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Presented without comment. Just one question though. Have stocks decoupled from the economic reality, or are both metrics just in a dazzled phase?

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

The much anticipated June ECB meeting ended without much commotion. Euro is down slightly post Draghi, so that's one key event risk down for June. The ECB will officially start purchasing non-fin euro corporate bonds under the PSPP on 8 June.

Bulletin headlines from Draghi's presser:

• DRAGHI SAYS RATES TO STAY LOW WELL BEYOND QE HORIZON
• DRAGHI: ASSET BUYS TO RUN TO MARCH 2017 OR BEYOND IF NEEDED
• DRAGHI: EXPECT RATES AT CURRENT, LOWER LEVELS FOR EXTENDED PERIOD
• DRAGHI: EXPECT RECOVERY TO PROCEED AT MODERATE BUT STEADY PACE
• DRAGHI:GROWTH STILL SUPPORTED BY DOMESTIC DEMAND; EXPORTS WEAK
• DRAGHI: IF WARRANTED, WILL USE ALL TOOLS AVAILABLE IN MANDATE
• DRAGHI: TO CLOSELY MONITOR PRICE STABILITY OUTLOOK
• DRAGHI: EXPECT ADDL STIMULUS FROM MEASURES NOT YET IMPLEMENTED
• DRAGHI: 2Q GROWTH MAY BE SLOWER THAN 1Q
• DRAGHI: RISKS TO GROWTH OUTLOOK STILL ON DOWNSIDE
• ECB STAFF SEE 2018 EUROZONE GDP AT 1.7% V MAR 1.8%
• ECB STAFF SEE 2017 EUROZONE GDP AT 1.7% V MAR 1.7%
• ECB STAFF SEE 2016 EUROZONE GDP AT 1.6% V MAR 1.4%
• ECB STAFF SEE 2016 EUROZONE HICP AT 0.2% V MAR 0.1%
• ECB STAFF SEE 2017 EUROZONE HICP AT 1.3% V MAR 1.3%
• ECB STAFF SEE 2018 EUROZONE HICP AT 1.6% V MAR 1.6%

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

Crude has fallen from fresh 2016 highs carved in during the start of the week, mostly on technical forces but also on a build in total API stock last week (data published Wednesday). Today, the much watched OPEC meeting in Vienna ended without any agreement on a production cut or freeze between delegates. Prices fell sharply on the news. So what happens now that oil is no longer cheap (to the consumer).

#Forex #Stocks #Trading #Investing #Money #Oil #OPEC

Initial claims for last week came in at 273,000, inline with expectations and down ever so slightly from the previous week's. The 4-week average is still within range of its 33-year lows. This isn't the story.

What is the story is the utter madness when we look at other labor matrices such as the ISM employment figures for both the manufacturing and services sector. In which case isn't good. Manufacturing remains very soft and there has been no death of coverage on how big firms have been laying off workers in recent times. One would thing that this was only isolated to manufacturing, but that would be a mistake.

As seen in the lower pane, services employment has gotten somewhat softer recently. Both sectors are diverging widely from what the Initial Jobless Claims figures imply, begging the question: What on earth is suppressing claims if employment in both manufacturing and services has deteriorated since early-2015?

#Forex #Stocks #Trading #Investing #Economy #Jobs

While the traders gamble over a possible June Fed rate hike, the market believes July is the name of the Fed game. FF futures implied rate hike odds for July has risen to 48%, nearly a 50-50 chance, and is the highest ever. June odds have rolled over from their highs of 34% last week and currently sits at 20%; rather congruent with how the U.S. dollar has traded over the past few days.

We however, prefer not to gamble.

Dallas Fed president comments:

• FED’S KAPLAN SAYS U.S. CONSUMER IS IN RELATIVELY GOOD SHAPE
• KAPLAN: U.S. IS GETTING PRETTY CLOSE TO FULL EMPLOYMENT
• KAPLAN: GETTING TO POINT WHERE MAKES SENSE TO TAKE ANOTHER STEP
• FED’S KAPLAN SAYS NEXT STEP ‘DOESN’T NECESSARILY’ MEAN JUNE
• KAPLAN: THERE'S A COST TO RUNNING RATES THIS LOW
• FED’S KAPLAN SAYS RATES THIS LOW CAN CAUSE DISTORTIONS
• FED'S KAPLAN: `THE WAR OF 2016 IS WE'VE GOT TO GROW'
• KAPLAN: WE EXPECT CHINA GDP TO CONTINUE TO RATCHET DOWN
• KAPLAN: SEE SOME IMMEDIATE TAIL RISK IF U.K. VOTES TO EXIT EU
• KAPLAN: `WE NEED TO BE PREPARED' IF U.K. VOTES TO EXIT EU

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

An update on the American crude market for the week ending 27 May. Production continues to fall for the 17th straight month, to September 2014 levels, as what we call the NEP (New Energy Paradigm) takes firm shape in the American energy market.

Inventory data shows mixed signs in total DoE stocks which includes Cushing and gasoline. We note that distillate investors has seen draws for the last 7 straight weeks, and might be indicative of a change from the older more predominant trend of a glut.

Market reaction to the latest DoE data was higher crude, erasing post-OPEC "no deal" losses bringing WTI back to the day's open. Actual vs. consensus expectations data at the bottom of this chart.

#Forex #Stocks #Trading #Investing #Money #Oil #OPEC

BIGGEST NFP MISS IN HISTORY! No one expected this even in their wildest most evil dreams! May NFP printed a mere +38,000 vs. expectations of +164,000, and down from April's already miserable +123,000 (revised lower from +160,000)!

Everything else missed or was inline at best. Only the U3 unemployment rate beat by falling to 4.7% vs. expectations of 4.9% and down from April's 5%, but this was due to massive shrinkage in the labor force (participation rate fell once again).

The USD is down sharply against all currencies, and precious metals (gold, silver, ect...) are surging. More updates to come.

#Forex #Stocks #Trading #Investing #Economy #Jobs #NFP #Friday #WTF

May's NFP uber miss was not only the largest in history but also puts the key jobs indicator at the lowest since September 2010.

The Fed can forget about a June rate hike...

#Forex #Stocks #Trading #Investing #Economy #Jobs #Money #Friday

Post the epic disaster that was the May NFP report, the greenback is down sharply, and is almost technically back in its bear market. All details included in our charts.

One thing is almost certain: No one in their right mind will be expecting the Fed to hike in June. Rate hike odds crash to nearly 0% again...

Who's having fun in this see-saw?

#Forex #Stocks #Trading #Investing #Economy #Jobs #NFP #Friday

The carnage after today's extremely terrible May NFP report. Rate hike odds (as implied by FF futures) have crashed with June only carrying a jokingly low 2% probability (down massively from 34% 2 weeks ago!), July carrying a 36% probability (down from 48% yesterday!), and September carrying a 26% probability (up from 15% earlier this week).

It would see that the Fed is not expected to hike in June. While we were still holding our ground for. June hike, this utterly disastrous NFP print was the final nail in the fateful coffin — We are officially expecting a shift in the Fed's stance; more dovishness and ultra caution.

The market reaction was to be expected. Massive weakness in the USD, leading to explosive upside in the precious metals and USD crosses, downside in treasury yields and that of up-in-quality names, great volatility in stocks with financials lagging...

The Fed has hereby tossed the market around like a baby doll; dumping, pumping, and then dumping expectations of more monetary policy tightening. It's downright brutal!

#Forex #Stocks #Trading #Investing #Economy #Gold #FOMC #NFP #Jobs #Friday

For the first time in nearly 25 weeks, U.S. rig count posted its first weekly increase since December 2015, seemingly led (with nearly perfect precision) by lagged crude oil prices. Crude prices fell slightly on this news. It is also the first time that the rig count has not decreased 2 weeks in a row. It remains to be seen if we get more weekly increases down the road. If so, this might mark an interim high for crude prices, especially on the heels of yesterday's uneventful OPEC meeting.

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

How Goldman Sachs murders its clients one call at a time. Followers will recall that less than 18 hours ago we posted about Goldman's sell recommendation on the Chinese yuan (USDCHN long). We caution that whatever Goldman says, it's probably doing the opposite — meaning when it or out an "outright bearish" call on the Chinese currency against the USD, it was probably already long the yuan on its desk.

Sure enough, less than 24 hours after making that call, the yuan has surged almost 500 pips against the dollar, erasing 2 weeks worth of losses in a single day and posting the largest single day gain since 2011!

In other words, whoever (clients) shorted the yuan based on Goldman recommendation (which was actually fairly legitimate in our opinion), would be sitting on some sizable losses right about now.

They don't call Goldman the vampire squid for nothing!

#Forex #Stocks #Trading #Investing #Finance #Money #China #Banking #Yuan

When we venture into the underworld of the subzero, we find many interesting things. Such as how, even though the JGB (Japan) curve is significantly flatter than the bund curve (Germany), bunds under 7 years in tenure yield much less than their Japanese counter parties.

Also, did you know that the U.S. treasury paper makes up around 60% of all outstanding positive yielding government debt securities globally? Even as the UST curve falls to 9-year flats, even the 4-week bill has a positive yield to maturity.

And lastly, the effect of the ECB's PSPP (especially after given a boost in February and expanded to include private securities) has on the Eurobond markets can be seen in the 10Y bund. While legendary investor and Bond King Bill Gross so skillfully called the low in German yields back in April 2015, calling bunds a "short of a lifetime", bind yields have fallen back, albeit taking awhile, to where they were 14 months back.

#Forex #Stocks #Trading #Investing #Money #QE #NIRP #Economy

[Ultra long post, expand to read]

The shocking reality that all bond fund managers, banks, and probably even the Fed is extremely fearful of. The effective duration (exposure) of the U.S. aggregate bond market (treasuries, agency debt, mortgage securities, corporate bonds, municipal bonds, and ABSs) has never been higher since records began. Not only is gross notional of debt increasing (all time highs of $40trn, yes that's a "T" for trillion), the exposure investors and corporate balance sheets have to interest rates has never been greater.

Firstly, we measure the total face value (principal) of all U.S. bonds to be $40trn (higher end), and $17trn if we factored out shorter maturity (such as money markets, with low duration) securities. The figure ranges anywhere from $17trn (conservative) to $40trn (maximum) in 2015 dollar terms. This ballpark range is on average 60% higher than it was in 2000! We're talking about the biggest bond market in the entire world which is the U.S.'s.

This is meaningless if we assumed interest rates will always stay where they are today. But everyone knows, especially bond fund managers and the Fed, that it is furthest from the truth. The Fed, like it or not, is on a path of monetary policy tightening, which means that over the medium to longer run, effective Fed Funds rates are going higher, pulling up money market rates, and therefore further flattening the UST yield curve (which is already at 9-year flats) in a bearish manner. When the FF rate rises, the entire curve is shifted higher, affecting all debt securities across all maturities (weekly bills to the long bond); this rising tide that is higher FF rates floats all boats that is the entire U.S. bond market of $17-40trn principal.

The deadly potency of higher rates through Fed tightening is both gross notional and duration (exposure). The further out investors go on the curve, the greater the risk to interest rate moves, which is measured via modified duration.

Goldman Sachs estimates that a 100bp (1%) rise in the FF rate (from the current 0.5% upper bound to 1.5%) would cause mark-to-market losses of between $1-2.4trn! Putting this loss in context, even the smaller $1trn loss would be over 50% larger than the market value lost in the 1994 bond market selloff in inflation-adjusted terms, and larger than the cumulative credit losses experienced to date in the non-agency residential mortgage backed securities market (post subprime). And this is only only as a result of a 1% interest rate increase. We we assumed a full normalization of rates to their historical level of 3.5%, the amount of mark-to-market losses climbs to a staggering $3trn (based on the Barclays U.S. Aggregate Bond Index)!

As seen in Exhibits 3 & 4, aggregate bond market duration in the U.S. has reached historical highs of 5.7 years (this may seem low but it's actually extremely high considering 70-80% of all outstanding debt securities are short dated under 3 years of tenure)! The average maturity of U.S. corporate bond issuance in 2015-2016 so far is over 15 years!

More specifically, Exhibit 3 shows the aggregate interest rate duration across the bond market has increased over the past several years, up over 20% vs. the 1995-2005 average level. Longer durations are largely driven by lengthening maturities on the bonds outstanding, as issuers have elected to term out their debt structures. Exhibit 4 shows that the average maturity of corporate bonds issued in 2015 and 2016 is over 16 years, vs. an average of 8.6 years during 1995-2005. The U.S. Treasury has also chosen to lengthen its debt maturity structure, with more use of long duration bonds.

If both short-term and long-term rates were to move up by 1% simultaneously, 70% of the benefit would come from the move in short-term rates. The reason for this is that even if long-term rates remain under pressure, and the curve flattens further, an increase in short-term rates provides an immediate boost to bank profits. That is because many loans are automatically priced against short-term benchmarks like LIBOR. In this case, financials are the main beneficiaries, but only on the surface (income statement).

However, if we shifted to look at the damage done on balance sheets, the scene turns deep red vert quickly. The largest losses will stem from the longer end of the curve where unprecedented duration exposure that central banks have forced everyone into spells the true risks.

Goldman calculates that combining a duration estimate of 5.6 years with a total notional exposure of $17trn, and current dollar price of bonds of $105.6, indicates that a 100bp shock to interest rates would translate into a $1trn market value loss. That is using the more conservative estimate of the bond market size. Using the broader bond market sizing of $40trn, the estimated MTM losses would be $2.4 trillion. This ignores the losses that would also impact the Fed's own holdings of interest rate instruments, which at last check had a DV01 of about $2.5bn, or a $250bn hit for every 1% increase in rates. The Fed would technically be bankrupted by a 25bn rise in rates, let alone 1% or 3% should we return to full normalization (which no one really expects given the existing fragility in the economy and financial markets).

And what has created, if not bred, this gargantuan of a problem? None other than the Fed itself. By artificially suppressing yields near the zero lower bound for more than 8 years, even taking into consideration the first 25bp rate hike in December 2015, the Fed has forced capital and cash to chase returns by going further out; as the only logical way to boost returns in a yield-starved environment without fancy arbitrage strategies has been to hold longer maturity bonds. This was especially the case when the UST curve was still steepening during the 2011-2013 period, when the Fed's QE programs were still running hot.

It's safe to say no one really wishes for the Fed to continue hiking. Because no one really has a solution to hedge out this record high risk to rising rates. It's next to impossible to significantly lessen private holdings of treasuries sicnr the Fed is no longer the buyer of first and last resort. The only thing the market can do is to hope for another round of QE, where it will at least have one last chance of offloading some duration risk to the Fed's balance sheet.

It's truly scary.

#Forex #Stocks #Trading #Investing #Economy #QE #Money #Finance #FOMC #Sunday

Right out of the open on Monday, GBP crashed in the news of the Brexit camp get taking the Bremain camp — 45% vs. 41%. The referendum on EU membership is lurking only 3 weeks ahead, and traders are wasting no time buying up every last bit of protection on GBP as they bid up volatility premium on GBP options to a record high! Obviously to say the least, most expect a major rattling of the markets during this historic event!

#Forex #Stocks #Trading #Investing #Economy #Monday #Brexit #EUref #Europe #EU

More proof that China is telling tales when it comes to its economy? Probably. Figures published by Fathom indicate that the real unemployment rate in the world's second largest economy is closer to 12% than the 4% claimed by the Chinese government. In fact, since 2012 even as GDP growth and all other macro indicators rolls over majorly, the state-reported unemployment rate stood still at 4% not budging an inch. All while private measures of unemployment rose steadily to almost triple that reported by a corrupt and government in denial.

#Forex #Stocks #Trading #Investing #Economy #China #Jobs #Lies

Ever since 2011 after the infamous Jackson Hole conference where the world's most prominent central banks convened, the correlation between U.S. equities and bonds broke entirely. In the past (pre-2012), stocks rose when yields rose (bonds fell), and the opposite was true. Now, it seems that both stocks and bonds can rise together (yields fall) as the USD becomes an intermediary. Should we expect this correlation to wrap once again now that the Fed is on a path of (very slow) tightening? No one really know.

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

10 minutes past midnight Eastern Time, GBP spiked slightly over 170 pips in a matter of seconds. Here we display the GBPUSD currency pair, but if you looked at all GBP crosses, spikes are also evident at the same moment. Whatever it was that triggered this crazy spike in the pound is still unknown, but it seems to be a fat figure from way prices decayed after the brief surge occurring over a minute (most of the upside was in a few seconds, though not viable on the charts). A lot of shorts were taken out for sure.

#Forex #Stocks #Trading #Investing #Money #Brexit #EUref #Europe #GBPUSD

Taiwan, perhaps Asia's best example of a trading bellwether, just reported its 16th straight month of declining (YoY) exports, coming in at -9.6% over the same period last year. Although this was better than expectations for a -9.9% decline, it is no saving grace for the sheer softness in the Asian commerce market, and maybe even the world.

Gross and bet trade volumes have been declining since 2014 as can be seen, so when China squawks about how its economy is still in relatively good shape, we have full confidence to instantly call it bluff.

#Forex #Stocks #Trading #Investing #Economy #Trade #China #Asia

Finally! Finally, for the first time in an utterly unprecedented 19 months, the so called "smart money" finally flipped from record net seller to net buyer of U.S. stocks. Followers will know how we have painstakingly documented how this fascinating trend developed since the start of the year, and how we bluntly asked if "smart money" was about to flip to become net buyers for the previous week. Well, we were one week early, but it was bound to happen.

The longest selling streak on record (since 2008) has finally ended with a $1bn net purchase of American equities last week. The "smart money" in question consists of hedge funds, institutional clients, and private clients, as determined by BofAML.

However, don't be too quick to jump to conclusions. We are still a far cry from seeing a positive 4-week average flow, which still remains very negative s of last week. Cumulative flows since 2008 and YTD basically speak of this point (see lowest pane). One week of buying means nothing in the morass of selling. Now that the SPX is trading above 2100, and market participants have got some semblance of clue as to what the Fed might do in June (likely no hike coming), this added clarity might be expected to induce more positive flows by this group into U.S. equities.

We shall see. Tune in on Tuesday next week to find out if "smart money" flips back to selling, or continues buying.

More details from BofAML:

Broader global flow data (EPFR data) similarly suggested inflows into US stocks in the most recent week (Thurs-Weds, vs. Mon-Fri for flows in this report). But four-week average BofAML client flows remain negative, as they have been since February, and flows in the coming weeks will suggest whether this represents true capitulation or simply a brief pause in outflows. Other sentiment measures, such as our Sell Side Indicator, suggest still-bearish equity sentiment.

Net buying last week was led by flows into passive vehicles (ETFs), though clients were net buyers of single stocks as well. Single-stock buying was largest within Health Care, a sector which has seen net sales most weeks this year amid uncertainty over the US election and a positioning unwind. Clients also bought Utilities, Industrials, Tech, Staples, and Discretionary stocks last week. Financials and Energy stocks saw the biggest net sales. Currently, no sector has a long-term selling streak or buying streak, as the longest buying trend is for Staples (at three weeks) while the longest selling trend is for Telecom, Materials, Financials and Energy (two weeks each).

Other notable flows: Buybacks continue to slow

Buybacks by our corporate clients slowed to their lowest weekly level year-to-date, with the four-week average trend in buybacks the lowest since January 2015. Cumulatively this year, buybacks are tracking in-line with levels we saw in the first five months of 2015, and below 2014’s record levels.
Sector flows varied by client type – only Utilities saw net buying by institutional clients, hedge funds and private clients alike last week, while only Financials and Energy saw net selling by all three groups.

Pension fund clients were net sellers of US stocks last week, following a week of net buying. Opposite of broader institutional clients (and similar to hedge funds), this group’s net sales were chiefly in Health Care and Consumer Discretionary stocks last week. This group remains a net buyer of stocks year-to-date, which was true in 2015 and 2014 as well. See Pension fund flows for details.

Rolling four-week average trends by sector:

• Net buying: Telecom since late April; ETFs since late May.

•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; Energy since mid-May; Financials since late May.

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 slowdown in buybacks than what we have seen the last few years at this time.

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