The bond market is now pricing in an outright doomsday scenario for global growth and stocks are not liking that one little bit.
Benchmark yields in Germany, New Zealand, the UK and elsewhere all hit fresh record lows on Wednesday, following a trio of surprise rate cuts out of Asia.
“Rates markets globally are expecting what looks like Armageddon”, Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings told Bloomberg. Things were going along fine overnight for US equity futures, but the bottom fell out just before the open.
30-year yields in the US are looking for all-time lows and underpinning the moves in rates is a familiar story. “[The] US morning rally saw dollar swap spreads aggressively tighten, indicative of gamma hedging receiving flows supporting Treasury advance”, Bloomberg’s Edward Bolingbroke observed.
Meanwhile, the Dow was down more than 400 points just after the open.
If the index were to close lower by 250 points or more, it would be the fourth such day in six sessions.
As discussed at length here on Tuesday evening, it wasn’t clear headed into the back half of the week whether the ~6% rout seen over the past several session counted as a true “purge”. There are still jitters about possible quant selling, which probably hadn’t run its course despite Monday’s steep losses.
Read more: Nervous Traders Fear New Wave Of Selling As Quant Questions Linger
Earlier Wednesday, Donald Trump took to Twitter to call the Fed “incompetent” and demand rate cuts “NOW”. If stocks don’t rebound, you can expect the president to make a few phone calls to Jerome Powell, as he’s done on at least three occasions in 2019.
Let’s just hope Steve Mnuchin doesn’t exacerbate the situation by making any panicked calls to Jamie Dimon asking about “liquidity“.
Well trump said buy stocks because they will go up. Today case in point, every selling is met with even more buying. Wouldn’t be surprised America is victorious once again and closes 1% up. Fuck this fool. Can’t keep his mouth shut on top of things.
Well, with India and Pakistan on the verge of war and China on the verge of civil war, and Siberia on fire and killer heat waves in Europe and Japan, and Greenland melting and the Greek 10 year bond yielding 1.9% and the United States ruled by a demented game show host – none of that screams “risk on” sentiment to me.
No sweat folks….. good news is bad news and bad news is good news…The playing field looks like a Gopher colony for all the goalpost moves… The MSM is………..(fill in the Blanks)…. The public is well…. there is always some texting to be done or maybe Facebook…..
Betting nobody saw this coming except Chicken Little……….
Just jumped down the rabbit hole of money velocity, wondering about liquidity, wondering what the hell is going on these days. My conclusion should ring a bell to anyone who has ever pondered if trump is the right person to be ruling the world. As step one, step back a few years and recall that trump went bankrupt at least 5 times — and most of those great deals he managed, went to court, where as part of settlement, details as to how his debt was restructured are in closed records, that apparently not even the IRS can obtain.
Step 2 is essentially taking a leap of faith that trump’s hidden bankruptcy exploits are a pattern which is now being repeated, i.e., instead of playing the big stakes leverage game with his debt and his bankers and his messes, he’s playing his same game with America and our treasury and Fed. Ponder his abusive threats to Fed Chairman Powell to lower rates on one hand, while on the other hand, he explodes the deficit by trillions — playing Peter against Paul in a game that ends in bankruptcy, where he walks away blaming someone else.
With that summation keep in mind that the global economy and the subtle recovery from The Great Recession was at best fragile — then trump entered the picture, providing the world with his style of economic chaos, which will only increase in intensity and insanity.
It’s worth reading a few background blog posts to gain a bit of understanding as to why this is a dangerous time, not just because of trump, but because the global economy is fragile. Look no further than a decline in private investment: “DeLong and Summers (1991) found that the post-World War II cross-
country dataset contained an extraordinarily strong correlation between
growth and private investment in machinery and equipment. Public
investment by state-owned monopolies did not do it. Investment in
structures did not do it. The correlation was very strong in OECD-class
and middle-income economies.”
Also see:
==> ll economies rely heavily on the business sector to lead the growth process. Yet, a sharp decline in GDP per dollar of business debt occurred in the U.S. during the past nine years, reinforcing the underlying trend since the early 1950s. In 1952, $3.42 of GDP was generated for every dollar of business debt, compared with only $1.39 in 2017. In the corporate sector, where capital as well as technology is most readily available, GDP generated per dollar of debt fell from $4.50 in 1952 to $2.50 in 2007 to $2.21 last year. The dismal trend in productivity confirms this conclusion. The percent change for productivity in the last five years (2017-2012) was equal to the lowest of all five-year spans since 1952. It was also less than half the average growth over that period.
http://econintersect.com/pages/investing/investing.php?post=201804282237
==> “But within a few quarters, we will be facing outright deflation. The Fed is going to monetize at least a portion of what will be a $1+ trillion dollar US deficit. They have announced they are going to purchase $800 billion in mortgage-backed and other types of consumer loan assets. That will be a direct infusion of dollars into the economy. That is serious monetization. But they may feel they have no choice if they want to keep the US economy from going Japanese.”