” said Weber, who advised the U.S. federal government on airport security issues following the Sept. 11 attacks. “From a terrorist perspective, Brussels was a success. You can see how they would be motivated to copy that.”
This means that even more terrorist attacks are now likely not only in Turkey, but also in Europe, which has been in a heightened state of terror alerts ever since last November tragic suicide bombings in Paris and this year’s attacks in Brussels.