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06Feb2018 Pre-Market Commentary: Wall Street US Stock Futures Point To A 3rd Of Waterfall Losses, Global Markets Plunge, Bitcoin Slumps To $6,200, The VIX Has Jumped Above 50

Written by Gary

Dow futures pointed to a 3rd day of 'steep' losses this morning (SPY -2.1%). Key measure of market volatility, the VIX, has jumped above 50, highest level since Aug 2015


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 2.78% while Germany's DAX is off 2.40% and London's FTSE 100 is lower by 2.05%.

What Is Moving the Markets

Here are the headlines moving the markets.

Dow set for third day of losses after Monday's dive

(Reuters) - Dow futures pointed to a third straight day of losses on Tuesday, deepening a correction to the stock market's long-running rally that saw the biggest intraday fall in history for the Dow Jones Industrial Average on Monday.

Market volatility spurs some funds to look again at currency hedging

LONDON (Reuters) - A pick up in currency market volatility over the last few days after years of suppression by central banks' easy-money policies has prompted some investors to look again at protecting against, or profiting from, sharp moves.

Senate to spotlight virtual currencies as bitcoin plunges

WASHINGTON (Reuters) - Digital currencies such as bitcoin will be in the spotlight again on Tuesday as lawmakers in the U.S. Senate question top markets watchdogs over how to better regulate the highly volatile and risky emerging asset class.

Stock sell-off overdue, investors lick their wounds and hunt

The speed of Monday's jaw-dropping sell-off on Wall Street had traders and investors bumped and bruised. But few seemed surprised that a pullback had actually happened. Some were looking for the right time and opportunity to wade back in - but wary of catching a falling knife.

Bitcoin slides below $6,000; half its value lost in 2018

LONDON (Reuters) - Bitcoin slid another 13 percent to below $6,000 on Tuesday, bringing the world's best-known cryptocurrency's losses to more than half since the start of 2018.

GM profit beats estimates, margins up despite sales drop

DETROIT (Reuters) - General Motors Co on Tuesday posted quarterly results that beat analyst expectations as cost-cutting and higher vehicle prices offset a double-digit decline in U.S. sales volume, and said it expected 2018 would be a strong year globally and in North America.

Dividend plays on slippery ground as bond yields steepen

(Reuters) - After a decade of easy-money policy that cut bond yields to almost nothing and lifted U.S. stock markets to records, companies that pay big dividends now look among the most exposed as Federal Reserve interest rate rises pull returns on government debt higher.

Planemakers look at higher output to meet demand

SINGAPORE (Reuters) - The world's largest planemakers signaled a possible increase in output of their most popular passenger jets on Tuesday, highlighting their confidence about growth in demand for air travel.

Waymo may try to push Uber ex-CEO's buttons in car secrets trial

SAN FRANCISCO (Reuters) - Uber's ex-Chief Executive Travis Kalanick must subdue his notorious hot-headed demeanor and calmly withstand hostile questioning to appear sympathetic to jurors when he is cross-examined by Alphabet Inc's Waymo as early as Tuesday during a trade-secrets trial, legal experts said.

Dollar Erases Mnuchin Massacre On Safe-Haven Surge

With all the jawboning of the last two weeks having failed, all it took to erase US Treasury Secretary Steve Mnuchin's dollar massacre was the biggest VIX spike in history and the biggest Dow points collapse ever...

Quite an impressive move...

But context is key..

Treasuries and gold are down (in price) as the dollar jumps.

"The VIX Finally Went Bananas": Morgan Stanley's Post Mortem Of Everything That Happened

Last July, Morgan Stanley's Chris Metli, executive director of the bank's institutional equity division, wrote an article - posted here - looking at what would happen "if the VIX goes bananas" which previewed yesterday's results with eerie accuracy.

And, a little over six months later, the VIX did finally go bananas. Here is Metli's Post Mortem of what happened.

Post Mortem

by Chris Metli of Morgan Stanley

With a 4% drop in cash equities and even greater decline in futures, the VIX finally went bananas rising 20 points to the highest level since Aug 2015, and the weighted average 1-month VIX futures rose 96%. This creates more supply from systematic funds for the rest of the week and nearly bankrupted the inverse VIX ETPs with NAVs down 96%. To summarize the price action and implications:



Some of the selling on Monday likely reflected investors anticipating systematic supply on Tuesday - this means the $30 to $35bn QDS estimates for sale Tuesday (detailed below) may net down to $15 to $25bn. This is still enough to have negative impact on markets though and will be compounded by dealer short gamma positions.

Anticipation of further supply later in the week from both annuities and risk parity funds could bring in more fast money sellers Tuesday.

The near bankruptcy of the inverse VIX ETPs will be a very negative headline, and the several billion dollar loss for holders, largely retail, will scare some out of the market or force liquidations of other products to raise cash.

Institutional vol sellers will likely cover exposures as well in the coming days and weeks. ...

House To Vote Tuesday On Bill To Avert Shutdown - But There's A Catch

A meeting last night among House Republicans must've born fruit, because the caucus announced late last night that they would hold a vote late Tuesday on a bill to keep the federal government open through March 23. The vote would avert the second government shutdown this year.

The measure would fund most government agencies and contain a year of defense funding as well as two years of funding for community health centers, the Republican representatives told reporters. But without a concurrent deal on immigration that includes enshrining DACA protections in law, it's difficult to say whether the bill will muster the votes to clear the Senate, where it would require 60 votes to circumvent a Democratic filibuster, per Reuters.

As CNN explains, the full-year defense-spending plan - a long-sought objective of Mark Meadows and the rest of the House Freedom Caucus - is being added to the plan to give GOP leaders a chance to muscle the bill across the finish line with Republican-only votes - a necessity for defense hawks who have grown increasingly uneasy about the Pentagon relying on short-term resolutions.

"We have to break this logjam some way," said Rep. Greg Walden, the Oregon Republican who chairs the House Energy and Commerce Committee, of the fifth short-term funding measure.

Freedom Caucus Chairman Mark Meadows said he supports this strategy, and several GOP lawmakers said they expect it to pass the House with zero Democratic votes.

"Euphoria Turns To Terror": Dow To Open 750 Points Lower As VIX Eruption Accelerates

Update: VIX SURGES ABOVE 50 FOR FIRST TIME SINCE AUGUST 2015

* * *

It's a bloodbath, with the Dow set to open 750 points lower "thanks" to the +377 fair value...

... but it could have been much worse, with S&P futures actually trading toward the highs of the overnight session after tumbling an additional 3.5% from Monday's close, as risk assets around the world crashed then modestly rebounded even as traders remain on edge over what the implosion in the vol complex means for everyone.

World stock markets nosedived for a fourth day running on Tuesday, having seen $4 trillion wiped off from what just eight days ago had been record high values.

"Playtime is officially over, kids," analysts at Rabobank said. "Rising volatility painfully reminds some investors that one-way bets don't exist."

"Since last autumn, investors had been betting on the 'Goldilocks' economy - solid economic expansion, improving corporate earnings and stable inflat ...

How Stimulus Made a Soft Landing Harder

The tax cuts and high valuations so many have been cheering have made the Fed's job even harder—and could end up being the bull market's undoing.

If You Fear U.S.​Inflation, Buy Asia

U.S. markets are panicking about the prospect of higher, wage-driven inflation. U.S. wage inflation should be rather good for certain assets, however.

Are Americans Falling Out of Love With Chocolate?

As Valentine's Day approaches, investors should ask: How special is chocolate? Cocoa-based candy has maintained much of its appeal even as U.S. consumers have turned away from other sugary or highly processed foods. But cracks are starting to show.

Vitaliy Katsenelson's Contrarian Edge: Stock and bond investors are now paying the price for the Fed's dangerous experiment

Financial markets got a windfall from central bankers, but here comes the Great Giveback, writes Vitaliy Katsenelson.

Market Snapshot: Dow futures off by about 300 points as resurgent volatility sparks global selloff

U.S. stock futures swung wildly in extremely volatile trading on Tuesday, with those for the Dow Jones Industrial Average pointing to a more-than 100-point loss after trading in a 1,100-point range in the run-up to Wall Street's open.

Market Extra: The stock market is plunging: Here's what advisers say you should do

There is suddenly stock-market carnage on Wall Street. How unnatural it must feel to wall Street investors after a protracted period of low volatility and a mostly unmitigated pitch straight up for stocks.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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