Tag: news

In a huge and surprising development, Russian warships will hold live-fire exercises in eastern Mediterranean waters claimed by Turkey starting next week, amid the ongoing and increasingly militarized dispute over maritime boundaries and hydrocarbon drilling rights which has put Turkey and Greece on a war footing.

Russia did not immediately confirm the announcement out of Ankara, subsequently reported by Turkey’s TRT World, which seized upon the news in relation to its controversial gas exploration claims: 

The announcement on Wednesday advises sailors not to enter the drilling zone and in areas where ships are conducting research, Turkish Naval Forces Hydrography and Oceanography Department said in a statement.

According to naval alerts, Russian forces will conduct two separate shooting exercises on both sides of Cyprus island.

The two-phased Russia’s shooting exercise in the eastern Mediterranean will take place from September 8-22 and the other from September 17-25.

It appears Turkey may be attempting to initially frame the development as in its favor, but that’s anything but certain, and actually appears the opposite. 

Associated Press noted that “It’s unclear why NATO-member Turkey would announce such drills on Moscow’s behalf” — recent limited military cooperation, for example the transfer of the S-400, notwithstanding.  

The drills are being interpreted as an attempt of Russia to remind NATO, locked as it is in a dispute between its two members Greece and Turkey, of its significant naval presence and influence in the eastern Mediterranean. 

Turkey’s navy is reportedly urging Moscow not to interfere in its ongoing seismic studies by ships near Greece’s easternmost islands as well as near Cyprus.

According to Bloomberg, this is in no way a signal in favor of Turkey’s maritime claims:

Russian Navy spokesman Igor Dygalo didn’t immediately respond to requests for comment. Igor Korotchenko, head of the Centre for Analysis of World Arms Trade in Moscow, said the exercises were a show of force by Russia against NATO and not an effort to back Turkey.

“We do have strong economic and defense ties with Turkey but our policy is to avoid backing either side in this dispute,” he said by phone. “Turkey is quite capable of looking after its own interests.”

It appears Turkey’s markets agreed, given the lira just dropped to a record low against the dollar, also following rapidly increased inflation in August (year-on-year inflation of 11.77 percent).

Reuters notes the lira “weakened some 0.25% to 7.4100 against the dollar at 0744 GMT, its weakest level on record, from a close of 7.3910 on Wednesday.”

Jacob Blake Sr. – the father of a Jacob Blake, a black man who was shot four times by police in Kenosha, WI while violating a restraining order for felony sexual assault – is a giant antisemite, anti-Christian, and loves Islamic hate-preacher Louis Farrakhan.

And if you’re Joe Biden looking to pander to ‘woke’ Democrats, you meet with said antisemite on Thursday in a bid to score political points over the now-paralyzed Blake Jr., whose shooting sparked violent riots in Kenosha and added gasoline to anti-police protests sweeping the country.

Blake Sr., a frequent CNN guest and presence at Black Lives Matter protests since the shooting, has a history of making bigoted comments over social media – which Biden apparently doesn’t mind. He’s also a ‘very interesting’ person.

Clearly a thinking man – who really hates Jews.

Via Breitbart:

Other posts frequently use racist terms against white people, such as “crackers” and others. There are also posts promoting Louis Farrakhan, the racist, antisemitic leader of the Nation of Islam, and denigrating Christianity as a way to fool black people. -Breitbart

We can only imagine what he and Biden will discuss.

For those that have either mocked or merely ignored the idea that big government may be (is) using the pandemic as an “excuse” to exercise more control over every aspect of your life, we present: Exhibit A.

Zoe Buhler is a 28 year old pregnant mother who lives just outside of Melbourne, Australia. She was handcuffed in her own living room on Wednesday afternoon and charged with “incitement” after officers entered her private property (with a search warrant) and began reading Buhler her rights.

What could have prompted such a robust response from law enforcement? Buhler made a Facebook post that allegedly incited a “anti-lockdown protest” in Victoria. “Anyone from Ballarat please join us in our fight for freedom and human rights!” she wrote on the page. 

Video shows Buhler trying to be reasonable and plead with officers, informing them that she has an ultrasound “in an hour”.

AUSTRALIAN POLICE ARREST WOMAN FOR ANTI COVID LOCKDOWN FACEBOOK POST, SEIZE ALL COMPUTERSpic.twitter.com/ZSyc9qPxjK

— The_Real_Fly (@The_Real_Fly) September 2, 2020

She asks the officers, bewildered: “Excuse me, incitement for what, what on Earth? I’m in my pajamas, my two kids are here. I have an ultrasound in an hour because I’m pregnant.” She insisted she hadn’t broken any law by putting up the post and offered one more than one occasion to simply take the post down.

“Actually you are, that’s why we’re arresting you in relation to incitement,” the officers told her. Meanwhile, her boyfriend also tried to offer up some common sense, stating: “How about she just doesn’t do the event? It’s not like she’s done it, she made a post.”

“You’ve already committed the offense,” police responded.

In addition to arresting the pregnant mother over a Facebook post, police then informed her that they had a search warrant and that they needed to seize and confiscate all electronic devices in her home. 

Friends of Buhler weighed in to the Daily Mail, stating: “This is absolutely disgusting!! Why don’t they do their job and catch some real criminals. This fear mongering is ridiculous.”

Meanwhile the Victoria police said that fines will be issued to anyone that considers attending the protest anyway: “We will have no hesitation in issuing $1,652 fines to anyone who is breaching the restrictions on the day, or making arrests if necessary.” The police contend that the protests “put lives at risk”. 

Alan Jones of Sky News wrote on his Facebook page: “Thankfully I am not the only Australian who thinks this is appalling, disgusting and disgraceful. The only person guilty of incitement is the Premier of Victoria. His outlandish grab for power, his disdain of any accountability is forcing people to behaviour simply designed to take back their freedom.”

Buhler was ultimately charged with incitement and released on bail. She is due in court January 25. The post has been taken down. 

Submitted by Christopher Dembic, head of macro analysis at Saxo Bank

Summary:  The consensus expects a mixed NFP report for the month of August characterized by a new decrease in the official unemployment rate (U-3), a slowdown in payrolls and a new rise in the broad unemployment rate (U-6). There will be two major points of interests. First, we expect the NFP report will be boosted by massive hiring in temporary Census workers, thus giving a misleading image of the real unemployment trend. Secondly, it is likely that the recent boom observed in public-sector education employment will be normalized or reversed in August due to the spread of the virus.

* * *

A mixed U.S. Non-farm payrolls report for the month of August is expected. On the upside, the unemployment rate (U-3), which is the most followed indicator by market participants, is forecasted down at 9.8% from 10.2% in July, which would be the lowest level reached since the pandemic shutdowns started. On the downside, the consensus amongst economists expects that the broad measure of unemployment, called U-6, which includes the total unemployed plus all persons marginally attached to the labor force and the total employed part time for economic reasons, will increase for the first time since April to 17.3% versus 16.5% in July. The rise in the U-6 unemployment rate is likely to reflect the impact of COVID-19 resurgence in some regions and the implementation of further social distancing measures. Finally, payrolls are forecasted to rise 1.4 million in August, down from 1.763 million in July. If confirmed, it would be the smallest gain since May, when the lockdown started to be lifted in some states.

We expect the NFP report will be artificially boosted by the hiring of hundreds of thousands of temporary Census takers. In a recent blogpost, Bill McBride pointed out that the U.S. Census Bureau has recently released an update (see here) on 2020 Census Paid Temporary Workers. As it is the case every ten years, the Census Bureau carries out a count of every resident in the United States. To do so, it hires a very large number of temporary Census takers. In the July employment report reference week (from July 12 to July 18), the government hired about 50,000 workers and this number jumped to 288,204 in the August reference week (from August 9 to August 15).

Said differently, the August BLS employment report is likely to be artificially boosted by the hiring of 237,800 new Census takers.

Given these jobs are temporary and massively impact total payrolls, we think the right way to assess the underlying employment trend consists in subtracting from the headline figure the change in the number of Census takers. This adjustment method may sounds a bit unconventional since we use both seasonally adjusted and non-seasonally adjusted data but this is the only way to have a better understanding of the real state of the U.S. labor market.

Finally, a normalization or reversal in public-sector education employment may happen after July’s boom due to the spread of the virus. In the July report, we have seen an unusual large increase in local and state government education hiring (for a total of 245,000).

The BLS noted:

“Typically, public-sector education employment falls in July, but declines occurred earlier than usual this year due to the pandemic, resulting in unusually large increases in local government education (+215 thousand) and state government education (+30 thousand)”.

A new increase is unlikely to happen in August. As a direct consequence of COVID-19 resurgence, back-to-school hiring that typically happens in August have been postponed to September or even October, resulting in a likely normalization of even reversal in public-sector education employment.

Bonds have been bid throughout September…

…and now it appears stonks have realized the crazed buying panic at the start of the month was a mistake…

Were bonds right after all?

US equity markets have been trading like penny stocks for a while and the last two days are perfect examples as they swing schizophrenically and violently on now news from one sentiment extreme to another…

The fact that liquidity in these markets is at or near record lows is not helping…

And an avalanche of “this is easy” retail muppetry is bidding levered long positions suggests none of this ends well.

With VIX at a record high for any S&P 500 all-time high in history…

And that is the message – loud and clear – from Nomura MD Charlie McElligott:

The Eq Vol complex is acting “broken” and indicative that “something’s gotta give,” in-light of the aforementioned “(vol market) tail wagging the (equities market) dog” dynamic which sits at the core of this recent and mechanical “negative convexity” / “short gamma”-driven grab into market upside.

As McElligott’s note headline proclaimed:

“FEELS LIKE AN ACCIDENT IS COMING…BUT MARKET CRUSHING YOU IN THE MEANTIME”

It all adds-up to feel like a recipe for tears, i.e. “real” potential for a Nasdaq / SPX -6% to -8% single day in the next 1m-2m timeframe in my eyes as it all then turns the other way to the downside.

• Spread btwn UX1 and UX2 at record highs (steep contango) while conversely, there is an enormous backwardation in mid- to long- end curve.

• Ratio of 10d / 25d Put (Skew) hitting a new 2020 high, where even at prior all-time mkt highs in Feb, we didn’t see “downside” acting like this.

• Massive premium of implied vol over realized (thx to the Tech upside premium buyer flows and concurrent Dealer “short gamma” hedging spillover), with QQQ 60d implied-realized spread still around ~ 99th %ile (10Y rel) and UX1 / SPX 30d realized vol spread currently ~2.5 SD’s over its 10 year mean (h/t AK)

“Spot up, Vol up” continued again yesterday with both SPX and NDX again meaningfully higher-est (lol), but term structure again higher across both as well:

And then there’s the building election risk…

The Nomura strategist explains that in addition to the very high likelihood that large Street vol dealer desks will almost certainly be clamped down upon with regard to risk deployment (thus, poor mkt liquidity) around the event and protection of their strong year PnLs – combines to make it very difficult to imagine that the market is going to have the ability to “place” ongoing demand for “tails”

And this dynamic – though somewhat “far” away now – will likely keep vol of vol “sticky” (as we currently see VVIX back north of the finger-in-air 120 “tension” level), because the demand for wingy stuff (crash UP or crash DOWN) only builds the longer this “broken-ness” agitates under the surface… and that in itself is a sign that an accident could happen.

The big question McElligott says he gets from every client in the world it seems:

“when and how does this end?”

It certainly could be a “trade up into, trade down out of” an options expiration “trigger” (fwiw, the Tech flows have been Oct-Feb expiries).

Obviously, this September is a “Serial Expiry” (qtrly) and is suiting-up to be substantial, so in conjunction with something idiosyncratic (a macro “risk-off” catalyst, or perhaps even something innocuous like a stock sale or split from one of the Tech “high flyers”) which then is the “butterfly flapping its wings” event to start something more ominous.

Looking currently at the options-positioning “extremes,” we see some stuff:

• SPX net $Delta at 99.1%ile

• QQQ net $Delta at 100.0%ile, $Gamma 82.4%ile

But for now, it ain’t happenin’… because outside of the negative gamma knock-on buying in market, we also continue to see the US Equities market bot in SIZE by the “Vol Control” universe – as again, realized vols just continue to collapse under the weight of the prior trailing 1m or 3m periods.

Last week saw Fed Chair Jay Powell unleash “inflation averaging” which appeared to embed a “whatever it takes” mantra into The Fed’s mandate to raise inflation and ignore it.

This, after an initial drop, sent US Treasury yields spiking to their highest since June and heralded calls from every asset-gatherer and commission-raker that “this is the end of the bond bull market” and therefore “buy moar stonks.”

Source: Bloomberg

But a funny thing happened on the way to “well, rates can only go higher from here!!” – US Treasury yields rose to very attractive levels for foreign buyers…

For a hedged Japanese investor, this was the highest ‘yield’ since May 2018 and for the hedged European investor, the highest since June and briefly positive at its peak.

Source: Bloomberg

Additionally, Bloomberg reports that trader chatter suggests the bond-buying has been dominated by accounts taking off bets against long-maturity debt, as popular so-called steepener trades are pared down.

Source: Bloomberg

And one more driver of the win streak for Treasuries is the fact that net short positions in U.S. long-bond futures from speculative accounts were near the largest since 2006, according to data for the week ended August 25.

Source: Bloomberg

And the result is that the yield spike from Powell has been completely erased and Treasury yields are now trading back at 10-day lows, back below 64bps…

Source: Bloomberg

The Bond bull lives.

After US manufacturing ‘soft’ surveys showed more progress in the V-shaped recovery, today’s US Services data was expected to confirm that rebound.

• Markit US Manufacturing PMI 53.1 – best since Jan 2019
• ISM US Manufacturing 56.0 – best since Nov 2018
• Markit US Services PMI 55.0 (vs 54.7 exp) – best since March 2019
• ISM US Services 56.9 (vs 57.0 exp) – down from July’s 58.1

So take your pick – ISM down, PMI up.

Source: Bloomberg

The Markit Services data was up from the flash print of 54.8 as both the Markit measures rose as the US Macro data overall has rolled over…

Source: Bloomberg

In the ISM Services sub-indices, we saw a notable weakening in new orders and activity.

ISM Service respondents were mixed:

“Our business activity is now thriving again, after modifications to our operations. While supply disruptions remain common, very critical items are more stable than in previous months. Tariff threats have caused more concern than in previous months due to actions in aluminum, and the rapid rise in lumber costs for construction expansions.” (Accommodation & Food Services)

“Overall, we are seeing improvement in the level of activity in the short term. Backlog of orders is inconsistent.” (Construction)

“Continuing pandemic uncertainties are challenging abilities to prepare for fall semester activities, resumption of in-person instruction and the research enterprise. Recent decision to provide all undergraduate instruction online has shifted priorities significantly, including reduced need for testing and increased need for remote teaching infrastructure.” (Educational Services)

“Revenue challenges for our customers still remain a primary challenge.” (Finance & Insurance)

“Clear signs of gearing up manufacturing and distribution for an extraordinary e-commerce Christmas. Brick-and-mortar likely closed to crowds. Also, hearing the other shoe is about to drop, probably in first quarter of 2021, on U.S.-China trade. “Get out of China now” is resonating.” (Information)

“We are significantly down from the pre-COVID-19 level. While month-over-month business activity is picking up, the pace is very slow and very slight.” (Wholesale Trade)

“Increase in service- and work-order requests are signs of economic improvement as companies reopen and begin to ramp up employment activity.” (Professional, Scientific & Technical Services)

What is notable is that whereas the Manufacturing New Orders series hit a 16 year high, the Services New Orders unexpectedly stumbled, resulting in one of the biggest deltas in the two New Orders series.

Putting all this together, the US composite index printed 54.6 in August, up from 50.3 at the start of the third quarter, to signal a strong upturn in business activity.

Sentiment about output over the coming year meanwhile edged down slightly from July’s 15-month high. Uncertainty surrounding the pandemic’s future impact on the economy continued to weigh on confidence at manufacturers, contrasting with improved optimism among service providers.

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

“Surging inflows of new business helped propel service sector activity higher in August, with the sector growing at its fastest rate for almost one and a half years. Firms were often left struggling to meet demand and, despite taking on extra staff at a pace not seen for over six years, backlogs of uncompleted work accumulated at a rate exceeding anything recorded since 2009. The increase in backlogs of work bodes well for robust output growth to persist into September.

“Combined with the stronger picture emerging from manufacturing in August, the improved performance of the vast service sector adds to signs that the third quarter will see an impressive rebound in the economy from the collapse seen in the second quarter.

However, Williamson also notes that the survey also highlights how the rebound is very uneven and the recovery path remains highly uncertain.

“August’s growth was driven by financial and business services as well as tech firms, but consumer-facing sectors such as travel, tourism and recreation remained firmly in decline due to the need for ongoing social distancing.

“Companies across the board also remain concerned about resurgent virus infections and the durability of demand in the coming months after the initial rebound potentially fades, with uncertainty over the Presidential election adding further risks to the outlook for many companies.”

So something there for everyone – good news (but not enough to warrant any Fed pullback), bad news (but not enough to warrant any buy-stonks pullback)… all depends on which side of the boat you’re on.

Perhaps feeling the pressure to do something after we published a chart yesterday showing that its S&P price target was among the lowest of all Wall Street strategists tracked by Bloomberg…

… as a record disconnect has opened up between the S&P and the average sellside price target…

… but this morning Bank of America’s chief equity strategist Savita Subramanian threw in the towel and in a note titled “The New Abnormal”, and following price target hikes by her BofA colleagues on both Apple and Tesla (just as the two stocks appear to have peaked for now), joined the chase, raising the bank’s S&P price target from 2,900 to 3,250.

Lamenting that “near-zero real rates are apparently the new normal” Subramanian writes that the quality composition of the S&P500 has improved (largely by cyclical sectors getting smaller), “warranting a lower equity risk premium” similar to the argument used by Goldman three weeks ago when it hiked its own price target from 3,000 to 3,600. Additionally, Subramanian claims that fundamentals have also improved: “the ratio of upward to downward management guidance is the highest since Reg FD. The hit to sales from COVID-19 was offset by record sales at Tech and other social distancing beneficiaries.”

The BofA strategist then “refreshes” her various models (full table below) and writes that “four of our five target models forecast positive returns from here, and two (Wall St. sentiment and earnings revisions) forecast above average returns.” While fair “value model” remains the most bearish, it amusingly increased from 2481 to 3002 this month based on a $3 increase in 2021 normalized earnings and a 100bp lower discount rate.  With these adjustments, BofA’s target is now 3250, still lower than current market levels.

One particular catalyst BofA points to is a functional covid vaccine, which “would be really bullish for benchmarks” as it would propel the depressed sectors of the market higher:

S&P 500 leadership has been focused in two themes: secular growth and quality/cash return – not surprising given sluggish economic growth and a scarcity of income. The market-cap weighted composition of the S&P 500 is now 70% high quality, a record, versus the Russell 2000 which is 23% high quality (and other regions are similarly low quality biased). Thus in a full COVID-19 recovery scenario, which would favor cyclicals, the S&P 500 could meaningfully lag other markets.

Despite its newly found optimism, BofA writes that “we are not out of the woods, in fact quite the contrary” and adds that the months ahead of an election “typically see a demonstrable increase in volatility; super accommodative policy is hitting some speed bumps – failure to pass more stimulus, proposed corporate tax hikes, etc., pose risks.” One latent risk – a COVID-19 second wave risk – could increase amid autumn/back to school, even as layoffs are accelerating. At the same time, valuations are extended on all measures except relative to bonds (to be discussed in a subsequent post).

But the only thing that really matters – liquidity – remains abundant, “with dry powder at private and public funds, high cash allocations among individuals, still tepid sentiment on stocks, and not a lot of better income options than US equity dividends.”

In any case, while BofA triangulates its price target to 3,250, it concedes that the range of outcomes is enormous, and “based on realistic worst case (second wave, double dip recession) vs. best case (vaccine, stimulus, continued low rates) scenarios” the banks sees the S&P closing the year anywhere between 2200 to 4000.

Authored by Paul Joseph Watson via Summit News,

Professor Angelo M. Codevilla warns that if the Democrats win the 2020 elections, it would be “virtually impossible for conservatives ever to win again.”

Codevilla, who is professor emeritus of International Relations at Boston University, made the prediction in a review published by the Claremont Review of Books for Michael Anton’s new book The Stakes: America at the Point of No Return.

The book makes the argument that although some Americans may be disappointed in Trump’s performance, voting for him again is absolutely crucial for the republic’s survival because “this country’s ruling class would use control of the presidency to hurt us in our private and public lives for having dared to reject their mastery.”

Importing non-citizens who are then given the vote, as well as institutionalizing elections by mail, which would give those who count the votes the power, would ‘guarantee disaster’ for the country, according to Codevilla.

He then issues a stark warning; It’s game over permanently for Republicans if Trump loses in 2020.

“Should the Democrats win, the ruling Left – which includes just about everyone who controls American government and society’s commanding heights – is ready, willing, and eager to implement plans that would make it virtually impossible for conservatives ever to win national elections again,” writes Codevilla.

The professor also cautions that Democrats’ stated refusal to concede to Donald Trump, which was recently amplified by Hillary Clinton, could manifest itself in “one or more blue state governors to refuse to certify that state’s electors to the Electoral College, so as to prevent the college from recording a majority of votes for the winner.”

This threatens to set off a “systemic crisis” that could lead to a civil war “less like the American Civil War of the 19th century and more like the horror that bled Spain in the 20th.”

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