Trouble In River Cities! Eurozone GDP, China Manufacturing PMI Diving

While the US economy is humming along nicely, there is trouble brewing in River Cities (that is, the Yangtze River in China and The Rhine River in Europe).

Both the Eurozone GDP forecast and China Manufacturing PMI are falling like a paralyzed falcon.

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Yes, we got trouble in River Cities … overseas.

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NY Fed’s Williams Says Strong Economy Warrants Further Rate Hikes (As Dow Crashes 800 Points And 10Y-2Y Slope Flattens To 10 BPS)

The Dow crashed 800 points today, most after noon.

Which is it? The fear that the Trump-Xie tariff truce is a big nothing burger? Or that NY Fed President came out after noon saying that inflation and jobs look good and isn’t worried that markets have dialed back ’19 hikes? Or both?

My bet is on Williams’ announcement of economic optimism and the likelihood of further rate hikes.

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And the Treasury 10Y-2Y curve flattened further to 10 BPS.

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And the 90-day Treasury bill yield keeps on smokin!

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Is Jerry Gergich running The Federal Reserve? 

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Ted Day! Ted Rises, 10Y-2Y Slope Flattens As US-China Trade Optimism Wanes (Curve Inversion Accelerates)

Ted Day! The Ted spread (3m Treasury yield- 3m LIBOR) is rising … again.

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Why?

The optimism that drove gains for riskier assets appears to be quickly dissipating as investors scramble to figure out exactly what, if anything, was agreed between the U.S. and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified.

In the Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign. The more closely watched part of the curve — the gap between two-year and 10-year yields — remains upwardly sloped.

Yes, but flattening like a pancake.

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Or getting dunked in cold water like Ted.

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Alarm! Treasury Term Premiums Are Slip Slidin’ Away

US Treasury term premiums are slip slidin’ away.

The decline in the benchmark 10-year Treasury yield since early November has come amid a drop in term premium, according to Federal Reserve Bank of New York data through Nov. 29. The measure — a gauge of the extra yield compensation investors demand to own the maturity compared to rolling over a shorter-dated obligation over the same time period — has fallen as investors also scaled back their outlook for the pace of Fed tightening in 2019. Term premium is trading near its lowest since September, before the central bank’s last rate increase.

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Alarm!

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OUSD: 10Y-2Y Curve Flattens To 16.7 Basis Points, 5Y-3Y Segment Inverts, Swaps Curve Inverted

Over under sideways down. The Fed’s “guidance” is drawing some frowns.

The recent confusing messaging by Jerome Powell about the neutral rate and future increases is causing confusion among trades and portfolio managers.

Throw in Brexit, the new Leftist President of Mexico and French riots. and The Fed is over under sideways down.

Take the 10Y-2Y Treasury curve slope. It has flattened to 16.7 basis points.

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The 5Y-3Y segment has inverted (upside down).

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In fact, it is the first time the 5Y-3Y spread has been inverted (below zero) since 2007.

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You can see inversion in both the US Treasury curve AND the US Dollar Swaps curve.

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The LIBOR/OIS spread is widening … again.

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But Wall Street is head over heels with The Fed.

Teutonic Titanic! Deutsche Bank Sinks On Money Laundering Raid

Deutsche Bank, aka, The Teutonic Titanic, sank on the news that police raided their headquarters in Frankfurt Germany.

The Frankfurt headquarters of Deutsche Bank have been raided by prosecutors in a money laundering investigation.

Germany’s public prosecutor alleged that two staff members have helped clients launder money from criminal activities.

Police cars were seen outside the tower blocks that house the headquarters of Germany’s biggest bank.

Five other Deutsche offices in the city were searched in an operation involving about 170 police and officials.

Prosecutors are looking into whether Deutsche Bank staff helped clients set up offshore accounts to “transfer money from criminal activities”.

The investigation, which began in August, focuses on activities between 2013 and the start of 2018.

In 2016 alone, more than 900 customers were served by a Deutsche Bank subsidiary registered in the British Virgin Islands, generating a volume of €311m, the prosecutors allege.

The investigation was sparked by revelations in the 2016 “Panama Papers” – an enormous amount of information leaked from a Panamanian law firm called Mossack Fonseca.

Yes, Deutsche’s stock declined further below $10 per share.

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At the same time, Deutsche’s default probability (5Y SR CDS)  spiked.

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Unlike the actual Titanic that struck a single iceberg,  Deutsche Bank just keeps hitting icebergs on a consistent level.

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I am sure the  Chief executive of Deutsche Bank, Christian Sewing, is quoting Alan Rickman from Galaxy Quest, “Could you possibly try not to hit every single one?”

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Oops! LIBOR Spikes Again (LIBOR Leads The Fed Target Rate Increases)

The London Interbank Offered Rate (LIBOR) has been rising since The Federal Reserve began raising their target rate back in late 2015 and has accelerated as The Fed began rapidly raising its target rate after Donald Trump’s election as President.

LIBOR 1 month is following a “jump process” where is surges or jumps periodically ahead of The Fed’s rate hike announcement. But the NY Fed’s SOFR index tracks the Fed’s target rate

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As closer look since SOFR was introduced.

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So, the New York Fed’s SOFR index takes out the front-running of The Fed’s rate increases.

Oops! LIBOR spikes again … ahead of The Fed’s rate hike.

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The Fed’s not that innocent.

Tiny Bubbles? Margin Debt Declines 6.25% MoM In October (Worst Decline Since Nov 2018)

Is the fizz off the equity bubble? Or, stated differently, is there a big equity bubble or is it a tiny bubble?

Today, US equity indices are down … again.

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According to FINRA,  Debit Balances in Customers’ Securities Margin Accounts is down over 9% since May 2018 and down 6.25% MoM since September.margin.png

And according to Wolfstreet, the recent MoM plunge in margin debt in the worst since November 2008.

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Are Jerome Powell and Janet Yellen no longer Kings of the World?

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US Existing Home Sales For October Fall 5.1% YoY, 8th Straight Month Of Negative Growth

Of course, the business media touts the headline “Existing Home Sales Rise 1.4% in October After 3.4% Decline in September.” Winning!

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But on a YoY basis, existing home sales fell 5.1% in October, the 8th straight month of declining existing home sales growth. Higher home prices and higher interest rates?

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Photobomb!! Fed Chair Jerome Powell discussing rate hike freeze with former Fed Chair Janet Yellen as the Fed Open Market Committee listens.

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Fed Versus ECB (Godzilla Versus Mothra)! 18 European Nations Now Have Negative 2 Year Sovereign Yields As Fed Raises Rates (NASDAQ Tanks 13% Since Peak)

The large Central Bank monsters are fighting. Instead of Godzilla versus Mothra, it is it The Fed versus European Central Bank (ECB).

As the US Federal Reserve continues to “nornalization” interest rates with increasing Fed Fund rate and balance sheet tightening (QT), Europe (or EMEA to be precise) is going in the opposite direction. There were 16 nations with negative 2 year soverign yields a short while ago, but now the number has grown to 18 (including France and Germany).

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While on this side of the pond,  tech-heavy NASDAQ has dumped 13% since its recent peak.

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With a growing economy in the USA, and worries in Europe over Brexit and Italy’s budget fight with the EU (Greece’s GDP growth YoY is higher than France, Germany, UK and Italy).

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the ECB is going in the opposite direction of the US Fed.

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Here is a photo of Fed Chair Jerome Powell announcing a Fed rate hike in December.

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