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12Feb2018 Midday Update: Wall Street's Bull Market Looks Safe For Now As Fewer Than Half Of Corrections Deepen Into Full-blown Bears, US 10-year Treasury Yield Climbs Back To Four-year High, Dow Surges Over 400 Points

Written by Gary

The US equities main benchmarks rose for a second straight session today (SPY +1.6%), led by gains in technology and financial stocks. Crude Texas Tea trading in the 59 handle.


Here is the current market situation from CNN Money

North and South American markets are mixed. The S&P 500 is higher by 1.51%, while the Bovespa is leading the IPC lower. They are down 0.78% and 0.01% respectively.

Traders Corner - Health of the Market

What Is Moving the Markets

Here are the headlines moving the markets.

Wall Street up for second straight day, clawing back after sell-off

(Reuters) - Wall Street's main indexes rose for a second straight session on Monday, led by gains in technology and financial stocks, after its worst week in two years as the specter of rising inflation led to fears of accelerated interest rate hikes.

A culprit for financial site glitches: you and your apps

BOSTON (Reuters) - Jittery investors and their smartphones stressed out leading U.S. online financial sites last week as heavy volatility shook markets, technology analysts said.

U.S. Consumer Financial Protection Bureau aims for more restraint: memo

WASHINGTON (Reuters) - The U.S. Consumer Financial Protection Bureau will pull back its activities and seek to promote a free market for financial services, according to a memo obtained by Reuters on Monday.

Data overload: commodity hedge funds close as computers dominate

LONDON (Reuters) - "Chocfinger" made his name and his money by taking bold bets on cocoa markets. But after nearly four decades of trading, sometimes winning, sometimes losing, Anthony Ward threw in the towel.

Exclusive: Europe's A400M army plane may see some features axed

SINGAPORE/BERLIN (Reuters) - Europe's new troop transporter may never go into battle with all the promised military capabilities after buyers of the A400M agreed to let Airbus negotiate an opt-out for features deemed too difficult to build.

Deutsche Bank, trader settle U.S. SEC charges over bond prices

(Reuters) - Deutsche Bank AG will pay nearly $4.5 million to settle U.S. Securities and Exchange Commission civil charges that it failed to police traders and salespeople who lied to customers about bond prices, the regulator said on Monday.

New York sues Weinstein Co., Harvey Weinstein over sexual misconduct

NEW YORK (Reuters) - New York's attorney general sued the Weinstein Company and Harvey Weinstein on Sunday alleging years of sexual harassment and misconduct by the movie producer, in a move that could jeopardize talks on a potential sale of the studio.

German court rules Facebook use of personal data illegal

BERLIN (Reuters) - A German consumer rights group said on Monday that a court had found Facebook's use of personal data to be illegal because the U.S. social media platform did not adequately secure the informed consent of its users.

Exclusive: EU antitrust regulators to fine NYK, Wilhelmsen, other car shipping firms - sources

BRUSSELS (Reuters) - EU antitrust regulators are set to fine Nippon Yusen KK (NYK) and several other Japanese shippers as well as Norwegian Wallenius Wilhelmsen Logistics ASA (WWL) in the coming weeks for rigging bids for shipping cars, according to people with knowledge of the matter.

BIS Publishes A "Simplified" Map Of China's Shadow Banking System

While China's shadow banking sector may have been tamed in the past year as a result of an aggressive crackdown by Beijing over the unregulated, gray-market in high interest lending and especially Wealth Management Products or WMPs, it, it still retains an aura of incomprehensibility - and thus fascination - to most market watchers.

Still, while growth of shadow credit to ultimate borrowers has slowed, the use of shadow saving instruments (eg wealth management products, trust products) has continued to expand at a fast pace. New and more complex "structured" shadow credit intermediation aimed at reducing banks' regulatory burden has emerged and quickly reached a large scale. Meanwhile, the bond market has become highly dependent on funding channeled through wealth management products. As a result, Chinese shadow banking is becoming slightly more similar to US shadow banking.

To help China watchers in their analysis of China's financial underworld, overnight the Bank of International Settlements published a working paper mapping China's shadow banking sector, which studies the "structure of the shadow banking system in China, focusing on the main activities and linkages with the formal banking sector."

As the BIS explains in its abstract:

We develop a stylised shadow banking map for China with the aim of providing a coherent picture of its structure and the associated financial system interlinkages. Five key characteristics emerge. One defining feature of the shadow banking system in China is the dominant role of commercial banks, true to the adage that shadow banking in China is the "shadow of the banks". Moreover, it differs from shadow banking in the United States in that securitisation and market-based instruments play only a limited role. With a series of maps we show that the size and dynamics of shadow banking ...

It Was An "Extraordinary Week in Equity Volatility": Here It Is In Charts

While last week's volmageddon may have subsided, its reveberations remain with many traders - certainly the co-head of equity trading at Goldman Sachs - uncertain if last Monday's VIX spike was a one off event or the precursor to something far greater.

And while the events from last week are still fresh in everyone's mind, Deutsche Bank's derivatives team has laid out some of the most notable moves in volatility during what the German bank dubbed an "Extraordinary Week in Equity Volatility." Here is a summary.



In February alone, we've now seen more 2% moves (all down) than in the past 7 quarters combined.

Monday saw a disproportionate move in the weighted average VIX futures given the SPX return, due to rebalancing of inverse and levered VIX ETPs

VIX vol-of-vol hit its highest level ever as the weighted average future almost doubled over the day

SPX skew steepened considerably on Monday, the biggest move in over 15 years

SPX implied vols had an outside move vs. most other underlyings including small cap vol, credit, and even weighted average single-stock implied volatility

Although SPX implied vols are higher than small cap vol, longer-dated vols are lower.

Implied correlations spiked higher before finally coming back, and cross asset correlations have started to roll, but were at recent highs across equities, dollar down, rates up, and commodities.

And here is the visual support of the above observations:

The number of 2% SPX moves in February alone are greater than in the past 7 quarters combined, while Monday's move saw a disproportionate move in the weighted average VIX futures due to rebalancing of inverse and levered VIX ETPs

JPMorgan's "Residual Risk" For Equity Markets Just Flashed Bright Red

After the last two weeks of carnage in bonds and stocks, we noted that JPMorgan had warned there remains a critical "residual risk" that this "healthy correction" turns into something much, much more vicious...

[The position unwinding], combined with the low equity exposures of Discretionary Macro and Equity Long/Short hedge funds, leaves retail investors as the residual risk for equity markets going forward.

Retail investors had poured more than $100bn into equity ETFs during January. Of that $100bn, $40bn was invested into US equity ETFs. US equity ETFs, which have been at the epicenter of the fund outflows over the past week, lost $25bn so far. So more than half of the $40bn that had entered US equity ETFs in January has been withdrawn already. So again, the picture we are getting in the US equity ETF space is one of advanced rather than early stage de-risking.

Well, in another confirmation of the "worst case scenario", the world's largest and most liquid ETF - SPY, which tracks the S&P 500 - saw its biggest absolute dollar weekly outflow ever.

What Just Changed?

Authored by Charles Hugh Smith via OfTwoMinds blog,

The illusion that risk can be limited delivered three asset bubbles in less than 20 years.

Has anything actually changed in the past two weeks? The conventional bullish answer is no, nothing's changed; the global economy is growing virtually everywhere, inflation is near-zero, credit is abundant, commodities will remain cheap for the foreseeable future, assets are not in bubbles, and the global financial system is in a state of sustainable wonderfulness.

As for that spot of bother, the recent 10% decline in stocks: ho-hum, nothing to see here, just a typical "healthy correction" in a never-ending bull market, the result of flawed volatility instruments and too many punters picking up dimes in front of the steamroller.

Now that's winding up, we can get back to "creating wealth" by buying assets--$2 million homes in Seattle that were $500,000 homes a few years ago, stocks, bonds, private islands, offshore wealth funds, bat guano, you name it. Just borrow whatever you need to borrow to buy more.

(But don't buy bitcoin. No no no, a thousand times no. It is going to zero, Goldman Sachs guaranteed it.)

Ahem. And then there's reality: something has changed, something important. What changed? The endlessly compelling notion that risk has magically vanished as the result of financial sorcery is now in doubt. If risk hasn't been made to disappear, and even worse, can't be corralled into a shortable instrument like VIX, then--gasp--every asset and instrument might actually be exposed to some risk.

As I've noted many times here, risk cannot be made to disappear; it can only be transferred onto others or off-loaded into the financial system itself. Risk can be cloaked or masked, and indeed, that is the beating heart of financial alchemy: ...

Nvidia's Cryptic Road Ahead

Nvidia seems to be selling all the chips it can make, and it has benefited from demand from videogamers and cryptocurrency enthusiasts.

Cloud Bills Will Get Loftier

Capital spending by big cloud operators accelerated last year and is unlikely to slow this year.

Beyond Tesla: How Else to Buy Into Electric Cars

Chemical group Umicore is massively expanding its capacity to produce cathodes for electric car batteries.

The New York Post: Second winningest Mexican-born MLB pitcher arrested for alleged drug dealing

Esteban Loaiza pitched for eight major-league teams and won 126 games between 1995 and 2008.

The Tell: Beware these cryptocurrency dangers, say European regulators

European regulators issue a joint warning to investors about the risks associated with owning virtual currencies.

Olympics figure skater Adam Rippon stole apples because he was too poor to buy food

The struggle for Olympic glory starts long before athletes reach the stadium.

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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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