Market drop?

Hard to Pinpoint one specific reason so I will list Some Headlines that could have caused drop and remind everyone that Dollar did rally a bit post London fix at 10 A.M. . Also Sell into the European Close based on bearish EZ headlines then Bounce post 10:30, buy the European Close

  • Italy set a one Day record in new Virus cases
  • GERMAN CABINET, WHICH MET WED. MUST NOT GO INTO QUARANTINE DESPITE GERMANY’S HEALTH MIN. SPAHN’S POSITIVE CORONAVIRUS TEST – FOCUS ONLINE
  • Media reports say DF-17 missiles have been deployed to China’s southeast coast. Viewed as aircraft carrier killer, DF-17 has range of up to 2,500 km. If it is true, the Chinese mainland’s anti-access/area denial capability will be greatly enhanced in a war in the Taiwan Straits.
  • Boston Public Schools students will return to remote-only learning starting Thursday, as the city’s coronavirus positivity rate continues to rise, city and school officials announced Wednesday
  • **POMPEO SAYS US DESIGNATING US OPERATIONS OF SIX CHINA BASED MEDIA OUTLETS AS FOREIGN MISSIONS

But the Whitehouse with a Stick save on Markets drop

  • White House spokeswoman says cautiously optimistic on stimulus deal forexlive.com/news/!/white-h…
  • WH PRESS SEC. MCENANY: I AM CAUTIOUSLY OPTIMISTIC ON A STIMULUS DEAL.

Volatility

Bloomberg flagging up this interesting market pricing .Vix curve From 10-20 =orange line 9-21 Green and 8-18=Blue Line. The red circles show the expected peak in Volatility .Now Vix futures show what volatility may be in one months time So a high print in November contract means December volatility expected to be high.The red circle from 8-18 showed market players viewed the October contract as the peak in Volatility (November time period) as possibly the most volatile month,but now notice today and one Month ago that Guess is for November contract (month of )December..Contested election likely the cause for the movement .An Interesting bit of pricing don’t you think?

More election volatility currency vol starting to take notice of election day 2 weeks out

2 week Euro Volatilty

2 week Jpy Volatility

Morning 10-21

 What is the bond/Treasury market telling us?

10 year yields highest since June

30 year yields highest since June

5s 30 yield curve Steepest since Early June and if June high’s Broken 4-year highs

 Reflation trade, Democratic Sweep in upcoming election and /or pricing in a Stimulus deal of some sort  or combination of all three is driving Long rates higher .With Short term rates pegged to zero for a few years the Curve could continue to steepen as the Above  possible outcomes get priced in.

News:

  • Netflix Disappointing Earnings but most importantly new subscribers missed 2.2 mln vs f/c 3.4 yikes company being downgraded stock price -6% or so.
  • Other Earnings news Winnebago good Stock =15 AutoNation good Stock +8% Snap the best stock +22%
  • Yesterday Stimulus deal Deadline came and went without a deal…  Pelosi running out the clock Per Politico 
  • “The Justice Department’s suit against Google marks the first time in more than 20 years that the government is looking at splitting up a company for quashing competition. And if the judge decides that Google is an illegal monopoly, the case could be the first time in more than 100 years that a court orders a company breakup. -Politico
  • Bitcoin Above 12k for first time in a month

Markets:

 Dollar below the 93 and 92.70 level in spot Technicals turning bearish but surprisingly Stocks sideways to lower. Spoos and Nasdaq little changed European stocks heavy all main bourses down >1% 18-20 Stoxx sectors down on the day led by construction as Individual Stock earning in that sector disappoint. Weaker dollar may not be helping stocks but metals have bid Copper continues to gain trading at 2 + year high +1.25% precious metals higher, Nat Gas above $3 for first time in a little over a year. MXCn the MSCi China Stock Index approaching multi year highs yuan 2+ year highs  reflation trade here.

Charts BTC and LNG

Bit coin cash

Natural gas Turning into a Global product and thus Impacted by the Global LNG supply,demand and prices.China weather turning colder and per Bloomberg an early start to Winter likely to see an Increase in LNG demand,and from NGI natural gas intelligence LNG feed demand increased 8.5 BCF today”..Below is US LNG export demand in a 1 day percentage change recall the more negative number the higher exports,so a drop of 17% yesterday into today is one of the biggest surges in LNG Exports in last few weeks.$3 front month gas here we come as Nov trading 2.95

Morning and mizuho comments

Spoos Up Dax down yuan Strongest in 2 + years, Copper Comex touched 2-year highs, Nat gas 18-month highs as global LNG demand pushes prices higher. U.S. natural gas becoming a global product due to LNG exports. Supposedly today is last call for Stimulus bill, Senate will vote on some type of standalone bill, Mnuchin and Pelosi will talk and Trump on Fox news saying Republicans will fall in line on a bill if Pelosi agrees,2 weeks till election day. @JakeSherman THE LEVEL OF DISTRUST in MNUCHIN among Republicans is hard to overstate

 News:

 Goldman Will pay $2B for their role in the Malaysian scandal -BBG UBS reported good earnings, Aussie dollar lower on day as the Cen bank said negative rates are possible, IBM post earnings dropped as it failed to give a forecast, Proctor and gamble the opposite Lifted its full year guidance stock  +1%.Phillip Morris raised its full year guidance. BMW also reported good earnings

The Nasdaq has closed down 5 days in a row. In the last 5 years, n=8 (small sample). NDX closed lower 5 days later 63% of the time and had a lower close within those next 5 days in all but one instance (88%). (@ukarlewitz

Virus:

Germany Cases touched a new record high, CDC urged travelers to wear a mask on trains, planes, and buses. Moderna Expects interim results for its Vaccine in November Paso Texas reporting they are running out of Hospital beds we all know cases are surging

Markets:

Within Stoxx 600 14-20 groups lower led by basic resource and technology, Stoxx 50-.4% Spoos +.45% grasping for new stimulus hopes. Dollar index off a bit but still no technical damage being done. Cattlelong liquidation continued yesterday as Both feeder and Live touched limit down, Corn and beans firm. Bonds and Bunds both  showing higher yields

Via Mizuho

“First up on today in the Senate is a standalone bill to allow unused money left over from a $2 trillion March stimulus deal to reinvigorate the Paycheck Protection Program, which provides help to small businesses facing the risk of layoffs. Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin “continued to narrow their differences” on a coronavirus relief package, a Pelosi aide said Monday. “The Speaker continues to hope that, by the end of the day Tuesday, we will have clarity on whether we will be able to pass a bill before the election,” Pelosi spokesman Drew Hammill said on Twitter. “The two principals will speak again tomorrow and staff work will continue around the clock.” If nothing gets done before the election, then the question is whether a fiscal relief package could get wrapped into an overall spending bill, which is due by Dec. 11. Without passage of such a stopgap funding package, the federal government faces a shutdown.

Citi Economic Surprise Index

For U.S. EU and G-10 short term peak appears to have been reached trend is Lower over last 2 months or so.Horz lines indicate roughly the peak in U.S. and G-10

U.S. Misery index is Inflation plus unemployment from BLS ” The US Misery Index is released by the Bureau of Labor Statistics. This metric is calculated by adding the US inflation rate and the US unemployment rate and Further from Wikipedia “The index helps determine how the average citizen is doing economically and it is calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation create economic and social costs for a country”

Red zone=recessions

10-19

VIRUS HEADLINES:

.@ScottGottliebMD: “We have two or three very hard months ahead of us. I think it’s going to be the hardest phase of this pandemic.”

From Bloomberg Nationally, seven-day moving case averages have climbed to their highest in two months, while the number of currently hospitalized Covid-19 patients was the most since Aug. 27, according to Johns Hopkins University and Covid Tracking Project data. And now there’s a new troubling trend in rural areas. The highest case rates per capita in the past seven days have been in North Dakota, South Dakota, Montana, Wisconsin and Utah.”

-Active cases (vs Friday): US 4.700m (+2.5%), Italy 126.2k (+27.2%), Iran 72.6k (+3.5%), Spain 752.4k (+2.0%), Germany 65.7k (+16.8%), France 735.0k (+3.4%), UK 679.0k (+7.7%), Japan 6,965 (+7.5%), S Korea 1,463 (+3.5%); Russia 301.2k (+7.7%) Italy(18 Oct): +11705 new cases, daily record high  ( ITC markets)

◘ Britain’s Oxford University said on Monday initial findings from a study on the long term impact of COVID-19 has found that a large number of patients discharged from hospitals still experience symptoms of breathlessness, fatigue, anxiety and depression two to three months after contracting the virus. The scientists also detected abnormalities in multiple organs and believe persistent inflammation may be a factor for COVID-19 survivors, the university said in a statement. (Reuters)

Stimulus:

 Pelosi has stated tomorrow as the deadline for Stimulus talks, be aware Mnuchin out of country, so expectations are low for a deal. But never say never….

  • …**MEADOWS SAYS HE SPOKE TO TRUMP ABOUT STIMULUS FOR HOUR YDAY
  • WH CHIEF OF STAFF MEADOWS: I AM HOPEFUL AN AGREEMENT ON COVID-19 RELIEF CAN BE REACHED IN 48 HOURS.
  • WH CHIEF OF STAFF MEADOWS: GOOD PROGRESS IS BEING MADE IN STIMULUS TALKS.

China Economic data providing a bit to Risk as Yuan Strengthens to highest level in almost 2 years. Yuan trading 6.6773 a break of 6.6704 is a big deal technically. Strong yuan=good for Risk and bad for Dollar

From trading Economics”, The Chinese economy advanced 4.9% yoy in Q3 2020, faster than a 3.2% expansion in Q2 but below forecasts of a 5.2% growth. Despite the lower-than-expected reading, there are signs the expansion is finally extending to consumption after a state-backed industrial recovery. Retail sales rose 3.3% yoy in September, above forecasts and the highest reading so far this year. Industrial production went up 6.9%, also higher than expected and the biggest gain in 2020. For the first nine months of the year, the economy expanded 0.7%, recovering all the ground it lost in the first half, with the primary industry increasing 2.3%, the secondary 0.9% and the services sector 0.4%. Rising global demand for medical equipment and work-from-home technology has been boosting exports while government support including more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements has also helped to boost the recovery.”

Markets:

Mizuho “last week’s Amazon Prime Day sales may have grown 49% year-over-year (Amazon up 1.4% pre-market).

 Dollar down Trade accordingly a break below 93 in dollar spot, DXY could accelerate the Risk on move in Spoos +.78%,nadaq +1% But European Stock sputtering a bit  Covid worries? Stoxx +.3% Dax and Cac both a touch lower Euro and GBP bid as Brexit issues appear to be cleared up or at least a step in the right direction. Bonds lower Bunds steady to lower and BTPs lower and MIB unchanged due to the spike in Covid cases there. It appears to be a “Stimulus is on “Type trade. Earnijngs season picks up the pace this week with multiple Big names reporting.

Chart pack

U of Michigan Confidence

3 mo Simple Moving Average of 5-10 Inflation expectations from U of M

Retail Sales Control Group A bit Volatile of late as you can see this months data better than expected

From Grant Thornton “Core retail sales, which feed into consumer spending in the overall GDP figures, bounced back at a 1.4% pace after contracting more than initially reported in August. Consumers have shifted away from spending on services to goods in the wake of COVID. Look for the tradeoff between goods and services to accelerate as we get into the holiday season. Travel and tourism are expected to be particularly weak if the threat of contagion continues to rise. The number of COVID cases is surging again, which will further limit use of indoor venues. The restaurant industry is seeing permanent closures accelerate, while large chains that are able to pivot more to curbside and drive-through services are gaining market share.”

lastly a Bit of Economic data that missed expectations today,capacity Utilization. From BBG capacity Utilization tracks the extent to which the installed productive capacity of a country is being used in the production of goods and services” This can be also views as a soft proxy for inflation or disinflation. In the 1970s and 80s cap Ute was in the mid to upper eighties and inflation was much higher then today.use this range then as a point where capacity Ute can be considered inflationary,or deflationary. two proxies today for inflation U of Mich and Cap utilization both lean disinflation

Morning 10-16

From Mike Zaccardi, CFA, CMT

 Below Austria’s 100-year bond take notice of the Red circle it is yielding.46% for 100 year! if you are Austria why wouldn’t borrow as much money as you can for the paltry rate

 This is a theme that is starting to become more prevalent. Gundlach in an interview with real Vision indicating that Bond Vol is basically zero and that Trading and or investing in treasuries offer little return and very little excitement.  From the Interview “if you were only a treasury market investor right NowThis situation is truly hopeless, hopeless. the yield is 50 bps the vol is zero. You have zero income and there’s no Volatility to trade to actually make something happen through price change”….”From IFR news “With rates low, the reason to invest in hedge funds, or allocate money to dealer desks will be a heated topic. How much extra return can a fixed income department at a hedge fund or money-center bank generate verse a buy and hold player with rates near the zero bound? These topics will be important in the low rate environment and unfortunately may lead to cutbacks in employment if the allocation of capital is deemed more sensible in another sphere.”  Uplifting News for bond traders

 Speaking of bonds Spanish 5 year yield all-time record low of .-.39  all EZ countries  besides Italy and Greece have 5 year yields that are negative, half of EZ countries 10 year yields are negative and three Germany, Netherlands, Finland have 30 year yields that are negative  not a surprise then that Austria’s positive .46% yield is in demand. Swiss 50-year bond trades with a negative yield

No changes in market theme today waiting for election, Stimulus News (trump says he will lean On senate republicans)  Virus cases increasing throughout U.S. and Europe and Brexit news. These are the factors driving the markets if news regarding these items is absent markets choppy with news, A Directional trade ensues, A resolution to the Biggest unknown obviously wont come for two  more weeks  Soybeans and Corn Both higher  Go figure but  Weekly corn export Numbers a bit light whereas Soy higher then expected

News:

  • Clorox and JnJ downgraded to neutral by JPM
  • President of EU council hopes progress in the Future for Brexit talks
  • Corn touched a 1-year high Overnight Soy steady besides china demand brazil may relax import tariffs on Both possibly crating a bit more Demand for U.S. products (pro farmer)
  • The Yuan Approaching multi -Month highs Chinas Moves early this week to stifle the buying appears to have failed
  • Retail sales  beat handily to the upside
  • Coke getting rid of tab by year end
  • Almost 20 million people have already voted shattering early voting records
  • Pfizer may be ready to apply for emergency -use authorization for its vaccine by late Nov_BBG

Morning 10-15

Plenty of Bad news Overnight:

  • Treasury Secretary Steve Mnuchin said on Wednesday that the chances of passing a coronavirus relief bill before November 3 are slim: “I’d say at this point getting something done before the election and executing on that would be difficult, just given where we are.”
  • -@PaulBrandITV: Care Minister Helen Whately tells London MPs that the capital will move into Tier 2 from midnight Friday into Saturday. PM to make an announcement this morning. That means no household mixing indoors and avoid public transport
  • BBC: Talks continue about other English regions that could face new virus restrictions; Greater Manchester & Lancashire are at risk of being moved to tier 3,
  • -German Chancellor Merkel: Germany will take measures in 10 day if virus spread isn’t curbed
  • France will confine residents of nine of the country’s biggest cities to their homes between 9PM and 6 AM for four weeks starting Saturday BBG
  • Germany, Italy, Austria, and Czech Republic all Reported record increases in cases
  • China injected a bit more liquidity then expected into the banking system today, hmm Things not going so well.
  • Brexit impasse continues

Stocks and Risk in the Red Dollar higher, Yields worldwide lower, Commodities lower

Dax -2.8%  Cac -2%,Stoxx 50 -2.6%,Nasdaq -1.5% Spoos – 1.16%  CL -3.5%, Gold -.5%,Silver -2.4% DXY +.5% Buns yield -5 Bps,30 year Buxl -6.4Bps All the well to do European countries see yields lower  Italy,  Spain yields higher  Worries that Virus will further slowdown growth in an already struggling European Economy. Just released Empire a manufacturing missed Expectations, but sub- components are better than expected. Jobless claims too much noise   as it was worse then expected.    Risk Off, Stimulus off an ugly day for Risk so far