The Market Radar

We anticipate, monitor, and comment on market moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t  afford to ignore us.

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POTD: Fire Storm

Picture of our old street after firestorm.  Every house on street wiped out.  Fate of our new home dependent on direction of wind and how hard it blows over next few days.

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Rome Is Burning

Caught up in NorCal fires and had to evacuate home.

Looks like war zone.  Several neighborhoods burnt to ground with gas flaring off  like the Kuwaiti desert in Gulf War I.

Back to you soon as we can.

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Week In Review – October 6

Global Stock Indices

The global stock bull market continues like a full force gale with the emerging markets leading the way.  The grand narrative of the market is the synchronized global recovery and the hope for U.S. tax cuts.

The counter-narrative?  Valuations and, now, rising bond yields.

Weekly_Stocks

 

Global 10-year Bond Yields

Relatively quiet week in fixed income.

U.S. 10-year yield is having trouble breaking 2.40 percent with 2.45 percent, a key level of resistance.  German bund yields are meeting stiff resistance at 0.50 percent.  Watch 0.62 percent on the Bund.

Mexico yields up on budgetary concerns – more spending due to the earthquake.  Spain higher on Catalonia concerns and Turkey rates up on inflationary pressures and geopolitical spat with U.S..

Ireland was paid to borrow money with a new issue this week.  Un-freaking-believable:

Ireland has sold its first ever bond with a coupon of zero per cent, with the country effectively being paid to borrow €4bn over five years. The country brought in more than €10bn of orders for the debt, which matures in 2022. The bond, which is priced slightly above par, came at a yield of minus 0.008 per cent. The absence of the coupon means Ireland will not have to make any interest payments on the bond, which will mature at a slightly lower value than that at which it was sold. Investors who hold the debt to maturity are guaranteed to lose money.  – FT

High-grade corporate spreads in on fears of expected lower supply due to the elimination of interest tax deduction and less need for liquidity as corporate capital repatriated from overseas post U.S. tax reform.

We still expect a taper tantrum in Europe this month, which is why 0.62 percent on the Bund, the 52-week high, is important.  A breakout above the key level would signal the tantrum is on.

Weekly_Bonds

 

Global Currencies

Dollar stronger across the board as expectations of a December Fed hike increased, now close to 90 percent probability.  South Africa hit hardest.

The British pound had its worst week in a year.  Speculation abounds that the Tory MPs are preparing to dump the prime minister.

 

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Select Commodities

The Industrial metals were up on strong global economic growth.  Crude tanked on supply fears caused by OPEC backsliding.

 

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Other Risk Indicators

Biotechs continue to rip and U.S. financials doing better on prospects for higher interest rates.  Euro banks pulled down by Spanish banks and concerns over Catalonia.

 

Weekly_Others

 

On The Radar

Watching bank earnings later in the week to see if loan books are expanding.  If the case, inflationary expectations should increase especially after the Republicans have abandoned their budget-cutting ways.

IMF out with World Economic Outlook on Tuesday.  Federal Reserve minutes on Wednesday.   Eurozone industrial production on Thursday will be crucial to ECB forward guidance.   Retail sales and CPI in U.S. on Friday.

Monitoring Catalonia, which is keeping a lid on interest rates in the ‘zone.  Still expecting a revolt by bond markets leading to an October correction in risk markets.  The fact that a correction seems so improbable only strengthens our conviction it is more likely.

Buy the correction, however, as interest rates are not even close to the level that will send yield chasers into retreat.

Upshot?  Higher interest rates and stronger dollar on the way, which should cause a bit of temporary risk aversion.

Key Charts

 

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Sector ETF Performance – October 6

ETF_DETF_WETF_Y

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Global Risk Monitor – October 6

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QOTD: Sheep Logic

Active central bank Narrative construction in the service of their policy goals is a permanent change in our market dynamics.  – Ben Hunt, Epsilon Theory

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Coldplay And Chris Martin At Levi

Did Coldplay last night at Levi Stadium with a couple of borderline Millennials/iGenners.   Good kids.  Gives me hope for the future if they can find a way out of all the debt and public pension obligations we boomers have stuffed them with.  Inflation?

Chris Martin puts on one heckuva of a show and seems like one great guy.   Good at reading mood of this country.  Kissed the American flag juxtaposed with a “Love” flag to close the show.  Sincere.

The song, Vida la Vida,  reminds me of us more senior traders who used to trade on the Street when trading was trading back in the day and are now up against the “machine learned” trading ‘bots.   Progress, baby!

Apropos, on the way to the stadium, in the heart of Silicon Valley,  billboards from tech companies advertising  “Artificial Intelligence” and “Machine Learning” are ubiquitous.

 

Viva la Vida

I used to rule the world
Seas would rise when I gave the word
Now in the morning I sleep alone
Sweep the streets I used to own

I used to roll the dice
Feel the fear in my enemy’s eyes
Listen as the crowd would sing
“Now the old king is dead! Long live the king!”

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Fed Chair Watch

Warsh gaining momentum in prediction markets.

Fed_watch

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COTD: Corporate Debt

No lack of supply/issuance in the corporate debt market.   No shortage of demand either.

Lots of nuances in interpreting data, however.  First, much of debt going to financial engineering, i.e., stock buybacks.  Some of the supply is borrowing against capital stuffed overseas driven by tax incentives, such as Apple.

Last, but not least,  NIRP and ZIRP – record low real interest rates.

One big concern is, given the increase in financial regulation,  who is going to make the markets and liquidity for this stuff when investors start coughing it up?

 

Corporate Debt_Oct3

(COTD = Chart of the Day)                                                          Hat Tip:  Jesse Felder

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Here Is Where The Volatility Is…

Unbelievable vol in the prediction markets over the next Fed chair.

Checked last night and Neel Kashkari, the super dove,  was over 30 cents.   John Taylor, the rules-based Stanford prof,  was up around 20 cents.   Kevin Warsh, who leans hawkish and anti-bubblista, maintains the pole position.

The selection of the next chair will be a big market moving event.  Hawk or dove?

We will try and post the graphic at the same time tomorrow to see where the market stands on the next Fed chair.

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PredictIT

 

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