Month: November 2018

Authored by Charles Hugh Smith via OfTwoMinds blog,

For all we know, the panic selling is Wall Street’s way of forcing the Fed’s hand: stop with the rates increases already or Mr. Market expires.

Markets everywhere are gagging on something: they’re sagging, crashing, imploding, blowing up, dropping and generally exhibiting signs of distress.

Does the market need a Heimlich Maneuver? Is there some way to expel whatever’s choking the market?

So what’s choking the market? There are a number of possibilities: somewhere near the top of most observers’ lists are: rising interest rates, weakening credit growth in China, the slowing of China’s economy, trade wars, European uncertainties, currently centered around Italy but by no means restricted to Italy, Japan’s slowing economy, an over-supply of oil, the rolling over of global real estate markets, geopolitical tensions and various technical signals that suggest the 10-year Bull market in just about everything financial is ending.

That’s a lot to gag on. Take a quick glance at the effective Fed funds rate chart below: the Fed funds rate is up, up and away, accelerating to the moon. No wonder Mr. Market is holding his throat and making panicky motions of distress.

Which is worse–too much oil or a scarcity of oil? Depends on who you ask. Suppliers are panicking with prices pushing $50/barrel while consumers were anxious when prices pushed $80/barrel.

Who can perform the Heimlich Maneuver on Mr. Market? The European Central Bank has been “doing whatever it takes” for 6+ years, and the central banks of Japan and China have had the pedal to the metal of credit expansion / asset purchases for years.

That pretty much leaves the Federal Reserve as the only rescuer who has a chance to perform the Heimlich Maneuver, which in this case would be some forceful ejection of the fear that the Fed will keep raising rates aggressively even as Mr. Market is writhing on the floor gasping.

For all we know, the panic selling is Wall Street’s way of forcing the Fed’s hand: stop with the rates increases already or Mr. Market expires. And as we all know, Mr. Market is everything to those managing perceptions of the economy.

*  *  *

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

via RSS https://ift.tt/2FzGgkY Tyler Durden

After beating expectations of a decline in September (thanks to a 118.7% MoM spike in defense aircraft spending), October was also pegged for a notable decline and Durable Goods delivered a crushing blow, plunging 4.4% MoM (against expectations of a 2.6% decline).

Thanks in large part to a 59.3% MoM collapse in Defense aircraft spending… (defense capital goods plunged 16.6% MoM and non-defense aircraft also dropped 21.4% MoM)

This is the biggest dollar drop in defense aircraft spending since 9/11/2001…

 

Year-over-year durable goods growth slowed notably to +6.65%…

Perhaps worst of all, a proxy for business spending, Cap Goods Orders non-defense were unchanged in October (after a downward revised 0.5% MoM drop in September) missing expectations of a 0.2% rise…

Certainly not the ‘hot economy’ that The Fed seems so scare of.

via RSS https://ift.tt/2Ko5GAJ Tyler Durden

While the earlier trial balloon from MNI that the Fed may end rate hikes in the spring did little to push futures higher, perhaps because even the algos quickly saw through its sheer market-moving propaganda which flies in the face of the Fed’s 3 dots expected in 2019, futures did jump on a report from SCMP that Trump trade advisor and notorious China hawk, Peter Navarro, has been excluded from the guest list when US President Donald Trump meets his Chinese counterpart Xi Jinping in Buenos Aires on December 1.

“Navarro will not attend the summit,” an unnamed source told the South China Morning Post, adding that Beijing and Washington were still in the process of finalizing the list of advisers taking part in the key diplomatic event that is expected to influence trade and economic relations between the world’s two biggest economies.

The Post reported earlier that Beijing and Washington are in intense preparatory talks for the summit – a dinner meeting at which each president is likely to be accompanied by six aides.

While the report has yet to be confirmed or denied by the White House, the Trump administration’s decision to exclude Navarro – perhaps the key figure behind the trade war with China – from the Argentina dinner has been quickly interpreted by the market as favorable to the potential outcome of next week’s summit, and comes amid signs from both sides that they want to make progress on the dispute at the summit, with futures promptly hitting session highs on the report.

In setting the stage for the upcoming meeting, White House chief economic adviser Larry Kudlow said in an interview with Fox Business News on Tuesday that Trump was trying to “inject a note of optimism” into trade talks with China.

“He [Trump] believes that China would like to have a deal,” Kudlow said, adding there were “very detailed communications” between China and the US taking place at all levels of government.

With Navarro excluded, the SCMP notes that other candidates to accompany Trump to the dinner include Kudlow, US National Security Adviser John Bolton, Secretary of State Mike Pompeo, Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross, US Trade Representative Robert Lighthizer and US ambassador to China Terry Branstad.

In recent weeks, Trump’s administration is divided between hardline hawks like Navarro and Lighthizer seeking maximum concessions from China versus pragmatists like Kudlow and Mnuchin who are more willing to seek a compromise – and that will make it more difficult for Trump and Xi to reach any deal.

As reported last night, Lighthizer, the US trade chief and a key architect of the tariff war, released a report on Tuesday saying China had so far failed to change the behavior that had prompted the US to impose tariffs on around US$250 billion worth of Chinese goods.  He made the statement in conjunction with an update to the US investigation into China’s intellectual property theft under Section 301 of the 1974 Trade Act. That investigation and its initial report in March provided the legal basis for Trump to impose tariffs on nearly half of all US imports from China.

“This update shows that China has not fundamentally altered its unfair, unreasonable and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation,” the trade chief said in a statement.

Still, it is too early to call a truce in the ongoing trade war: Alan Wheatley, an associate fellow of international economics at British think tank Chatham House, said US-China relations would be bumpy with or without an agreement on a trade war ceasefire in Argentina.

“The US has made it clear that it regards China as posing a much broader strategic challenge to US economic and military supremacy,” Wheatley said. “A truce would spell welcome short-term relief to nervous global markets but wouldn’t be a game-changer for relations between the two.”

via RSS https://ift.tt/2qWYbYr Tyler Durden

One day after President Trump once again laid bare his primary motive for giving Saudi Arabia a pass over the killing of Jamal Khashoggi (Trump told a group of reporters that oil prices would go “through the roof” should there be a rupture between the US and the Kingdom), the president once again left little room for subtlety by thanking the kingdom for helping to facilitate this month’s record-setting slide in oil prices.

Hailing the drop in oil prices from multi-year highs as a “big tax cut” for Americans, the president said that while Americans should be thrilled with the drop, he would like to see prices move even lower. “Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!”

Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!

— Donald J. Trump (@realDonaldTrump) November 21, 2018

Trump’s congratulations comes after Saudi Arabia reportedly raised production for a second straight month in November. If the Saudis had their druthers, they’d prefer oil prices above $80 a barrel. But we’re not the only ones who have pointed out the explicit quid-pro-quo here:

A few weeks ago: Trump wanted lower oil prices heading into midterms, Saudis needed international political support after killing of Khashoggi.

Yesterday/today: Trump stands with Saudi Arabia despite Khashoggi killing, Trump thanks Saudi Arabia for lower oil prices.

— RANsquawk (@RANsquawk) November 21, 2018

Of course, not everybody is as excited about the rapid move lower in oil prices.

via RSS https://ift.tt/2DQRhwv Tyler Durden

Blain’s Morning Porridge from Bill Blain

Gamma Ray Bursts, El-Erian on market disruption, Tech Stocks and Italy Bonds.

“I’ve always admired Capital Mainwaring.” [I don’t!]

I must stop reading newspapers. They are scary. Why worry about stocks and bonds when we’ve apparently got a pinwheel Nebula spinning at 12mm km/hour, named after the Egyptian God of Chaos (Apep), about to go Nova and its practically right next door – only 8000 light years away! That’s like the desk next to me in galactic terms! If a Gamma Ray Burst from such an event hit we are all literally toast. Global Crash or Supernova? You choose. (https://www.thetimes.co.uk/article/dying-star-could-be-a-time-bomb-rgrw2mvkq)

Rather puts things in perspective….

But, let’s assume a Supernova is not going to happen before I collect my pension.. so back to the day job.

Another bad day in stocks and still it’s the Tech companies that are leading the downside. Oil is taking a spanking, and if there was anything positive to say about the bond markets, bless me, but I can’t find it.

The papers today are full of fear… “buy-the-dip no longer working”, “short-sellers squeezed”, or “Tech Skid Becoming a Full-Blown Crash”. The extraordinarily cold weather in the US, and the threat it raises to the masses going Black Friday shopping, is being touted as yet another nail in the stock-market coffin.

However, relax. It all makes sense. Kind of.

In the FT there is a rather good article by Mo-the-Tash (sorry if anyone is offended by the nickname we’ve given Mohammed El-Arian – but its affectionate!) Let me give you a random sprinkling of phrases from his article “Risks rise for investors as developed economies falter”

Market choppiness, technical dislocations, behavioural biases, repressed volatility, market vulnerabilities, tighter liquidity, Fed balance sheet contraction, delicate economic conditions, drivers of growth – business investment, household consumption and government stimulus, economies losing momentum, instability and dislocation, danger of passive investing, technical fragility, asymmetrical responses, rollercoasters and volatility, loss-aversion biases, and “tail-events”

i’d put it top of your reading list this morning. Breathe deep, relax and sip a coffee.

Breathe out, savour the taste, and consider what’s fundamentally changed?

Figure out what it means for solid stocks as they become more investible at more realistic prices. The Age of Financial Realism is upon us!

I have my reservations about some of the FAANG names, but after I dared to present heretical thoughts that maybe US Tech stocks have had their day, I got a very sharp email from a chum of mine who evangelises the divine truth that US Tech Stocks are going to rule the world.

He points out the FAANGs – Facebook, Amazon, Apple, Netflix and Google – have become  effective monopolies and unregulated utilities. Monopolies are about access – and that’s just one way Amazon gets paid. My chum even suggests “Amazon, Facebook and Google paid good money for GDPR; a finer moat around their monopolies cannot be imagined!” He calls the recent stock price moves.. “noise”.

In the US 13% of retail sales are e-commerce. In the UK its 18%, and every penny you spend on the net is another penny you didn’t spent at John Lewis.

There is certainly some regulatory danger around the FAANGs – as Apple’s CEO has acknowledged – but even that spells opportunities. The breakup of Standard Oil last century and the telephone companies more recently spurred a feeding frenzy of M&A.

There is noise around the stock prices of the FAANGs at present, but don’t let that distract you from the underlying trend!

* * *

Meanwhile, in a galaxy far far away, an interesting question from ECB governor Nowotny: “Who will purchase the roughly Euro 275 bln of debt Italy expects to issue in 2019?”

I suspect Italian banks will be “encouraged” to take that bet.

I suspect they already are – the street word is the big foreign buyers of BTPs just happen to be Italian banks in London. Here’s what I expect will happen, and wonder if it’s a trade worth following:

The Italians and others will make a judgement call the ECB and Italy will be complicit partners in a “anything-it-takes Euro” fudge. Even as the ECB and EU rant at Italy about budget deficits and demands it sticks to the rules while Italy blusters about leaving the Euro or running a parallel dimension currency, the ECB or one of the resolution vehicles will quietly offer the banks unlimited Long-term Repo facilities at effective zero rates on their BTP positions, because if they don’t then the Italian banking system will disappear in a puff of logic – thus precipitating the end of everything. And, assuming Italy gets downgraded to junk? Assume the ECB will fudge that as well….

If it doesn’t happen.. well that’s a whole new game completely…

via RSS https://ift.tt/2Adv2MU Tyler Durden

As FAANG stocks lead the market lower during what has become a relentless Q4 selloff, Amazon is hoping to reassure anxious investors that the company’s relentless expansion and revenue growth will continue. To wit, the company is taking another big step toward establishing itself as the American WeChat or Alipay as it seeks to become the dominant player in electronic consumer payments in the US and beyond. According to the Wall Street Journal, the e-commerce giant is hoping to undercut Apple’s Apple Pay by persuading more brick-and-mortar merchants to accept its Amazon Pay digital wallet.

As it tries to build a foothold in payments outside of its Amazon Go stores, the company is reportedly focusing on building partnerships with restaurants and gas stations (businesses that have yet to be scalped by the Bezos revenue-absorption machine). To entice owners to give Amazon Pay a try, the company is dangling what appears to be a pretty enticing carrot: Amazon is promising to lower processing costs at a time when so-called “interchange” fees charged by Visa and MasterCard have been rising.

The mechanics of how customers will use the soon-to-be rolled out Amazon Pay haven’t been revealed: It’s unclear whether customers will scan product barcodes on their phones, or simply tap their phones at checkout kiosks. Apple has a slight advantage in the digital payments space – more than 5 million US merchants now accept its Apple Pay platform. However, unlike their Chinese peers where digital cash has become the de facto standard, US consumers have been reluctant to adopt digital wallets; fewer than 1% of all US card transactions. In China, paying street vendors in cash has become a thing of the past, as AliPay, TenPay and WeChat Pay have attracted more than half a million users.

Amazon Pay has been growing in digital sales. Over the past year, the number of online shoppers using Amazon Pay outside of Amazon.com has climbed to some 14% of online shoppers, according to Bernstein Research. But in-person payments are still lacing; Amazon is also pushing customers at its Whole Foods stores to start using Amazon Pay, which so far is only in regular use at Amazon’s handful of Amazon Go locations. 

The Amazon Pay push in the US follows the company’s introduction of the service in Japan, where Amazon believes it will have an easier time convincing consumers who already use digital wallets to switch to Amazon. Amazon Japan has partnered with Nippon Pay to utilize the service at businesses in Tokyo and Fukuoka, according to Nikkei Asian Review.

If the progress in China has any bearing on the pace of adoption in the US, soon, paying with cash – and even physical credit cards – will be a thing of the past. For better or worse, global consumer commerce is inexorably moving toward a cashless society. And Jeff Bezos wants to make sure that his company will take an early lead.

via RSS https://ift.tt/2OW54Tw Tyler Durden

Yields on Italian government bonds fell on Wednesday morning as the euro climbed following reports that Italy’s ruling coalition might be open to reviewing its budget plan. Though the Italian government swiftly denied the reports about being open to changes in its plan, the moves in the euro and yields persisted, as analysts said they didn’t appear to be news driven.

The spread between the 10-year BTP and 10-year German bund tightened to tightening as much as 16 basis points to 309 basis points.

Italian bank shares also eased off their highs of the session after the denials, but remained 2% higher on the day after sinking to two-year lows on Tuesday.

And in other signs that the confrontation between Italy and Europe is heading toward a precipice, the European Union confirmed Wednesday morning that it would officially reject Italy’s budget plan, an unprecedented move that will likely lead to billions of euros in fines being levied against Rome for violating the bloc’s budget rules.

The Italian government calls for an expansion of the country’s budget deficit to 2.4% of GDP to finance tax cuts, expanded pension benefits and other handouts to unemployed and desperate Italians.

“Our analysis today suggests that the debt doesn’t respect our budget rules. We conclude that opening a proceeding against excessive spending based n the debt is then justified,” the EU said, according to ANSA.

The Italian plan represents a “particularly grave disrespect” of EU budget rules, particularly the recommendation from the meeting of EU ecofin ministers last July 13. The statement confirms Brussels’ previous analysis.

European Commission Vice President Valdis Dombrovskis said Italy’s aggressive spending would eventually have a negative impact on growth.

“Despite already having very high debt, Italy is essentially planning significant additional spending, instead of the necessary budgetary prudence, and I want to say that the impact of this maneuver on growth will probably be negative from our point of view,” Dombrovskis said.

“There are doubts and questions about growth” forecast in the Italian plan and, despite the clarifications requested, these persist,” said EU Commissioner for economic affairs Pierre Moscovici. “We have no answers to these questions: where does this growth come from nor who will pay the bill,” apart from how the plan will increase the “risks to Italian citizens, banks and businesses” by increasing the deficit and debt.

Moscovici added that the EU would give member states a chance to comment before opening its excessive debt proceedings, but he said he doubts that anybody would agree with the Commission’s analysis.

“Today we are not opening the excessive deficit procedure. However, it is undeniable that we see this is the path which is opening up ahead of us,” EU Economic and Monetary Commissioner Pierre Moscovici told reporters in Brussels. “It is now up to the member states to give their feelings and their views on the basis of our report over the coming two weeks.”

“To be quite frank, I have no reason to believe that they would disagree with what the commission has done by way of analysis,” Moscovici said.

Prime Minister Giuseppe Conte responded that the Italian government is convinced that the plan is “excellent” and in the best interest of the Italian people and Europe. Conte said he hopes to convince European Commission President Jean Claude Juncker during a Saturday meeting. Deputy Prime Minister Matteo Salvini said he expects a letter from the EU announcing its punitive measures to arrive around Christmas.

Analysts said the procedings should take several months.

“This procedure will take several months, but stands to keep (government bonds) and the Italian banking sector under pressure. Favor euro underperformance in Europe and probably further choppy euro-dollar trading in a $1.1350-$1.1450 range,” ING Bank analysts told clients. 

The relief from tightening financial conditions was a surprising but not unwelcome development for investors, but with neither side showing any indication of backing down – and the Brexit threat still looming for the euro – they could prove short-lived as Conte prepares to travel to the Lions Den this weekend for what looks to be an epic confrontation with Juncker.

via RSS https://ift.tt/2S8LSUN Tyler Durden

After yesterday’s historic rout in the market, there were signs of stabilization in overnight trading with most markets trading higher, with the key catalyst a report from MNI that the Fed may end its rate hikes as soon as this coming spring.

US stocks were set to open sharply firmer after two days of losses that wiped out the S&P500’s gains for the year and left the tech-heavy Nasdaq index teetering on the brink of falling into the red. Losses were concentrated in the technology sector, as investors dumped their holdings of FAANG shares and pushed the Nasdaq index to seven-month lows and energy shares too had dropped in line with a 6 percent oil price slump S&P 500.

“High-flying momentum stocks have come off in a fairly spectacular fashion. At one point Apple and Amazon accounted for 40 percent of U.S. equity gains and people were just recycling money into the winners,” said David Vickers, senior portfolio manager at Russell Investments. “That’s come off the boil and set the cat among the pigeons… We’ve seen a lot of reflexivity, when selling begets selling, the market starts to turn over, people take profits, it leads to another leg down and so on.”

That fed through to Asia on Wednesday, taking MSCI’s index of ex-Japan Asia-Pacific shares almost half a percent lower, but it clawed most of the losses to trade flat, with MSCI’s all-country benchmark was flat too, attempting to snap two days of falls.

Chinese stocks closed in the green and near session highs, rebounding from Tuesday’s drop as Asia closed mixed, but it was Europe that showed the most promise with the Stoxx600 solidly in the green, led by Italy where BTPs rallied from the open, after a report that Deputy PM Salvini may be open to budget revisions; Salvini then denied the report, clarifying that he’s only open to tweaks and won’t compromise on the main issues.

Italians bond yields fell up to 16 basis points initially, putting 10-year yields on track for their biggest daily drop in almost a month but the market gave up some of its gains after the denials. Sentiment was then dented again, and the EUR snapped lower after Ansa reported that the European Union has rejected Italy’s 2019 budget – as expected – and that the Excessive Deficit Procedure would be warranted on Italy. Still, despite the expected escalation in the standoff between Italy and Europe, the Estoxx and DAX pushed higher but were off best levels with banks and telecoms leading gains as Italy’s FTSE MIB outperformed peers with local banks +1.5%.

However, it was a report from wire service MNI just after 6am that caught the market’s attention, when Market News International reported that the Federal Reserve is starting to consider at least a pause to its gradual monetary tightening and could end its cycle of interest rate hikes as early as the spring, citing senior people at the Fed they didn’t identify.

While a Dec. rate hike is all but assured, the debate will become more lively beginning at the central bank’s March meeting and certainly by June, MNI says. The paradox, of course, is that according to the Fed’s own dot plot there will be at least 3 hikes in 2019, so for one or more Fed presidents to engage in such an ECB-esque trial balloon of defiance of Chairman Powell must mean that the disagreements within the FOMC over the future of monetary policy are truly boiling over.

While it is still very much unlikely that the Fed will halt its rate hikes in the spring absent a rout in stocks and bonds, the MNI trial balloon sent futures back to session highs…

… and slammed the Bloomberg dollar index back to session lows.

US Treasuries and the Eurodollar strip also pared losses and faded Wednesday’s bear steepening after the MNI report; that said, Fed rate hike expectations are steady on Wednesday morning with December 2018 pricing in 19bps, and the next 25bps increase expected in March 2019. The U.S. 10Y TSY yield is 1bp to 3.07% with December T-Note futures -20 ticks to 119-04+; U.S. 2/10s +1bp to 26bps; U.S. 5/30s steady at 43bps.

Today’s modest gains immediately sparked positive commentary: “We view the sell-off as overdone and a bull-market correction, with valuations that have become more compelling,” Jason Draho, head of asset allocation, Americas, at UBS Global Wealth Management wrote in a note. “We recently increased our overweight to global equities on the view that the markets are already pricing in growth and trade risks.”

Still, while the Fed trial balloon helped preserve upside momentum in risk assets, investor sentiment remains susceptible to minute to minute volatility that’s rocked markets since October as traders have to contend with President Trump tape bomb unpredictability and demands for lower rates as corporate credit spreads at two-year highs reflect investor angst about borrowing costs.

In FX, the euro got an early boost and Italian bonds rallied after the abovementioned La Stampa report that Italy’s Deputy Prime Minister Matteo Salvini may be open to budget revisions; it trimmed gains after his League party denied the report, and as the EU was said see Rome’s budget at serious non-compliance risk. The pound was little changed against the dollar, after earlier rising on the back of broader weakness in the greenback; Britain’s budget deficit widened in October as spending rose at the fastest pace in 11 years. Australian dollar rebounds from a one-week low hit very early in Asia as a recovery in oil prices combined with exporter demand to trigger short-covering ahead of U.S. Thanksgiving holiday.

In commodities, WTI also halted yesterday’s dramatic rout near $54 a barrel after API showed that U.S. crude inventories unexpectedly fell last week against doubts over OPEC’s plans to cut output. Emerging-market shares and currencies were stable. Bitcoin advanced after a recent sell-off

Expected data include mortgage applications, durable goods orders, jobless claims and existing home sales. Deere and Metro are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.5% to 2,653.75
• STOXX Europe 600 up 0.5% to 352.66
• MXAP down 0.4% to 149.96
• MXAPJ down 0.1% to 480.09
• Nikkei down 0.4% to 21,507.54
• Topix down 0.6% to 1,615.89
• Hang Seng Index up 0.5% to 25,971.47
• Shanghai Composite up 0.2% to 2,651.51
• Sensex down 0.7% to 35,212.54
• Australia S&P/ASX 200 down 0.5% to 5,642.77
• Kospi down 0.3% to 2,076.55
• German 10Y yield rose 1.6 bps to 0.366%
• Euro up 0.1% to $1.1381
• Italian 10Y yield rose 1.8 bps to 3.241%
• Spanish 10Y yield fell 0.9 bps to 1.638%
• Brent futures up 1.8% to $63.63/bbl
• Gold spot up 0.2% to $1,224.29
• U.S. Dollar Index down 0.1% to 96.77

Top Overnight News

• German Chancellor Angela Merkel warned the U.K. it can’t set unilateral terms for leaving the European Union as Prime Minister Theresa May heads to Brussels to try to complete a contentious Brexit deal
• The Brexit divorce deal can’t be improved, and EU governments have made that clear, said Northern Ireland Secretary Karen Bradley
• Saudi Arabian oil production surged to a record near 11 million barrels a day this month after the kingdom received stronger-than-usual demand from clients preparing for a disruption in Iranian supplies, according to industry executives who track Saudi output
• Oil at one point slumped more than 7 percent in London and New York on Tuesday. The selloff — just like the previous Tuesday — was exacerbated by banks selling futures to rebalance their positions as prices fell, said people active in the market who are familiar with the matter
• OPEC’s bad dream only deepens next year, when Permian producers expect to iron out distribution snags that will add three pipelines and as much as 2 million barrels of oil a day
• The U.S. on Tuesday accused China of continuing a state-backed campaign of intellectual property and technology theft even as the world’s two largest economies have descended into a tit-for-tat tariff war

Asian stocks mostly weakened as the global stock rout continued into the region following the losses in US, where the DJIA dropped over 500 points to turn negative YTD and in which energy names were pressured as oil slumped nearly 7%. ASX 200 (-0.5%) and Nikkei 225 (-0.3%) were led lower by spill-over selling seen across the commodity-related sectors, while Wesfarmers shares plummeted nearly 30% after the spin-off of its Coles unit which had its stock market debut today. Hang Seng (+0.5%) and Shanghai Comp. (+0.2%) opened with firm losses but then rebounded off their lows with price action choppy amid ongoing trade uncertainty and after criticism from USTR Lighthizer’s report that China has not altered its unfair practices and appears to have conducted further unreasonable actions in recent months. Finally, 10yr JGBs failed to benefit from the widespread risk averse tone with price action subdued amid a lack of BoJ presence in the bond market and after the weakness in T-notes as US investors closed positions heading in to Thanksgiving.

Top Asian News

• The American Carnage Isn’t Tanking Stock Markets in Asia
• China Refrains From Injecting Cash for Longest Time Since August
• Beijing to Judge Every Resident Based on Behavior by End of 2020
• China Said to Eye Steel Mega-Deal as Baowu Chief Joins Rival
• Yuan Debt in the Bag for Philippines as Xi-Duterte Ties Grow

European equities are higher across the board (Eurostoxx 50 +0.8%) as the region stemmed the stock rout seen in Asia and Wall Street. Italy’s FTSE MIB (+0.6%) was initially outperforming with Italian banks higher amid initial reports from Italian press that Deputy PM Salvini could potentially be open to budget revisions, which were later dismissed by League sources ahead of the budget ultimately being rejected. In terms of sectors, financial names lost the top spot to telecom names, who are outperforming after French telecoms jumped following comments from Orange (+1.7%) CEO which renewed M&A gossip. Elsewhere, Indivior (-13.6%) fell to the foot of the Stoxx600 (+0.4%) after the Co. lost a US court ruling that had prevented Dr. Reddy’s from selling a generic version of a treatment for opioid addiction.

Top European News

• Merkel Warns U.K. It Can’t Dictate Brexit Terms for EU Summit
• Rudd Says Parliament Would Block No Deal: Brexit Update
• Laundromat Whistle-Blower Testifies in Brussels: Danske Update
• Nyrstar Wins Lifeline From Trafigura With $650 Million Deal
• Airbus Names New CFO, COO to Replace Wave of Exiting Execs

In FX, the DXY index has maintained its recovery momentum into the midweek session, but is off best levels amidst a welcome reprieve in riskier assets and broad sentiment ahead of Thanksgiving. The DXY has drifted back from another uptick towards 97.000, though remains underpinned ahead of 96.500 and recent lows. The Greenback also retains an underlying bid as G10 and EM counterparts struggle to recoup losses beyond round number/psychological/technical resistance against the backdrop of heavy option expiries at strikes within close proximity to prevailing prices (and with major fundamental issues still prescient of course).

• EUR/CAD – The single currency is holding up relatively well given more toing and froing on the Italian budget, but ultimately ongoing recalcitrant stance from Rome after reports about potential revisions were renounced in advance of the EU’s official rejection and potential if not probable EDP implementation (scheduled release time 11.00GMT, but appears to have been preannounced). However, 1.1400 is proving almost as obstinate and a decent 1 bn option expiry could well be keeping the headline pair in check. Meanwhile, the Loonie is off worst levels after sliding through 1.3300 and could be gleaning some encouragement from a partial recovery in oil prices in the run up to Canadian wholesale trade data.
• GBP/CHF/JPY – All bucking the overall trend, albeit barely in terms of the Pound and Franc, as Cable pivots 1.2800 and Eur/Gbp straddles 0.8900 on Parliament approval aspirations as UK PM May heads to Brussels for more discussions on the Brexit draft and the coup to oust her seems to have fizzled out. Meanwhile, Usd/Chf has only tentatively bounced from near 0.9900 lows within a 0.9935-55 range vs Usd/Jpy back on the 113.00 handle vs a base around 112.30 at one stage on Tuesday when risk-off flows were rife, but bidding interest prevented further downside. Note, a raft of option expiries could be key into the NY cut, stretching from 111.90-112.00 to 114.00 and totalling some 11 bn.
• EM – Rand in focus for several reasons, as Usd/Zar hovers near 14.0000 ahead of Thursday’s SARP policy meeting and following softer than expected SA inflation data, with a decent 1.1+ bn options expiring between 13.9000-14.0000 along with speculation about more strike action.

In commodities, WTI (+1.6%) and Brent (+1.4%) took a breather from yesterday’s selloff, where prices fell almost 7% with the decline attributed to supply concerns, negative risk sentiment and Trump’s protective approach to Saudi relations. Prices are underpinned by the latest API inventory data which printed a surprise drawdown in headline crude stockpiles. Traders will be keeping an eye on today’s DoE release for any hints of increased US shale production. Today will also see the release of the EIA natural gas storage data, which has been rescheduled due to the US Thanksgiving Holiday. Elsewhere, the metals complex is in positive territory with gold (+0.2%), silver (+0.7%) and copper (+0.5%) all supported by the pullback in the USD. Goldman Sachs said slump in oil reflects over supply concerns for 2019 and that technical position factors have exacerbated the volatility, while it also cited low liquidity heading into Thanksgiving as well as broader selling in commodities and cross-assets amid rising growth concerns.

US Event Calendar

• 8:30am: U.S. Durable Goods Orders, Oct. P, est. -2.6%, prior 0.7%; Durable Goods Orders Less Transportation, Oct. P, est. 0.4%, prior 0.0%
• 8:30am: U.S. Initial Jobless Claims, Nov. 17, est. 215k, prior 216k; Continuing Claims, Nov. 10, est. 1650k, prior 1676k
• 10am: U.S. U. of Mich. Sentiment, Nov. F, est. 98.3, prior 98.3

 

via RSS https://ift.tt/2qYhuAX Tyler Durden