Stress Indicator - Are we close to a new banking crisis and refugee crisis?

Comment: Risk is on relative to mid February scare, but post G-20 we remain very alert to March risk as we have:

 

·         RBA meeting tonight – Very important considering the focus on housing bubble locally….

·         ECB meeting (March 10^th)  where Draghi will have hard time not disappointing

·         FOMC meeting – March 15-16 with press conference – to move or not to move (simple actually – this is Fed if in doubt.. they don't move!)  - Stanley Fischer speaks March 7th

·         SNB monetary policy Assesment meeting March 17^th  (What happens to Swiss Monetary Policy as ECB goes deep into negative and SNB is maximum 25 bps away from -100 and lower boundries of negative?)

 

EU is going into the biggest month ever probably on refugees – There is plenty of talk about Europe days away from carnage: 'EU migration system "could break down in 10 days" &  Refugee crisis disunity: A de facto solution takes shape in the Balkans

 

The EU calendar looks like this: LINK

 

 

In macro charts:

 

PLEASE use 2 min to fully comprehend what this chart is telling us!

 

Japan and Europe leading world of academic driven central banks into negative yield is failing at least if you ask the shareholders of the banks in those two regions (and add Switzerland to the equation as well!)…. The bank indices is close to straight down since both BOJ and ECB entered into what can only be described as the end of central bank planning…..This chart is your guideline for all of MARCH…. As all policy meetings, refugees and growth will be reflected in these two lines.. Japan is my key indicator……

 

 

 

 

Market still give FOMC/FED ZERO credibility on their forward guidance – Fed is still at 2-3 hikes market 1 offered in size….!

 

 

 

 

Market is confused – We started the year focused on China, then on Fed and oil, now market also needs to figure out if inflation risk and wage new trend (it's not for now!)….Here is Morgan Stanley's number of hikes expected for 2016 we are still conservatively below even ONE hike this year…..despite the "inflation" and "wage increases" and Hawkish Fed…..

 

 

AUDJPY my global proxy for risk on and off remains well offered – despite end of February run up in risk…..

 

Meanwhile in Club Med things are heating up again……

 

 

And my favorite FINANCIAL STRESS indicator – Cleveland Fed's remain elevated..

 

 

 

 

I'm off to Asia and Australia over next 10 days…Hope to see you all in: Singapore, Sydney/Melbourne and Tokyo….

 

Safe travels,

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

 

 

Weekly Macro Stress Test - Less stress and some"odd" movers in Gold and mining...

Europe and US growth remains very disappointing although US have improved over the last week – (reducing "recession worry")…

 

 

ECB and EU politicians is still waiting for the NET GAIN from extremely low input costs to European – here it't my growth model (Equal parts yield, energy and currency) – we remain at extreme low levels:

 

 

 

Despite the recent rally… Financial Stress Remains elevated…

 

 

And the stress resides in European banking…

 

 

 

The policy rates and expectations is making new lows…

 

 

Fixed income volatility……remains elevated to…

 

Gold has broken neckline of downtrend for the first time years  - what is it telling us? That policy makers will go deep into negative yield or that inflation is coming back – or US$ about to sell off?

 

 

 

Gold mining ETF – GDX has had a tremendous year! This despite new lows in CRB and commodity….

 

Agriculture also starting to make a run……

 

 

 

But it all STILL depends on whether US$ will confirm its weakness or not…. We have very, very important close tonight for this month data….

 

 

 

 

Enjoy the weekend & safe travels,

 

Steen

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

 

 

Correction to text... sorry

Of course…..and important…

 

The section…. I firmly believe Asia leads DM markets… should say further down..

 

Is EXACTLY what we should NOT do…. I my mistake left out NOT.. but I think meaning is clear anyhow..

 

From: Steen Jakobsen (SJN)
Sent: 24. februar 2016 11:01
Subject: Macro forewarning, forearming is half the Victory - Why March could get nasty for risk on

 

I have a number of timing and cyclical indicators pointing to a nasty March and it looks like we are still on plan to see low end of March/April:

 

 

Fed remains relative hawkish vis-à-vis the slow-down in US growth potential, international monetary conditions and US$ & energy impact on earnings – latest example being Vice-chairman Stanley Fischer speech last night: LINK

 

The US$ seems unable to weaken from here despite clear momentum turn (Euro looks offered now…) – The Brexit focus combined with refugees and renewed Club Med trouble (Greece needs new money by May, Portugal turning into political farce w. rising rates) is carrying EUR lower. John Hardy, our brilliant FX Strategist see Euro losing momentum (and hence US$ gaining) – Make no mistake: Stronger US$ will translate to RISK-OFF in EVERY single asset class through killing commodity stability, lowering investment and reducing US earnings….

 

 

 

 

Two leading FX pairs : GBP$ and USDJPY…..have sold of dramatically. The Canary in the coal mine? I think so….JPY is go to RISK-OFF currency, particularly because of Bank of Japan evidently failing model of low and negative interest rates. Banking stocks is down +20% since negative yield introduced – TWENTY PERCENT…. This is what is coming to European banks (& later US banks)      GBP is offered and for good reason as I wrote in: What Brexit really means  - Uncertainty is the markets worst enemy and there is plenty to come from the UK – again the bigger casualty could be EUR and EU……  Now we have fully two tiered Europe…..

 

Topix Japan Banking Index-  DOWN 46% since peak post Abenomics!!!  (Remember all crisis comes from banking – and most crisis' starts in Japan in last 40 years!)

 

Comment: We have lost most if not all of the "gain" from Abe-nomics!                           

 

 

I have been allowed to forward my friend Rick Atkinson time-series analysis of the USDJPY which I asked him to do… it's not for the fainthearted by the way: Rick sees USDJPY in sub 50 region (and he has been excellent in timing other markets…..) – I will provide full detailed in Steen's Chronicle Special tomorrow called:  Japan leads world into trouble

 

 

GBP is under severe pressure… lowest since… 2008/2009……..

 

 

 

 

One the market best timers: Tom McClellan has an interesting chart for you:

 

Source: McClellan Financial Publications: McClellan Market Report

 

 

The "only" solution or neutralizer could be the G-20 in Shanghai but as it seems even the participants is pessimistic on achieving anything in the world of World Bank President Kim: "There is a lot of uncertainty; there is a lot of instability and fluctuations in global markets," he said. "But I don't think we're at a point where you are going to see some sort of concerted, focused action in one sector or another." (Source: Bloomberg LLP – link above)

 

 

I firmly believe Asia leads DM markets – China through growth and demand, and Japan by having the "model not follow" – in other words Japan is leading us down the wrong path and the "solutions in Japan" is obvious for everyone now is not working….. demographics, lack of productivity and most important an insistence on non-immigration and female participation in work force is EXCATLY what we should do, but what ECB is doing on monetary policy and what Cameron and EU is doing on immigration. We are simply NOT addressing the mal-investment and insist on being non-productive with an incentive structure which increasingly is penalizing the saver, the investor, and anyone how is trying to do their best.

 

March could be a critical month in monetary policy – I have declared the CENTRAL BANK planning dead last few weeks, evidence and now price actions support this.

 

Strategy:

 

My model – price based – is short GBPUSD, DAX, S&P, USDJPY, GBPJPY, and AUDJPY…… bought Bunds yesterday and very close to triggering short commodities – all a reflection of my old theme: The US$ is everything…… and with Fed insisting on being hawkish, slightly rising wage costs and EU is two-tiers I don't really see a lot of good things for the next 40 days, but then again I have been wrong many times before, but consider yourselves "forewarned"…. Forewarned, forearmed; to be prepared is half the victory – Miguel de Cervantes

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Macro forewarning, forearming is half the Victory - Why March could get nasty for risk on

I have a number of timing and cyclical indicators pointing to a nasty March and it looks like we are still on plan to see low end of March/April:

 

 

Fed remains relative hawkish vis-à-vis the slow-down in US growth potential, international monetary conditions and US$ & energy impact on earnings – latest example being Vice-chairman Stanley Fischer speech last night: LINK

 

The US$ seems unable to weaken from here despite clear momentum turn (Euro looks offered now…) – The Brexit focus combined with refugees and renewed Club Med trouble (Greece needs new money by May, Portugal turning into political farce w. rising rates) is carrying EUR lower. John Hardy, our brilliant FX Strategist see Euro losing momentum (and hence US$ gaining) – Make no mistake: Stronger US$ will translate to RISK-OFF in EVERY single asset class through killing commodity stability, lowering investment and reducing US earnings….

 

 

 

 

Two leading FX pairs : GBP$ and USDJPY…..have sold of dramatically. The Canary in the coal mine? I think so….JPY is go to RISK-OFF currency, particularly because of Bank of Japan evidently failing model of low and negative interest rates. Banking stocks is down +20% since negative yield introduced – TWENTY PERCENT…. This is what is coming to European banks (& later US banks)      GBP is offered and for good reason as I wrote in: What Brexit really means  - Uncertainty is the markets worst enemy and there is plenty to come from the UK – again the bigger casualty could be EUR and EU……  Now we have fully two tiered Europe…..

 

Topix Japan Banking Index-  DOWN 46% since peak post Abenomics!!!  (Remember all crisis comes from banking – and most crisis' starts in Japan in last 40 years!)

 

Comment: We have lost most if not all of the "gain" from Abe-nomics!                           

 

 

I have been allowed to forward my friend Rick Atkinson time-series analysis of the USDJPY which I asked him to do… it's not for the fainthearted by the way: Rick sees USDJPY in sub 50 region (and he has been excellent in timing other markets…..) – I will provide full detailed in Steen's Chronicle Special tomorrow called:  Japan leads world into trouble

 

 

GBP is under severe pressure… lowest since… 2008/2009……..

 

 

 

 

One the market best timers: Tom McClellan has an interesting chart for you:

 

Source: McClellan Financial Publications: McClellan Market Report

 

 

The "only" solution or neutralizer could be the G-20 in Shanghai but as it seems even the participants is pessimistic on achieving anything in the world of World Bank President Kim: "There is a lot of uncertainty; there is a lot of instability and fluctuations in global markets," he said. "But I don't think we're at a point where you are going to see some sort of concerted, focused action in one sector or another." (Source: Bloomberg LLP – link above)

 

 

I firmly believe Asia leads DM markets – China through growth and demand, and Japan by having the "model not follow" – in other words Japan is leading us down the wrong path and the "solutions in Japan" is obvious for everyone now is not working….. demographics, lack of productivity and most important an insistence on non-immigration and female participation in work force is EXCATLY what we should do, but what ECB is doing on monetary policy and what Cameron and EU is doing on immigration. We are simply NOT addressing the mal-investment and insist on being non-productive with an incentive structure which increasingly is penalizing the saver, the investor, and anyone how is trying to do their best.

 

March could be a critical month in monetary policy – I have declared the CENTRAL BANK planning dead last few weeks, evidence and now price actions support this.

 

Strategy:

 

My model – price based – is short GBPUSD, DAX, S&P, USDJPY, GBPJPY, and AUDJPY…… bought Bunds yesterday and very close to triggering short commodities – all a reflection of my old theme: The US$ is everything…… and with Fed insisting on being hawkish, slightly rising wage costs and EU is two-tiers I don't really see a lot of good things for the next 40 days, but then again I have been wrong many times before, but consider yourselves "forewarned"…. Forewarned, forearmed; to be prepared is half the victory – Miguel de Cervantes

This email may contain confidential and/or privileged information.
If you are not the intended recipient (or have received this email
by mistake), please notify the sender immediately and destroy this
email. Any unauthorised copying, disclosure or distribution of the
material in this email is strictly prohibited.

Email transmission security and error-free status cannot be guaranteed
as information could be intercepted, corrupted, destroyed, delayed,
incomplete, or contain viruses. The sender therefore does not accept
liability for any errors or omissions in the contents of this message
which may arise as a result of email transmission.

Macro Digest: Crisis mode is now full blown! Final support in S&P @ 1800-00 (where does rescue come from?)

I hate to do this but today has made things even worse – you have all received my extensive coverage this week but here is selection of charts which sets up why we need to increase alertness and reduce risk tolerance..

 

My conclusions:

 

This is the END OF CENTRAL BANK planning….

 

Central banks are now totally impotent. Yes, ECB can buy bank papers, but it will only deflate the whole thing more.

 

This week can go down in financial history as the week where central planning central banking died – the 2016 version of the Berlin Wall coming down…it sounds 'worse' than is it..as this was always coming..

 

Fed, BOJ and ECB all been dovish but to no avail…….

 

This is either: End of debt cycle (and central bank planning) or a deep crisis leading to one more pretend-and-extend – either way there will be major il-liquidity where the fx pegs: Saudi and Hong Kong is likely to go. EM stocks could tank another 25% easily and oil could reach 20$ if not 15….

 

This means: CREDIT EVENT will happen. Danske Bank today higher has higher market cap than Deutsche Bank – go figure!!!!!!

 

Portugal 10 y rates is now higher than during the Troika time (>4.5%)

 

Italy has 400 bln. non-performing loans before this mini-crisis and a bond market owned by pensioners…!!

 

 

 

 

Comment: 4.5% is higher than IMF charged

 

 

 

 

Comment: ITL and PTE trade above recent highs…

 

 

 

 

Comment: Financial Stress now getting into early "Lehman territory"…

 

 

 

Comment: Every day a new credit event in energy……spill-over imminent to banking sector..

 

 

 

 

Comment: One day in heaven – now NEW highs… spreads

 

More than 50% of all debt in G-7 now below ZERO!!!!! Sign of immunity to lower rates..

 

 

 

Comment: Economics is getting worse – not better – "despite lower energy and rates…..and rising salaries…"

 

 

 

Comment: This chart is important.. USDJPY did lead yday into today… Most of the gain in USDJPY since the big Bazooka in October 2014 has now evaporated!!!!

 

Finally…..

 

 

Comment:  "Let's "hope" that 1800 holds this week otherwise we will revisit 2007 high of 1.580/1.600

 

 

I don't know where market goes from here, but I am getting more calls, more negatives sentiments reading than any time since Lehman…..!!! Since 2007 global debt has expanded by 57.000 billion – 70% of all liquidity creation by central banks is used to service old debt…

 

Everything that happens right now makes rates go EVEN more negative… and banks CANT make money w. negative rates..

 

Wall Street and Main Street has been following different paths since 2009, now they meet again……

 

ALERTNESS is mode of preference. Price actions rules and right now risk is 60/50 skewed to downside as central banks seems out of ammunition and worse ideas..

 

Do not despair – I don't have the 'keys' to the market – there is huge and fundamental values everywhere in the market, this note is merely to highlight: Don't be complacent on risk from here…..There will be attempts to "safe the market" clearly…..What I fear is the market action behind that desperate attempt…..prepare for a long spring……

 

Steen

 

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MACRO DIGEST - Semi-Annual Ecoomic testimoney to Congress - FINAL VERDICT: Yellen night turned into yelling night

Chair Janet L. Yellen

Semiannual Monetary Policy Report to the Congress

Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

February 10, 2016

 

Full link here

 

Today's testimony showed US politics and central banking from its worst side: The politicians were rude and pretty much clueless – one senator claiming interest rates was up 28% this year!

 

Reminds me of South Africa's President, who does not know the difference between 1000s and billions: Zuma and counting but worse the Chair of the Federal Reserve was of little help and often looked like a deer in the headlight. Incredible! I am sure Ms. Yellen is an excellent "model economist" but her performance today is probably the worst I have ever seen from seasoned central banker!

 

This is an issue why? Fed came into this meeting with very little credibility and this "event" did not add to the tally, instead we are left wondering how they expect to "help" the market. One Senator did observe: Ms. Yellen, what tools are those you keep talking about – interest is pretty much zero anyhow? Yellen response? Well, we can do "lower for longer……" !!!!!

 

So… let's forget about central banks –Yes, Draghi will try to command some media time and likewise will BOJ… but……..probably to no use.

 

I have noticed recently that USDJPY seems to lead S&P-500 – USDJPY took out some serious support this evening….

 

 

 

Yellen almost totally ignored the FINANCIAL STRESS ….despite it making new highs……

 

 

Left scale is # of Fed hikes in 2016 (inverted)……

 

Post Yellen and yelling my Primary Confidence Indicators continues down: CRISIS mode is now present status!

 

 

Source: T-theory (the late Terry Landry remains one of the best reads about markets ever! http://mrtopstep.com/wp-content/uploads/2015/12/MagicT-IntroTo-Theory.pdf )

 

But.. if all of this is not helping why did market stay up most of the day?

 

Yes, banking sector was bought big on rumor ECB will buy bank debt….

 

From Evercore IS – via https://news.markets/bonds/ecb-likely-buy-corporate-debt-evercore-10652/

 

 

"Could the European Central Bank expand its asset-buying programme next month to include corporate debt in an effort to help the eurozone's banks? Evercore ISI thinks so.

 

"We think the ECB is increasingly likely to expand its (quantitative easing) programme into investment-grade corporate debt in March. This would be a means of pushing back against the surge in credit risk premia that is in turn contributing to pressure on equities in general and bank stocks in particular," the investment bank writes.

 

"Buying investment-grade corporate debt would directly lower spreads on this debt, while putting downward pressure indirectly on bank bond yields and on spreads on non-financial high-yield bonds through portfolio re-balancing effects," it adds.

 

Evercore ISI reckons the ECB is increasingly likely to introduce additional measures to support bank funding in a complementary effort to help stabilise eurozone banks.

"We do not think the ECB will buy bank debt outright. However, one obvious step would be to increase QE in covered bonds, allowing banks to wrap more assets and sell them to the ECB," it writes. "Another would be to put in place an additional series of cheap TLTRO term funding operations as a backstop to private market funding."

 

 

Conclusion:

 

Yellen DID NOT deliver anything to help the market at all  - she left Capitol Hill bruised (she is back tomorrow)….

 

Market is holding on to its gain into late New York, by virtue of two things:

 

1.) the ECB potential for buying bank debt in next QE expansion

2.) Shanghai G-7 meeting – rumors now of "something like Plaza Accord…etc.."…

 

Risk model is still calling market lower….

 

1813/15 – 1^st support…  1560/80 if broken – I still see end of March low… Oil in 20/22$, Gold in 1.300 and SPX …..well let's see…..

 

Safe travels,

 

Steen

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

 

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