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Sell sell sell. That's what the private clients of BofAML have been doing for what seems to be an absolute eternity now. Counting last week, the 5-week rolling aggregate flow into equity funds dropped to -$43.1bn, or the largest outflow since 2008. So what was specifically sold? In short, high beta m, high leverage, high vol, China, Japan were sold. High quality, low vol, precious metals, and inflation hedged plays were heavily sought.

There is obviously a strong aversion to risk, and a draw to safety. Interestingly, money market funds actually saw outflows of $1.2bn last week. It look to is that even rich and wealthy private investors hardly know what to do with their money in this volatile but trendless market.

We're stick to our bias towards technical strategies for the time being.

Here's a rhetorical question: If the U.S. was so good, they why are commercial and industrial loans experiencing delinquencies reminiscent of recessions? The level of bad debt stands at the highs seen during 3Q08, during the depths of the Great Recession. So even though monetary and credit conditions are much looser now than they were then, companies are still unable to upkeep a clean book.

Hmm...

Those that have flown in to #Singapore would have noticed something unprecedented off the east and west coasts of the city state, one of Asia's most important trade hubs servicing the Straits of Malaysia.

More than a hundred cargo ships and VLCCs (very large crude carriers) anchored stationary in the Straits of Malaysia. Large ships that have been doing nothing but floating and holding millions of barrels of crude oil in their hulls. These VLCCs are reported mostly to be bound for China and were originally from the Gulf and African regions.

This area of the sea area about 25% of total oil trade volumes globally, and so is a major route for the transportation of energy. But what does this scene tell us? The major glut that every analyst has been talking about is real. Too surreal actually.

Put another way, on each and every red dot you see on the map below, lies anywhere from $20mn to $200mn worth of crude oil (assuming 50% of the idle vessels are VLCCs), that equates to A LOT or wealth just floating off the shores of Singapore.

Is this the world's most expensive traffic jam? You bet!

How have global assets fared since exactly one year ago? Well, not really well to be honest. Global macro has deteriorated substantially. The Fed has lifted off in December sending shocks across the world. Central bank policy has been all over the place. Geopolitical instability has only heated up. Recessionary fears are getting closer to being realized.

High quality bonds (yields) have been the beta performers, while the USD has gone nowhere. Global equities are red, but not as bad as commodities are.

Where do we go from here?

Who are the professionals that are most cited in the #PanamaPapers, i.e. most desperate to hide their wealth (wherever acquired from)?

The answer lies in this graphic. Any surprise that POLITICIANS made up almost a third of all profession mentions in the leaked documents? Nope, hardly surprising.

Other notable mentions were businesspeople (not surprising), entrepreneurs (fairly expected), football associations (hmm), lawyers (well of course), economists (really?), and film makers (just wow!)...

Greed corrupts, money doesn't.

#Forex #Stocks #Trading #Investing #Money #Tax #Politics #Trump #Clinton

The Eurozone Markit Flash PMIs for May was a mixed bag. On the one hand we see continues improvement on Germany on both the manufacturing and services side, leading to an improved blended print. France, on the other hand, has seen a relatively strong rebound in the services but continued weakness in manufacturing (below 50, in contraction), leading to a blended print hovering just over 50.

The Eurozone PMIs weren't pretty. Although manufacturing and services barely changed from April, the composite PMI has fallen to 15-month lows, weighed down by weakness in the non-core nations as well as France.

Market obviously believes the data isn't significantly weak enough to prompt more action from the ECB in June. We're going to need more bad news for a bigger gun!

From Goldman Sachs:

"The breakdown revealed a 0.2pt fall in the manufacturing output component drove the decline in the composite figure. The services PMI component was unchanged at 53.1.

The Euro area manufacturing PMI fell by 0.2pt in May. The manufacturing breakdown showed a 0.2pt fall in manufacturing output, a 0.2pt fall in employment, and a 0.1pt fall in new orders. Within the services PMI, the forward-looking subcomponents (which are not part of the headline services PMI figure) were particularly weak, with 'incoming new business' falling 1.0pt, and business expectations decreasing by 2.8pt.

On a country basis, the German composite PMI was strong, rising 1.1pt, while the French composite figure rose by 0.9pt. The strength in Germany and France combined with a relatively unchanged area-wide figure suggests weaker prints in Italy and Spain, which are due to be released next week.
Based on historical correlations, a composite PMI of 52.9 is consistent with growth of in the Euro area of +0.3%qoq, just below our judgemental forecast of +0.4%qoq for Q2. That said, the PMIs throughout Q1 were consistent with GDP growth of around +0.3%qoq, yet growth accelerated to +0.5%qoq (initially estimated at +0.6%qoq) on Eurostat's estimates, and as such we remain wary of drawing conclusions too early in Q2 based on the PMI data alone."

#Forex #Stocks #Trading #Investing #Economy #Europe #Euro #EU

Nothing says it better than the epic crashes in Chinese commodities which have been previously pumped to stratospheric levels by nothing more than excessive speculation, churning, and plain ole greed from mum-and-pop Chinese "investors" and "traders".

The main commodities in question: Iron ore, steel rebar, and hot rolled coil have plunged like a waterfall, totally erasing the entire bubble ascend.

Iron ore is down some -7% today alone, and is down -30% since the start of May!

Steel rebar is down -5% today alone, and is -32% down for the month!

Hot rolled coil is down -6% today alone, and is -28% lower on the month!

We can smell deep crimson blood from thousands of miles away, as one can only imagine those poor souls who have bought at the highs and gotten margin called into bankruptcy.

Greed does really kill. These charts prove it.

#Forex #Stocks #Trading #Investing #China #Bubble #WTF

U.S. manufacturing falls to 2009 lows, as the May Markit manufacturing PMI hovers just shy of contraction at 50.5, while the manufacturing output index and PMI output index both fall further, with the latter crashing to 2009 crisis lows.

Clearly, the manufacturing industry remains one of the weakest links in the so called recovery, that the Fed is contemplating hard about. Manufacturing jobs continue to be lost on net, while output declines signal businesses are cutting back production hard.

Despite this, the market has discounted a 30% probability of a rate hike in June? Why? Because the April minutes say June's meeting would be a "live" one... Thread carefully.

#Forex #Stocks #Trading #Investing #Economy #FOMC

#Brexit or no Brexit? The market says Brexit (implied vol and risk reversals). Opinion polls are divided but the fragmentation of thoughts is continuing to lessen in favor for leaving the EU.

Cable (GBPUSD) is trading well above their February lows, so the market might be hopeful for a non-event after all. In other news, fear mongering has reached a new level in Britain with claims that the UK will face a year-long recession should Brexit happen.

#Forex #Stocks #Trading #Investing #Europe #EU #Euro

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Here's 8 reasons why Deutsche Bank is bearish on #Oil:

1. EXTREME VALUATIONS: The U.S. energy sector is now trading at a roughly 7x EBITDA multiple compared to a historical average between 1x and 2x. DB also shows what the implied valuation is assuming oil at $45/bbl; which is roughly 3 EBITDA turns lower. This implies the equity market is valuing energy companies at $70-80/bbl oil.

2. HIGH HY CONCENTRATION: The risk of a sharp repricing is just as evident in the junk bond (high yield) space, where energy is by far the largest sector, amounting to just shy of 16% of all outstanding issues. A negative shock in energy will therefore cause HY spreads to widen significantly.

3. ENERGY DRIVES HY: It won't be surprising that the biggest driver to sharply tighter high yield spreads has been the recent rebound in oil prices (higher energy stocks and credit), which has also led to a dramatic tightening in the HY index spread from north of 800bps to approximately 600bps today! The reverse will be true. So while investors are hopeful that the recent ramp in oil may continue (unless it follows the pattern set in the summer of 2015 when oil likewise pushed higher all summer, settling at around $60/bbl before plunging at the end of the year), one key catalyst may force a sharp repricing in not only oil, but also the junk bond market as well as energy stocks: The Fed.

4. STRONGER DOLLAR, LOWER OIL: The biggest correlation, if not direct causation, to lower oil prices over the past year has been a much stronger U.S. dollar. USD strength has eased somewhat in recent months thanks to the Fed's recent relent via a more hawkish than before stance. A weaker dollar has allowed oil to rebound. However, if indeed the Fed is again set on tightening via rate hikes (or threatens to), then we can expect the opposite to unfold — A much lower oil price.

5. OIL OVERSHOT USD STRENGTH: Even if the greenback doesn't rally substantially from current levels, DB calculates that oil is already 20% higher than the USD-implied fair value of oil. Oil would have to trade lower if we saw a reversion to the mean, all else equal.

6. OIL OVERSHOT MACRO: Other than overshooting USD performance, oil has also overshot global macro in terms of the number and size of positive surprises. The magnitude of this overshooting is also around 20%.

7. CHINA INSPIRED WEAKNESS: Weakening Chinese growth has been proven to weigh heavily on metal prices (industrial and base metals). Based on correlation analysis between metal and oil price performance, lower metal prices should generally be linked to lower oil prices as well. As the risk pertaining to China is skewed negatively, so is the risk to oil prices in this vein.

8. POTENTIAL CROWDED TRADE: Positioning is perhaps the single most important technical factor that will affect how prices trade in the short to medium term. As of this moment, the net speculative long positioning in Brent is almost at two-year highs. The implication is that should selling begin in earnest, it will only accelerate as those who wanted to get long already are, leaving few natural buyers in any selloff. More importantly, a large (potentially extreme) net long position creates a huge potential for mass liquidations of the same trade. Capitulations are possible.

#Forex #Stocks #Trading #Investing #Money #OPEC #China

How the Fed is loosing credibility fast in 2 charts. Markets simply don't react as strongly and as quickly to Fed actions as they used to. When the Fed first introduced the idea of tapering, the markets reacted strongly with the entire curve steepening in stark fashion (implying higher rates for the short to long end, higher inflation expectations and robust macro). It was a good sign that the Fed still had a lot of the market's faith.

Now, more than 2 years after the first taper talks and after the first rate hike in 9 years, the yield curve is not only flatter, but yields are actually lower above the 4Y mark! This curve has flattened so badly, the 2s10s spread is at the lowest since recessionary 2009. In other words, the market is painting a picture of anemic growth, low inflation expectations, and a policy error.

Put another way, the markets have lost faith in the Fed's talk and actions. Yellen is going to need to play it smart here.

#Forex #Stocks #Trading #Investing #Money #FOMC

Following our last post, here is yet more evidence that the market has lost faith in the Fed, and continues to go against it. Despite having acted by raising rates in December last year (instead of their usual talk and no action tendency), both the yield curve and 2016 GDP growth expectations have been crashing. It's evident that the pace of rate increases has risen since start 2016, but other measures of the Fed's effectiveness in spurring confidence say it was a flop.

The Fed's words and actions of tightening convey a strong economy returning to normalcy. The market's actions say deflation, a possible recession, and disbelief in the Fed...

#Forex #Stocks #Trading #Investing #Money #FOMC #Economy

READ HERE: http://www.businessoffinance.com/dai...opean-equities "

No position is a position...", taking big risks in such an environment is pretty similar to gambling.

WHAT?! This was the cover picture we used for our most recent journal entry. It's termed the "death loop" and is obvious why so. The Fed loves to play merry-go-round with the financial markets, and wherever the markets are, they are probably somewhere inside this endless loop.

Hair ripping worthy, you have been warned. We plan not to be in this death loop.

After 2 huge beats/surges in March and April, pushing the Richmond Fed Survey index to 7 year highs, May saw the largest drop on record (23 years of history), bringing the index back to where it started in 2016. If you thought volatility was only present in the financial markets, you'd be wrong!

#Forex #Stocks #Trading #Investing #Economy

Higher borrowing costs, or the prospect of higher interest rates haven't deleted new home buyers in America from bidding the median sale price of new homes to all time record highs of $317,000 in April! Is this evidence that in the long run, property investments almost never lose money? Well, not entirely because this doesn't factor in the wealth erosion of inflation. In real terms, the rise in new home prices would be much more constrained.

Besides new highs in home prices, corresponding new home sales also rose to fresh 9-year highs, jumping much higher in April (619,000 vs. 520,000 exp.), as it seems the appetite to buy new homes is great. Although the same cannot be said for living in these newly bought homes!

#Forex #Stocks #Trading #Investing #Economy #Property #Money

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Yup, we were correct when we thoughtlessly threw a bet last week that the so called "smart money" would turn out to be net sellers for the 17th straight month this year, a record and pretty much unprecedented streak since BofAML data history began in 2008. Our weekly reports have almost become a ritual. What really keeps our interest piqued is finding out when this group of "smart money" actually stops selling and flips to bet buyers. For once, this might actually be coming soon. Will next week's Client Report (reflecting the current week's flows) bring a surprise change

Some notable changes. Net sales are slowing, although still present. Corporate buybacks continue to slow as we enter what is historically a period of lower repurchases.

We leave the rest of the story to BofAML to tell:

"The rolling four-week average trends by client type:

• Hedge funds have been net sellers on a 4-week average basis since early Feb.

• Institutional clients have been net sellers on a 4-week average basis since early Feb.

• Private clients have been net sellers of US stocks on a 4-week average basis since early January.

• The four-week average trend for buybacks by corporate clients suggests a bigger seasonal slowdown in buybacks than what we have seen the last few years at this time.

Client sales have now been slowing for the last four weeks, with last week’s net sales of $218mn notably the smallest since late February (see chart below). Institutional and private clients continued to sell US stocks for the 13th and 15th consecutive weeks, respectively, though net sales by institutional clients were the smallest since mid-February. Hedge fund clients were net buyers, after selling stocks the previous four weeks. Net sales were entirely in mid-caps last week, as small caps saw net buying for the second week, and large caps saw net buying for the first time since January.

Buybacks by corporate clients decelerated last week, and quarter-to-date are tracking below levels we saw both last year and the year before. Year-to-date, buybacks are cumulatively tracking slightly above last year’s levels but below 2014’s record levels.

Bbreakdown by sector:

• Net buying: Telecom since late April

• Net selling: Tech since late Jan.; Staples since early Feb.; Industrials since mid-Feb.; Materials and Health Care since mid-March; Consumer Discretionary since late March, Utilities since early April, ETFs since late April.

• Notable changes in trends: Energy saw a reversal back to net selling after a brief period of net buying; Financials saw a reversal to net buying after net selling since late Feb."

#Forex #Stocks #Trading #Investing #Money

Last week we wrote about the glut off #Singapore's southern coasts, and why it tells an important story about not only the supply dynamics of the Gulf-Asian crude oil market, but also world trade in general. Today, Morgan Stanley has finally published a note about the technicalities of this glut, or what we called the "world's most expensive traffic jam"... Funny because said "traffic jam" isn't actually one, but a congestion that was purposely created.

From Morgan Stanley:

"Floating storage continues to grow despite outages and poor economics. According to Reuters reports, at least 40 supertankers laden with crude are anchored offshore Singapore as floating storage. In fact, according to Reuters, the volume stored offshore Singapore is up 10% WoW despite outages, to 47.7 mmb. The increase in floating oil comes despite disruptions in the Atlantic Basin and an out-of-the-money floating storage arb, suggesting markets are not as healthy as sentiment suggests. It also highlights the speculative nature of much of the oil bounce this year (recent disruptions aside).

Southeast Asia is getting worse, with offshore volumes reaching the highest level in at least 5 years. According to Poten & Partners, the volumes of oil stored at sea in South East Asia - predominantly Singapore and Malaysia - appear to have increased significantly. Remember that the Straits of Malacca, carry 15+ mmb/d of ~56 mmb/d of world oil maritime trade or ~27% of all seaborne oil - primarily from the Persian Gulf.

Falling global refinery maintenance may help seasonally, but we dont expect much relief. Many local refineries have already made purchases for peak summer runs. Bloomberg also calculated 74 VLCCs already bound for China, the highest in 3 weeks, and Chinese imports are elevated in all other data sources. Yet, the offshore glut persists.

Unprofitable storage arbs hide a growing debt-fueled offshore trade as traders search for places to store oil. We estimate the Brent 1M floating storage arb is -$0.48/bbl while 12M is -$6.11/bbl, implying no incentive to store oil on ships. Yet, banks are seeing a sharp uptick in interest to finance storage charters. This storage is not happening for profit. Rather, the market is looking for places to store oil. To profit, traders need to hope for oil prices to rise enough to pay for the new debt incurred for this storage.

Similar situations are being repeated in the Gulf of Mexico and North Sea, but to a lesser degree. Local supply disruptions and seasonality have reportedly allowed some of that crude to be drawn down, but unsold cargoes and congestion remain.

Product markets are unhealthy too. The situation in Asian gasoline is no better, with gasoline tankers floating offshore in Asia, and the contango is more notable. Gasoline stocks remain stubbornly high in available weekly data, esp in Singapore where they built counter seasonally. Total product stocks in Japan and ARA also built counter seasonally."

#Forex #Stocks #Trading #Investing #Economy #Asia #Trade #Oil #OPEC

The BIGGEST Event Risks In June


Near the end of the month, the UK will decide whether she remains a part of the European Union (UK). In other words, Brexit, or Bremain?

This is just one of many crucial, key market events that will take place in June. Given that this month concludes the first half of the year, we thought it'd be fitting we bring you some of the biggest event risks June will bring.

Get ready and mark your calendars.

From the article:

'The biggest risks in June (in our opinion) will be the EU referendum by the UK in the later part of the month, the June ECB monetary policy decision and press conference, the June FOMC statement and interest rate decision, and lastly the BoJ's monetary policy decision.'

We do the analysis and commentary for you, all in today's Daily Grail.
The Biggest Event Risks In June

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Image captions:

New opinion poll results surfaced in Britain Tuesday showing a 47% vote for leaving the EU (Brexit), and a 44% vote for remaining in the EU (Bremain). The news sent GBP crashing 130 pips against the USD and shockwaves across risk markets will global indices all down on the day and for the week. While such poll results are questionable, the consensus is that the Brexit vote is quickly catching up to the conservative.

Regardless of results, the UK referendum is surely one of (if not the most) the nuggets event risks in June and markets will likely continue to trade wildly on every ebb on this event."

Business Of Finance on Facebook, 1 June 2016


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Caption 2:

"The best and worst performing global financial assets in May and YTD (in both local currency and USD terms) as analyzed by DB:

May was a month of decoupling: oil decoupled from the dollar, and global risk decoupled from the once again sharply devaluing Yuan, but most notably May was a month where Fed rate hike expectations repriced midway through the month.
Markets largely took the move in their stride and reversed a difficult start to the month. Having said that we saw evidence of the repricing with dollar strength and EM/Gold weakness a theme. In fact for equity markets in particular the old adage sell in May and go away was looking relatively apt for the first week or so into the month before sentiment turned positive, seemingly supported by a combination of increasing comfort that the market can accommodate Fed tightening, higher oil prices, positive news from Greece and another decent performance for European Banks.

Looking at the winners and losers for the month one thing which stands out is the relative performance between local currency performance and US Dollar hedged performance during the month such was the strength of the Greenback. That was certainly the case with equity markets where in Europe in particular markets were generally up between 1-3% in local terms with banks in the middle of that range. With the Euro weakening 3% during the month however, on a USD return basis we see most European equity markets finish flat to slightly negative. It was a similar story in credit markets too where following two decent months of performance (on the back of the ECB CSPP announcement) May saw Euro indices eking out more modest gains of less than a percent in local terms in May with financials the relative outperformer. Looking at these in USD terms though results in most European credit indices down 2-3%. Performance was more impressive then for the S&P 500 (+2%) and higher beta US credit indices (+0.5%).

Further afield the top of our May leaderboard is headed by the performance for Greek equities (+11% local, +8% in USD terms) which rallied following the latest positive developments with regards to the bailout. Thereafter its WTI (+7%) and Brent (+5%) which rank second and third, extending what has essentially being an ongoing rally since mid-February now. Corn (+6%) also had a strong month. Developed sovereign bond markets sit in the middle of the pack although with concerns about Brexit starting to abate, it was Gilts (+2% local, +1% in USD terms) which outperformed. Finally the bottom of the leaderboard sees Brazilian equities (-10% local, -15% USD terms) prop up the rest as the political situation came to a head. Elsewhere Gold (-6%), Silver (-10%) and Copper (-8%) all suffered with the Fed repricing. EM equities and bonds (-4% and -5% respectively) also succumbed for the same reason.

Taking a look at year-to-date performance, its still commodity markets which are dominating the top of the leaderboard. Indeed in local currency terms the top five has WTI (+33%), Brent (+19%), Silver (+15%), Gold (+15%) and Corn (+13%) hogging the limelight, although if we flip to USD terms then Brazilian equities (+23%) and Russian equities (+19%) jump to second and fourth respectively. The impressive rally for the Yen (+9%) is still a standout while the overall performance for credit continues to be strong. Indeed in local currency terms we see US indices up between 3-7% this year, led by HY while European indices are up between 2-4%. Theres a familiar look to the bottom of the leaderboard with the Shanghai Comp (-17% local, -19% USD terms) the biggest outlier. Italian equities (-14% local, -12% USD terms) and European banks (-14% local, -12% USD terms) are still down double digits although have bounced back from how they ended Q1."

Business Of Finance on Facebook, 1 June 2016

How much harder is it to generate excess returns today than compared to 20 years ago? Well, according to the WSJ, it's 3 times harder.

The introduction of zero bound interest rates has stifled real returns to the point that asset managers worldwide are forced to undertake approximately 3 times the amount of risk (measured in standard deviations) to generate an equal expected return.

On top of that. In 1995, investors could expect to yield 7.5% by fully allocating to bonds, and we know how impossible this is today. In fact, asset dispersion has never been more varied with asset managers allocating to just about every asset class there is including private equity and property.

In short, investors are grappling with lower interest rates and have no choice but to take bigger risks of they want to equal returns of 2 decades ago.

And we have only our central banking friends to thank...

#Forex #Stocks #Trading #Investing #Finance #Money

Since late last year, China has prevent traders from taking overly large positions in its markets (futures included) to curb speculation but more importantly to manipulate prices so that its market doesn't once again crash on every disappointing macro print.

We have seen trading volumes and open interest therefore plunge to almost nothing compared to a year ago. While this may see great for long only investors and a win for the government, it doesn't come without unintended consequences.

Just yesterday, Chinese stock futures flash crashed -12.5% in a mere 3 seconds. Yes, 3 seconds or 3 ticks on the micro charts! And what did it take for the sharpest ever fall to happen? A sell order of a mere 646 contracts worth about $92mn in notational. If anyone trades futures, you'll know that $92mn is a relatively small notional in the grand scheme of things. Yet that series of sell orders was able to flash crash the Chinese futures market by 12% in 3 seconds.

This is nothing short of scary. But it isn't surprising to us. For the more central planners try to regulate, restrict, control, and manipulate the capital markets (and the free markets for that matter), the more fragile the system becomes and the more prone the system is to such events, which can be expected to occur with much higher frequencies and with larger magnitudes. The Chinese never learn...

#Forex #Stocks #Trading #Investing #Money #China