Market Talk – October 22, 2015
The Nikkei gave back some of yesterday’s rally as afternoon trading stocks turned negative to close down 118 points (0.65%). Shanghai rallied into the close, eventually gaining 1.5%, which made back some of yesterday’s losses. Europe spent most of the morning in no-mans land waiting for direction from the ECB. They did not have long to wait and were rewarded when Draghi hinted at an additional stimulus for Europe. DAX, CAC, and IBEX all saw strong gains of around 2.5% but at the expense of the currency. FTSE did finish higher but at only 0.4% pulled into Euroland’s shadow. The U.S. equity markets loved that announcement and strong 2%+ gains across all sectors.
News of further stimulus was too much for the currency markets and within seconds the U.S. dollar was 1.5% higher against the euro. The rally continued into the close and we eventually saw dollar/euro 1.11 trading by the late U.S. session, a decline on the day of 2.1%. The U.S. dollar also made ground against all the Scandi’s, gaining 1.6% against SEK, 1.3% against the NOK, and even against PLZ (1.3%) and 2.15% against the Danish Krona. Obviously, the US Dollar Index (DXY) had one of its best days in a while, closing up at 96.45 a gain of 1.47%.
Mario Draghi set the bonds markets alight with these comments, widening the TY/RX spread out to +152bp. Core European debt soared taking peripherals 10yr 5bp tighter to the core and pushing 10yr German Bunds into sub 0.50%. All banks will be lining up to offer these to the ECB when they next come knocking! The U.S. Treasury curve flattened marginally 2/10 by 2bp, whilst 30s lagged as the belly saw most of todays action.
Gold was not in favour today amidst all the news and we saw prices fall early in the session but closed only small lower at $1165. Oil tried to bounce a little after the recent sell-off but only managed 0.5% TWI and Brent.
The Bond Crisis & 2015.75
Some
people have wrongly expected a crash in the long bonds. What has
actually happened is that China and others have sold into the high,
liquidating their long bonds, and moving short-term. This is why rates
are negative on the short-end. The CRASH comes in the opposite direction
this time. Why? Because the central banks have engaged in Quantitative
Easing. The ECB (European Central Bank) stepped up its buying
of long-term debt to hold the market from 25% to 33%. Smart money is
not interested in buying long-term paper, especially when the Fed keeps
warning that they MUST normalize interest rates, i.e. raise rates.
So
whom has the bonds and will take the loss? Guess who? The central
banks. They are loaded to the gills and cannot sell the long-bonds they
bought. There is no bid. In this debt crisis, there is no bid for debt,
which is typically how empires, nations, & city-states collapse.
The
system is now highly geared and we will see in the months ahead that
short-term rates rise when people begin to wake up and realize that this
system is failing. The U.S. Congress tried to push the debt ceiling
from the September 30 deadline, which was precisely the day of the ECM –
2015.75. They could not make it out to December. There is a war within
Congress and this is critical, for if the debt ceiling fight gets much
worse, then we may indeed begin to start the perception that this is not
going to look very pretty the further we move from 2015.75.
Socrates for the Conference
We will be demonstrating Socrates at the World Economic Conferences. However, I plan on using much of the system live for the conference.
We plan to release the Investor Level of the service shortly before the conference. There will be a 30-day trial for $10 to ensure that real people are signing up. We will be providing that information shortly. The service is not available at the moment, however, once it becomes available we will make an announcement on the blog that will include a link to sign up.
Apple Battles Govt. Over Bypassing Encryption
Customers
hold the iPhone 6s during the official launch at the Apple store in
central Sydney, Australia, September 25, 2015. REUTERS/David Gray
Venezuela May Sell 3 Million Ounces of Gold
Venezuela has $5 billion in debt it must
pay before year-end. They are now making inquiries to sell off gold
reserves to meet their obligations.
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