I have had several macro conference calls and speaking engagements over the course of this week – a few take aways:
1. The mood has changed – See the "confidence index" from T Theory below for data…. The driver in my opinion is the gradual acceptance of disinflation/deflation – as Albert Edwards been pointing out Russel Napier done some work on how when inflation gets low enough it becomes a problem for risky assets. Edwards - Napier
2. There is growing believe that the "narrative of the central banks" is failing – Low yield for so long as we have had it, is now becoming an issue. I have discussed this with several of you and the opinion is that ECB's Draghi lost out with his latest "wide in scope, small in size" program, that BOJ looks like a deer caught in the spotlight, and most importantly: Yellen and FED management is doing a poor job of communicating…
There is even openly resentment of Yellen as Chair-woman – I don't condone any of Fed policies, but I firmly believe Yellen is misunderstood. She is more dovish than market can figure out, she is a true female leader, meaning her process allow more room and opinions of fellow board members, which is why we are seeing Stanley Fischer being a new and much improved voice for Fed, together with Dudley and she is considerable better than both AG and BB in terms of understanding the mechanics of Fed and the economy.
Finally on Fed – I NEVER understood how market could pay that much attention to regional Presidents… they are politicians, representing either specific economic agendas relative to their regions, or specific economic theories… Let's hope the "dots" dies soon as they are single handly the most useless information ever (You can reach a specific growth forecast from many angles being of the issues)
3. Central banks are now concerned about velocity of foreign exchange moves (ECB & BOJ) and Fed outright on the impact on future growth in the US. This MAJOR change – a vocal change as often before initiated by New York Fed's Dudley(September 21st 2014) and confirmed by Fed Minutes this week: Bloomberg LINK:
Officials at the Federal Open Market Committee's Sept. 16-17 meeting warned that the stronger dollar may hamper exports, and said the economy could be hurt by a global slowdown. That boosted speculation the Fed may delay raising its target rate from the zero to 0.25 percent range it's been in since 2008, causing the greenback to fall Oct. 8 versus most of its peers before rebounding yesterday.
"You can make the case that the run in the dollar for the moment is going to pause," John Gorman, the head of dollar interest-rate trading for Asia-Pacific at Nomura Holdings Inc., said yesterday in a phone interview from Tokyo.
Rate Outlook There's a 57 percent chance the Fed will lift rates to at least 0.5 percent by September 2015 futures data compiled by Bloomberg show. The yen will still weaken to 112 per dollar by Dec. 31 and 120 by the end of next year, according to Nomura, the Japanese currency's most accurate forecaster for the four quarters ended Sept. 30 based on data compiled by Bloomberg.
Of course 95% of Wall Street and 98% of all hedge fund remains long US Dollar as it's an island of strength – my model however disagree as seen below. Vertical line is the present…..
My ONLY call(since Q4-2013) remains that global yields (G-10) goes all time low – and in this final phase will be lead by US 10-Y going to 1.5% and 30-Y to 2.5% - which creates a derivative trade which is US dollar strength is about to top – there is significant chance of retesting recent highs for the US Dollar, but central banks, the momentum of the US economy, disinflation trends, and global geopolitical environment which sees US lose power week by week, is signs, although still early, of changes to the outlook. The world – growth-wise – does not work with a strong US Dollar – Asia is linked and suffering…
4. It's often "too easy" to find negative charts after big down move, but I think these three is more than a day or two sell-offs…
Below from Daily Shot:
Safe travels,
Steen Jakobsen
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This is full daily from the Daily Shot – an excellent day-by-day chart/short comments service….which I high recommend…
A rough day in the equity markets today. We started with some not so pleasant news out of Germany where exports dropped more than expected. That spooked the jittery markets and a selloff ensued. Looking at this chart however I don't see a major export problem for Germany – just fluctuations in large orders.
The big story today was crude oil prices plummeting, with Brent falling below $90 for the first time since 2012 (during the Eurozone crisis). WTI crude collapsed even faster.
December Brent:
December WTI:
Source: barchart
And with crude went the energy shares (red). Falling oil prices are pressuring North American energy producers' margins.
Source: stockcharts
Another source of pain in the equity markets have been small caps (red), as this year's underperformance accelerates.
Source: stockcharts
One of the trends that makes me uneasy about the stock market from the technical point of view is low "bear count". That's in spite of recent volatility.
Source: Yardeni Research
With energy under pressure, Russia is in trouble. The central bank has been trying to stem the ruble's decline without much success. At Brent below $90, things are going to get ugly for Russia. Once again, I wouldn't be surprised to see some belligerent language (or even action) out of that government in an attempt to halt price declines.
Source: Investing.com
As discussed last night, expectations for Fed's liftoff have shifted from next summer to almost a year from now. The chart below shows us at what point the fed funds rate are expected to be 25bp above current levels (the first hike).
Source: SoberLook.com
US labor markets recovery remains robust – although nobody seems to be paying attention. Here are two data points:
1. Initial unemployment claims are at an 8-year low -
2. The Gallup job creation index is still on the rise -
Source: Gallup
In credit-land, leveraged loan fund outflows hit 13 consecutive weeks. There are also some concerns about midcap levered energy firms feeling the pain from falling oil prices. Some defaults coming up?
Source: LCD
High yield bonds are also under pressure – a really bad day today (particularly lower rated paper).
Source: barchart
Finally, some food for thought. Higher percentage of women aged 25-34 have a college education than men in the same age group. And the gap is widening.
Source: @NickatFP
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