Tag: news

Authored by Michael Every via Rabobank,

“Let her rip!” So said the equity-market bulls yesterday, or rather a combination of the algos that can’t catch coronavirus if they wanted to, and the young traders who have never worked a day in a market in which they haven’t had at least one central bank somewhere promising to push asset prices higher in the name of the good of mankind. And rip she did, with the Nasdaq up 2%, the S&P up 1.5%, and even Asian markets bouncing. Naturally, bonds, like protective face masks, are oh-so last season.

This was despite the fact that: total deaths are now over 490; confirmed cases are over 24,000, with 176 globally, up from single figures a few weeks ago, still rising exponentially and with no direct Wuhan link in many of these new cases, showing localised human-to-human transmission; the UK government has told all British citizens to leave China; there are 10 cases on a giant, quarantined Japanese cruise ship; American and United airlines have just suspended flights to Hong Kong due to “lack of demand”, meaning that even that key Asian financial hub is at risk of de facto quarantine; Europe is considering a US-style flight ban from China; and the epidemiologist who led the fight against SARS has stated even travel bans won’t stop the coronavirus from spreading. What he says is needed are stronger national health-care systems – which the same markets now rallying have cheer-led being gutted for decades. Yes, the WHO says we have a window of opportunity to deal with this virus globally. So do the IMF when talking about global economic imbalances. So do the WEF when talking about inequality. So do the UN when talking about climate change. How are we doing so far?

We also have the US proceeding with new tariff measures against anyone engaging in currency manipulation, which deserves more space than I can spare here, but basically means a secular trend of a stronger USD, then higher tariffs, and then a yet stronger USD until something breaks; and we have Larry Kudlow saying coronavirus means China likely won’t be rushing to buy US agri goods (colour us unsurprised there); and we have Bloomberg reporting that there are still discussions taking place in the White House about limiting US portfolio inflows into Chinese capital markets on top of the current physical restrictions on access to China. Perhaps that has something to do with the 8% drop in Chinese stocks on Monday(?), but it certainly underlines the threat that a Chinese economy being hit hard by this virus–for example, the massive April Canton fair just got cancelled–might not see the USD inflows it will need to provide a counterweight to the flood of new CNY liquidity it will have to produce at home to try to re-float its economy. Consider that as you consider where USD/CNY might be heading, taking other crosses with it.

Regardless, it seems our glorious algos would be buying diamonds all day long as they trudged through a baking-hot desert – especially with central banks crying “free liquidity!” without the actual ability to make it rain.

Also being ripped up is political convention. In this case, hopes for an orderly US Democratic Party convention. The results of the Iowa caucus are finally dribbling in a day late, and with 71% of the total released, Mayor Pete Buttigieg seems to be ahead. That’s the same Mayor Pete whose campaign backers produced the voting app that has both singularly failed to work in Iowa, and which has put the relative unknown at the top of the caucus pack ahead of better-known politicians drawing far larger crowds. All very new normal. The populist outsider Bernie Sanders may still pip him to the post, however; and very much worth noting is that Democrat establishment’s (grand)father figure of Joe Biden has come out very poorly from Iowa.

Meanwhile, US President Trump gave a State of the Union address that was part campaign rally and part reality TV show. This is an election year, after all I suppose. The Democrat’s Speaker Nancy Pelosi then responded to this political theatre with the statesmanlike action of physically ripping up the speech on the podium. At least nobody burned down the Reichstag – yet. However, one has to say that the 2020 electoral season is not doing anything to relieve fears that populism is here to stay and getting worse, in the US of A.

Data-wise, today already saw Japan’s services PMI dip to 51.0 and China’s Caixin to 51.8, and we heard RBA Governor Lowe make the case for a policy rethink in terms of the embrace of monetary-fiscal policy coordination as an economic stabilizer (meaning permanent tool), suggesting that the runway is indeed being foamed for AUS-QE ahead. Just two rate cuts to go, and then it’s fiscal spending and the RBA bond-buying as far as the eye can see. And, as we see elsewhere, with no way back home afterwards. Can the AUD really hold up in the face of that kind of radical policy? Is it a USD in disguise? We shall soon find out. But with AUD at 0.6736 again today, the market is simply shrugging it all off. For a change. Free-money, money-on-trees, total-upending-of-how-everything-we-used-to-think-works-really-works. *Yawn* Buy stocks. *Yawn*

Indeed, not to worry – ever: as our Rates Strategy team put it so well yesterday, we live in a post-Minsky world. There are no consequences to our precarious debt levels; there are no consequences to our investment actions; and, for politicians, for most of their actions full-stop. Ask the Soviets how that worked out for them. Or just let nature continue to explain how things actually work.

*  * *

Nothing actually matters to markets anymore, so I am not sure why I am bothering to list what to look ahead to this week, but I guess I am my own auto-algo in that regard.

Between the coronavirus and the number of planes that seem to be falling out of the sky these days, the blowback on the airline industry might be even more severe than Wall Street fears (analysts at Jeffries expect Cathay Pacific to take a big hit during H1 before bouncing back in H2).

But to the list of recent plane crashes and near-miss incidents, we can add a Boeing 737 run by Pegasus Airlines, which crash-landed at Istanbul’s Sabiha Gokcen Airport on Wednesday. Video showed the fiery wreckage. Though the scene looks bad, local press just reported that all 177 passengers and 6 crew members were safely evacuated after the plane skidded off the runway.

Sabiha Gökçen Havaalanı..

Pist dışına çıkan bir uçak yanıyor. pic.twitter.com/RzzJR8lwV9

— . (@OlaCak_OlaCak34) February 5, 2020

Here’s a still close-up of the wreckage:

The incident mirrors another shocking near-miss one month ago. On Jan. 7, a Pegasus Airlines Boeing 737-800 overshot the runway at Sabiha Gokcen while landing a flight from Sharjah during less-than-favorable conditions. All 169 passengers were safely evacuated, with no serious injuries.

A B737-800 aircraft belonging to Pegasus Airlines (reg. TC-CCK) had overran the runway after landing in Istanbul Sabiha Gokcen Airport. The plane was operating the flight from Sharjah. All of the 169 passengers were evacuated safe without any injuries or casualities. pic.twitter.com/NCYNkNq7Kg

— HavArenaMedya (@HavArenaMedya) January 7, 2020

That accident forced a temporary shut-down of Istanbul’s main airport.

Amazon has turned red on the day, erasing some of its massive post-earnings gains, following a report that CEO Jeff Bezos sold 0.2% of the company for $1.8 billion. However, before investors decide that the CEO is calling the top, note that Bezos sold 905,456 Amazon shares on Friday and Monday under a pre-arranged trading plan, the filings reveal.

Putting that number in context, Bloomberg observes that in the 15 years after Amazon went public, Bezos sold a fifth of the company for $2 billion. So in the past few days, he sold shares equal to roughly one-hundreth of this stake for roughy similar proceeds. The latest liquidation brings the newly divorced bachelor’s total stock sales to about $12 billion, with two-thirds of those occurring in the past four years, according to calculations by Bloomberg.

Other recent transaction by Bezos include the sale of $2 billion in 2017 and $2.8 billion in 2019, and reflect Amazon’s soaring valuation, which closed above $1 trillion for the first time on Tuesday.

That means Bezos’s remaining 11% stake is worth $116 billion, making him the richest person in the world, even after netting out the stake that he handed over to his former wife following their divorce. Meanwhile, the size and frequency of sales also reflects the changing needs of his increasingly public profile.

As the formerly shy Bezos drifted from the shadows to being in the center of the public spotlight, with stints including a red carpet appearance with his new girlfriend Lauren Sanchez, hosting a party at his Washington mansion for the political and financial elite, not to mention the Enquirer scandal over his dick pics, the increasingly musclar owner of the Washington Post has spent boatloads of money. In addition to properties on both coasts, he has his own rural getaway: 170,000 hectares of desert scrub in Texas, where he indulges his passion for space exploration.

Bezos is also funding his rocket company Blue Origin LLC with about $1 billion a year through the sale of Amazon stock.

“The price of admission to space is very high,” Bezos said when accepting the Buzz Aldrin Space Exploration Award at the Explorers Club Annual Dinner in 2018. “I’m in the process of converting my Amazon lottery winnings into a much lower price of admission so we can go explore the Solar System.”

In retrospect, one can hardly begrudge Bezos his recent sale: after all, his remaining Amazon stock has already climbed by $11 billion this year. Still, the market was somewhat displeased with the news and sent the price of AMZN modestly lower on the day.

While the Iowa caucus will be remembered more for the sheer “incompetence and idiocy” or, worse, corruption of the Democratic Party, the results are still trickling in and some are hoping to make detailed analytical conclusion based on the outcome. After all, just two weeks ago, Goldman said that “the results of the Iowa caucuses on February 3 could have a noticeable and immediate effect on the perceived likelihood of the outcome. In 2004 and 2008 the winners in Iowa received roughly 30pp increases in implied chances of winning the nomination immediately following the caucuses. While in 2004 Sen. Kerry’s chances continued to rise steadily over the subsequent several weeks, in 2008 Sen. Obama’s odds retrenched roughly a week later after the New Hampshire primary. Other cycles for which prediction market data are available are not as relevant, as in the 2000 and 2016 Democratic nomination contests, the eventual nominee already commanded at least a 70% implied chance of winning in the polls, and in 1992 Gov. Bill Clinton unsurprisingly lost the Iowa caucuses to a US Senator from Iowa.”

Well, don’t hold your breath.

As Morgan Stanley’s political strategist, Michael Zezas writes in his Iowa post-mortem, “we don’t think investors learned anything meaningful about the 2020 election and the path for US public policy from the Iowa caucuses. The lack of a clear winner and the delays and confusion about the final result enable several candidates to claim momentum and question the results.”

This, to Morgan Stanley, suggests Iowa won’t provide a clear front runner or preferred set of policies that could influence economic and market outlooks, and the process of narrowing the field will likely be extended.

And while the New Hampshire primary is next, on February 11, Zezas is skeptical it will provide much clarity either for the following reasons:

• Candidates from the region could complicate the interpretation of results
• Not many delegates at stake until Super Tuesday
• No clear read-through to the Senate yet
• New Hampshire, like Iowa, is not representative of the Democratic electorate

As such, look to the Nevada and South Carolina caucuses, on Feb 22 and 29, respectively, for a better signal, but the lack of recent polling in those states also contributes to uncertainty.

The real test, of course, is on the March 3, Super Tuesday, which will be the major political catalyst, for two reasons. First, the cumulative share of delegates awarded will jump sharply. As shown in the next chart, in both 2004 and 2008 there were multiple primary elections that awarded a moderate share of pledged delegates between Iowa and Super Tuesday, allowing the winner in Iowa to benefit from momentum. By contrast, this year the cumulative share of pledged delegates jumps from under 5% to nearly 40% overnight.

Second, several candidates could remain competitive into March. In prior cycles, the field narrowed considerably after the Iowa and New Hampshire contests, as those who fared less well in the early contests declined in polls and in fundraising. But this time, the potential persistence of self-funded candidates – especially Michael Bloomberg – could keep the field slightly larger for longer.

Oil prices exploded higher overnight after a dismal few days which sent WTI to one-year-lows, on speculation that OPEC+talks in Vienna may result in an emergency ministerial meeting on fresh output cuts, as well as reports of a possible coronavirus vaccine, which have lifted broader markets.

“The short-term damage to oil demand from China has already occurred,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S.

“On that basis the upside potential may still depend on action from OPEC+.”

We suspect, however, that if the official data confirms API’s large crude build, things will reverse rapidly.

“Between gasoline and crude, the oil market needs a bullish catalyst to relieve demand pressure,” says Josh Graves, senior market strategist at RJ O’Brien & Associates.

“Any kind of build in inventories will worsen fears of a glut and keep a lid on prices”

API

• Crude +4.18mm (+3mm exp)

• Cushing +960k

• Gasoline +1.96mm (+1.8mm exp)

• Distillates -1.78mm (-200k exp)

DOE

• Crude +3.355mm (+3mm exp)

• Cushing +1.068mm

• Gasoline -91k (+1.8mm exp)

• Distillates -1.512mm (-200k exp)

A surprise draw in gasoline relieved some bearish oil price pressures and a smaller crude build than API reported also helped…

Source: Bloomberg

Additionally, amid the flight cancellations, jet fuel inventories are rising notably as prices fall…

Source: Bloomberg

Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes that the coronavirus isn’t the primary cause of a potential slowdown in global economic growth but a depressant for an already-maturing cycle that underpins our reserved outlook for oil. Persistent trade and geopolitical tensions add to the pressure.

US Crude production continues at record highs while the rig count has somewhat stabilized…

Source: Bloomberg

WTI was trading around $51.50 ahead of the DOE data and held those gains after the surprise gasoline draw and modest crude build…

Finally, Bloomberg Intelligence Energy Analyst Fernando Valle warns, demand destruction from the coronavirus is taking its toll on an already-oversupplied market. Middle distillates, particularly jet fuel, are feeling increased pressure that’s neutralizing benefits from IMO 2020. China is well-supplied with crude, and there should be little disruption to short-term availability, at least compared with demand. That should drive further economic run cuts in 1Q. Gasoline has fared slightly better, but the upcoming switch from winter-grade components is likely to add pressure to already-weak crack spreads.

Update (1015ET): Tesla crashes into a bear market on Wednesday morning, down 21.57% from tagging the 968-handle on Tuesday. It appears Steve Eisman covered his short a little too early. 

* * * 

“The Big Short’s” Steve Eisman, known for shorting the housing market before the 2008 financial crash, was forced to cover his bearish bet on Tesla. 

Tesla has plunged nearly 15% or has lost $142, or about $25 billion in market cap since yesterday’s 968 print.

“Look, everybody has a pain threshold,” Eisman, a senior portfolio manager at Neuberger Berman Group, told Bloomberg TV’s Tom Keene.

“When a stock becomes unmoored from valuation because it has certain dynamic growth aspects to it, and has cult-like aspects to it, you have to just walk away.”

Eisman said his firm owns GM and calls it a “reality on the ground” relative to the “dream” Tesla bulls have: dominate the electric vehicle market.

GM “used to be a poorly run company with a terrible balance sheet and terrible products, and today it’s got a great balance sheet, it’s got very good management and it’s no longer in Europe,” he said.

Eisman is a GM bull. He opened long trades on the carmaker about a year and a half ago. “It’s really not a car company anymore, it’s really a truck company that also sells SUVs very profitably and it has a real division called Cruise which is a real option on autonomous driving,” he said.

The parabolic melt-up seen in Tesla’s shares in the last several weeks is starting to unwind. The catalyst today could be due to production delays at Tesla Giga Shanghai because of the coronavirus.

However, we must note, investors have been well aware of possible production woes in Shanghai for the last week.

And maybe Eisman, who timed the 2008 financial crisis with precision, might have been stopped out of his Tesla short right before all the fun starts…

Via SchiffGold.com,

The silver-gold ratio has ticked back up to historically high levels of late.

As I write this article, the ratio stands at just over 88:1. That means it takes 88 ounces of silver to buy an ounce of gold. To put that into perspective, the average in the modern era has been between 40:1 and 60:1.

In simple terms, historically, silver is extremely underpriced compared to gold.

Last summer, the ratio climbed to nearly 93:1 as gold rallied. Silver closed the gap in the fall and the ratio dropped into the low 80s’ to one. But in recent weeks, we’ve seen the gap widening once again.

In 2019, the silver-gold ratio averaged 86:1. That ranks in the top 2% all-time, dating back to 1687. Only two years in the era since the US government unpegged the dollar from gold have seen higher ratios – 1991 and 1992.

Here’s some historical perspective.

Geologists estimate that there are approximately 19 ounces of silver for every ounce of gold in the earth’s crust, with a ratio of approximately 11.2 ounces of silver to each ounce of gold that has ever been mined. Interestingly, the silver-gold ratio in ancient Egypt was 1:1.

In 1792, the gold/silver price ratio was fixed by law in the United States at 15:1. France mandated a ratio of 15.5:1 in 1803. Faced with the challenges of a bi-metallic monetary system with fixed exchange rates and the aftermath of a worldwide financial crisis, the US Congress passed the Coinage Act of 1873. Following the lead of other Western nations, including England, Portugal, Canada, and Germany, this act formally demonetized silver and established a gold standard for the United States.

With silver playing a smaller role as a monetary metal, the silver-gold ratio gradually spread. The modern average over the last century has been around 40:1.

Since the world went to a total fiat money system, there seems to be some correlation between the silver-gold ratio and central bank money-creation. During periods of central bank money-printing, the gap tends to shink. In fact, it plummeted in the aftermath of the 2008 financial crisis as the Fed engaged in extreme monetary policy.

But as Peter Schiff has explained, the Federal Reserve fooled everybody into believing low interest rates and quantitative easing were temporary – that they were emergency fixes. The mainstream expected the Fed would eventually raise interest rates and shrink the balance sheet. But it’s become clear that wasn’t the case. Extreme monetary policy is the new normal.

Peter has said that when the mainstream figures this out, gold will go through the roof. If that’s the case, silver will almost certainly go up with it. Silver is much more volatile than gold due to its industrial role, but at its core, it is still a monetary metal and it tends to track relatively consistently with gold over time. When gold goes up, it almost always takes silver with it

Furthermore, it may well mean the silver-gold ratio will shrink again as it did in the years after the ’08 crash. Historically, during a bull market in gold, silver outperforms. If this holds trues, that ratio will close.

As commodities analyst Jason Hamlin said in an article published by Seeking Alpha, “The gold-silver ratio has been one of the most reliable technical ‘buy’ indicators for silver, whenever the ratio climbs above 80.”

The silver-gold ratio has been out of whack for quite a while now, but investors still aren’t buying. Of course, the mainstream, by-and-large, isn’t buying gold either. They still seem convinced that the Fed can keep the air in the stock market bubble.

Silver has hit an all-time high of $49 per ounce twice – in January 1980 and then again in April 2011. If you adjust that $49 high for inflation, you’re looking at a price of around $150 per ounce. In other words, silver has a long way to run up.

As one analyst put it, “With the long-term downside potential of silver very low versus its current valuation, the risk/reward is one of the best investments on the planet.”

Following the mixed picture on Manufacturing (ISM spiked, PMI dumped), US Services data was expected to rise for both ‘soft’ surveys.

Take a look down the list and decide which fits your narrative…

• Markit US Manufacturing PMI 51.9 (down from 52,4) to 3-month lows.

• Markit US Services PMI 53.4 (up from 52.8) to 10-month highs.

• ISM Manufacturing 50.9 (up from 47.8) to 6-month highs.

• ISM Services 55.5 (up from 54.9) to 5-month highs.

Source: Bloomberg

Once again it seems a global pandemic is not enough to spook American business…

The ISM’s measure of new orders at U.S. service providers increased to 56.2 in January from a three-month low. Other details from the report were less upbeat. Measures of employment, order backlogs and exports all softened from the end of 2019.

The improvement in services activity and a rebound in the ISM’s manufacturing gauge show business optimism was building just as the coronavirus epidemic began to exact a bigger toll — both in terms of the growing number of lives lost and economic disruption.

The Markit Composite index rose to 10-month highs at 53.3. Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

“The PMI data indicate that the US economy is ticking along at a steady but unspectacular annualized rate of growth of approximately 2% at the start of 2020. Growth has gained some momentum from the lows seen in the fall as the service sector enjoys stronger growth and manufacturing has also shown signs of the trade-led downturn easing. However, factory activity remains worryingly remains subdued, and optimism about future growth across the business community as a whole continues to run at one of the lowest levels seen over the past decade.

“Business are concerned by the prospect of weaker economic growth at home and abroad in the coming year, especially with spending potentially being dampened in an election year. Fresh worries are also likely to appear. With the vast majority of the survey data having been collected prior to the 24th January, we’ve yet to see any impact from the Wuhan coronavirus outbreak, but the potential disruption to business and the associated financial market jitters pose additional downside risks to both the global and US economies in coming months.”

But of course, US data is meaningless – it’s all about China liquidity and fake virus data now.

Authored by Richard Breslow via Bloomberg,

Some days it’s best just to let things play out for a little while. Economic numbers that came out overnight haven’t hurt. Very dovish comments by a senior Bank of Japan official. Upbeat comments by the governor of the Reserve Bank of Australia. And then the big one, hopeful comments concerning potential progress in dealing with the virus outbreak. And the market has taken off. Given the impulsive, explosive, nature of the move, which came mid-morning during the London session, a fairly steady, mildly corrective day for risk was sent galloping higher. The reality is, you either had it or you didn’t.

There was no trading this move. Your only choices now are to go with it at what looks like very heady levels or fade it. An hour after the market got turned on its head, neither seemed like an easy and clear choice. Once the price action unfolds and news is digested it will be claimed to have been patently obvious.

Just listening to the chatter, however, there seems to be greater interest in treating the moves as overdone. There is not a great deal about the pressing of bets. Further indication that this caught traders by surprise and ill-positioned. Should the market give back some, or even all, of its newly found gains, resist the notion that it was motivated by profit-taking. These are likely to be new speculative positions. Which is fine, there is no intent to stop anyone from trading if they want to. But have stops in mind, so any squeezes are manageable.

Things seem to have settled down and moving into a holding pattern. European traders would now like to see how their North American colleagues react as they begin to settle in. They will have to evaluate for themselves the relative merits of the headlines and asset prices they went to sleep with and the new ones they have awoken to. That might be the best guide to what the next market gyration is likely to be.

You don’t need to deal only at extremes to make a really good trade – if it’s right. And so far, the price action is still warning of potential trend days. Meaning, letting it do something wrong first before counter-trading the move increases the likelihood of success. And if you were caught the wrong way around, it will be scant consolation, at least for the moment, if you think all this was an overreaction.

I was planning to write about some new developments on international trade being prepared by the U.S.. It’s a new development that the markets probably won’t like. Certainly not those overseas. Here we go again? But given where attention is likely going to be focused in trading rooms, it’s best to go with the famous adage, “tomorrow is another day”