The collision of global markets and social mood

Monday, November 9, 2015

Monday -- G20, China, Negative Swap Spreads, Positive Dollars

S&P E-mini Futures:
Down, but trying to firm.

News:
Not the way I want to start a Monday . . .


This simply means that 20 of the world's largest countries have agreed to standardize "bail-ins" across their banking structures. You are no longer a depositor at a bank; you're a creditor. A huge difference.

Nowhere was this explained in the article, of course. But this cryptic quote was there:

"Countries must now put in place the legislative and regulatory frameworks for these tools to be used," Carney said in a letter to G20 leaders.

That's Bank of England Governor Mark Carney, a non-elected, non-governmental central banker dictating legislative policy. Think about that.

If you keep money in a Systemically Important Financial Institution such as BAC or JPM, you are at risk more than ever before. So is the cash in your brokerage account if it is held in custody at a SIFI.

Elsewhere, China blew the doors off its trade numbers again, to the downside, for the fourth month in a row. Shanghai Composite rallied 1.58%. Otherwise, Asia was mixed. Australia took the China numbers on its chin.

Regardless, if the Shanghai Comp gets above 4123.923 (its July 23rd high) without a new low, it could be very bullish.

Turning Stateside, I think Jeffrey Snider from Alhambra Investment Partners has identified something of utmost importance: recent action in Interest Rate Swaps.


Spreads on 5, 10, and 30-yr swaps have gone negative, with 2s well on their way.

"Swap spread is simple dealer balance sheet capacity; for a swap rate to fall below its correspondent maturity UST can only be related to a significant reduction in offered money dealing capacity."

He concluded:

"Therefore we can interpret that case as some great reduction in balance sheet capacity since it is dealer capacity that determines the nature of the spreads."

In other words, no liquidity in one of the biggest markets on the planet. Snider also suggests that banks themselves are withdrawing the capacity, the same banks that have been party to the Fed's interest rate game since the financial crisis. As they pull out, rate imbalance is exposed for all to see.

And leads to . . .

FX:
. . . the USD, which hit 99.26 last night. At some point, purely from a Fibonacci perspective, it could thrust well above 100 . . .

Treasuries:
. . . and the Fed would be forced to raise rates, if only to save face by attempting to maintain the illusion that they control the bond market.

Currently, treasuries are a mess. Prices have tanked with volume. The curve is strongly pointing toward inversion.

Energy:
WTI crude slight bounce, NG down over 1%.

Metals:
Gold slightly higher as silver and copper hover along the flatline.

S&P Outlook:
Still thinking higher, though the last two days have not confirmed. I was stopped out of Friday's pre-market trade but still eked a tiny gain. The point is it didn't hurt to take a shot.

2079.34 remains important. A break would pressure 2058.84 and would up the odds considerably that a possible B-wave peak is in. For more upside, I'd like to see 2102.71 get exceeded for starters.

Yet the way the waves look, they could easily continue to subdivide higher and higher without resolution to either scenario. Both a B-wave and a Wave 3 could yield a high above 2134.72.

And until 2058.84 goes, that is what I'm gaming.

If not, TVIX will be the game.

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