Wall Street opens lower (SPY -0.4%) following European stocks and bonds falling in a volatile market this morning, hit by growing concerns that global central banks' commitment to the post-crisis orthodoxy of super-low interest rates and asset purchase programs may be waning.
Here is the current market situation from CNN Money
European markets are sharply lower today with shares in France off the most. The CAC 40 is down 1.73% while Germany's DAX is off 1.72% and London's FTSE 100 is lower by 1.46%.
LONDON (Reuters) - European stocks and bonds fell in a volatile market on Monday, hit by growing concerns that global central banks' commitment to the post-crisis orthodoxy of super-low interest rates and asset purchase programs may be waning.
LONDON (Reuters) - OPEC raised its forecast of oil supplies from non-member countries in 2017 as new fields come online and U.S. shale drillers prove more resilient than expected to cheap crude, pointing to a larger surplus in the market next year.
SAN FRANCISCO/WASHINGTON (Reuters) - Tesla Motors Co Chief Executive Elon Musk said on Sunday the automaker was updating its semi-autonomous driving system Autopilot with new limits on hands-off driving and other improvements that likely would have prevented a fatality in May.
(Reuters) - Canada's Agrium Inc and Potash Corp of Saskatchewan Inc agreed to combine in a deal that would create a fertilizer giant with an enterprise value of about $36 billion but also draw scrutiny from U.S. regulators.
SAN FRANCISCO/SEOUL (Reuters) - A Hanjin Shipping Co Ltd vessel is finishing unloading in California and scheduled to leave port on Monday, shipping industry officials said, as shareholders and executives associated with the South Korean firm pledged funds to help resolve the turmoil created by its collapse.
ATLANTA (Reuters) - Current economic conditions warrant a "serious discussion" of whether to raise interest rates at next week's Fed meeting, Atlanta Federal Reserve Bank president Dennis Lockhart said on Monday in remarks that may raise the likelihood of Fed action.
SPRING, Texas (Reuters) - Elizabeth Huber lost her job inspecting oilfield pipes nearly 20 months ago and her prospects remain bleak even as oil executives cautiously plot production and budget increases.
MUNICH/LONDON (Reuters) - German industrial gases group Linde and U.S. rival Praxair have ended talks to create a $60-billion-plus market leader, they said on Monday, after failing to agree where to locate key activities and who would run the business.
If Friday's selloff can be indirectly - and humorously - blamed on Gartman being "pleasantly" long of equities going into the rout, then perhaps a rebound looms, because as DG writes in his latest note, he quickly went "net short" of equities moments after realizing the momentum is not with him. Here is the key section from his latest note:
SHARE PRICES, GLOBALLY, ARE DOWN VIOLENTLY AND "RISK HAPPENS FAST" as already noted several times above as our old friend, Doug Kass, likes to tell us, for all ten of the markets comprising our International Index have fallen since Friday, with 5 of the 10 having fallen by more than 2% and with one... the market in Brazil... having fallen by nearly 4%. Trend lines that had been sloping upward in instance after instance and which had held for months have been broken through to the downside, proving themselves to be readily vulnerable. "Reversals," one after another, have evolved, and not merely daily reversals, but in many instances weekly and now even monthly reversals to the downside have either already evolved or are on the verge of doing so.
Risk does indeed happen fast, with the blame today going to be cast upon the Federal Reserve Bank for the thought that it may actually vote to tighten monetary policy at its meeting next week. We have never been of the mindset that the Fed was prepared to tighten policy and to raise the o/n Fed Funds rate next week, but many were and more had become so following Mr. Rosengren's comments on Friday that he was beginning to err toward tighter policies... this from one of the more "dovish" of the voting, regional Federal Reserve Presidents. That was all that was needed to change the market's collective psychology at a moment's notice, and although we are quite certain that the global market's bearish rush shall quell any furt ...
It all started with a note by JPM's Marko Kolanovic last Wednesday, in which he warned that the period of market calm is ending, and volatility was about to surge, which in a reflexive fashion would lead to accelerated selling by quant, systematic and risk-parity funds as a result of near-record leverage. According to Kolanovic while a driver of the recent market stability the "relatively stable macro data and a seasonal decline in trading activity" he explained that "a significant driver of the volatility collapse was derivatives hedging effects, also known as pinning", as well as the near all-time high leverage for Volatility Targeting and Risk Parity strategies. However, "this is all about to change as a number of important catalysts materialize this month (ECB, BOJ, Fed meetings), seasonals push market volatility higher, and leverage in systematic strategies and option positioning provide fuel for volatility."
For those who missed his must-read note, which predicted the Friday plunge with uncanny precision, this is what he said:
As market volatility plummeted, investors added to option protection and moved (struck) it closer to current price level. The market would need to move only 1-2% lower for option hedging to push volatility higher (as opposed to suppressing it, which was the case past 2 months). Given the low levels of volatility, leverage in systematic strategies such as Volatility Targeting and Risk Parity is now near all-time highs. The same is true for CTA funds who run near-record levels of equity exposure. Our estimate of equity exposure for these strategies is shown in Figure 1.
While there is not much to add to our previous market wrap from earlier this morning, now that traders in the US are arriving at their desks, the selloff appears to be accelerating and as Bloomberg notes, "a selloff in fixed income is starting to snowball into a global market rout"driven by what Reuters dubbed "growing concerns that global central banks' commitment to the post-crisis orthodoxy of super-low interest rates and asset purchase programs may be waning."
It appears Kuroda broke markets once again, the reason being the central bank insistence to steepen yield curves to avoid suffocating banks and pension funds, while keeping the broader easing theme on hold even as it means trillions in longer-dated bonds now find themselves in limbo as frontrunning central bank purchases is no longer possible. So what do traders do? Why they sell of course.
As Bloomberg also adds, "shares in Europe and Asia dropped the most since the aftermath of the U.K. Brexit vote in June, and U.S. stock-index futures fell as concern spread that central banks are preparing to wean markets off unprecedented stimulus. Treasuries extended their slide into a fourth day as the U.S. prepared to sell three- and 10-year notes, and the yield on benchmark German bunds reached the highest since Britain's decision to exit the European Union was confirmed. Oil sank toward $45 a barrel ...
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