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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Interest Rates Starting To Bite

We have long held that interest rates have been so low (especially real rates) that it will take some time to reach a level for them to really matter and impact markets. The 2-year yield crossing over the S&P500 divie yield this past week for the first time in the last ten years is unlikely to slow the momentum driving risk markets. Nevertheless, they are getting closer to the zip code — after two years since the tightening cycle began — where they will begin to impact fundamental valuations (what is the fundamental value of Bitcoin?) and the relative pricing of risk assets. Keep it on your radar.

Long-term rates are so utterly distorted by the central banks we are not sure if the markets even pay attention anymore. Pancaking of the yield curve? Not the signal it used to be.  Meh!

The above, of course, is somewhat offset by the massive stock of central bank money in the global financial system which has driven up asset values to a level that has finally kicked the real economy into third gear.  This has created the perception of a Goldilocks global enviornment and positive feedback loop between markets and the economy.  Now add fiscal stimulus.

The unprecedented reservoir of the mix of this type of money is still so full it will take some time to drawdown central bank balance sheets to parch the risk markets. A higher share of central bank money relative to credit based bank money reduces global systemic risk and thus asset price risk premia.  Thus, additional market distortions.

The party continues.  Momentum is a powerful thang!   Until it isn’t.

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Source:   @LizAnnSonders

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European far-right parties seek to unify — EuroNews

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Sector ETF Performance – December 15

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ETF_WETF_METF_QETF_YTD

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Global Risk Monitor – December 15

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Yellen Says Curve Likely To Be Flatter – Bloomberg

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Tax Reform At Risk After Trump’s ‘Bama Facial?

We think the probability is much higher than markets have priced.

Susan Collins and Rand Paul  are now waffling on their tax reform vote.   Lots of flaws in the bill need to be fixed as haste makes waste.

Hard to predict how many other Republicans begin to distance themselves from the president and his “let them eat cake”  tax reform policy as the crimson tide blowback rises around the White House.

The big question is a crimson tide coming to the markets?

Not sure, but given the extreme valuations and sentiment,  coupled with the global interest rate hikes that are coming next year,  would not bet against it.

Sweet home Alabama
Where the skies are so blue
Sweet home Alabama
Lord, I’m coming home to you

 

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Week In Review – Data Only

WIR_Data

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IMF calls for China banks to boost capital buffers – FT

The IMF has called on China’s banks to strengthen their capital buffers beyond global rule requirements in order to fortify themselves against the risk of an economic shock.

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Sector ETF Performance – December 8

ETF_DETF_WETF_METF_QETF_YTD

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Global Risk Monitor – December 8

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