The collision of global markets and social mood

Wednesday, June 29, 2016

Wednesday -- Depositors Or Junior Bondholders, Rising Delinquency Rates

S&P E-mini Futures:
Up, up, up.

It might be time to have a discussion with your bank and ask them who you are. Are you a depositor, an uninsured depositor, or a junior bondholder?

While Brexit hysteria grabs attention, there is a brewing banking crisis in Italy that may make such a conversation important no matter where you live.

What follows is a direct quote from Zero Hedge, something I don't ordinarily do because I use ZH only as an information aggregator from other sources. This one is more fact than opinion, however:

"The banking squeeze has become politically explosive in Italy after thousands of small depositors were wiped out at four regional banks late last year. They were classified as junior bondholders, even though most of them were just ordinary savers who did not realize what was being done with their money."

On Monday, Italy announced plans to bailout three banks with funds totaling approximately €40 billion. Germany just escalated things.

Given the recent performance of European banks, especially Germany's own Deutsche Bank, the UK referendum may turn out to be the match that ignited the fire.

What fire.

The one brought on by rising delinquency rates on bank loans.

While the Fed focuses only on the headline number -- the delinquency rate on all loans (which decreased in the first quarter of 2016) -- it seems to overlook the underlying information that makes up the headline number.

These are delinquency rates on commercial and industrial loans, delinquencies on all loans and leases, and charge-off rates on commercial and industrial loans across US commercial banks -- all of which are increasing at rates not seen since 2008.

It's even worse in Europe, where non-performing debt instruments have been steadily rising since 2010, meaning the Greek crisis never really ended.

The key takeaway in the above link: "Italian banks in particular are suffering from an unbelievably high delinquency rate."

As much as the EU would like us to believe, it's not all about the UK referendum. It could soon be about whether you are a depositor or a little bondholder.

GBP continues to rally. AUD & CAD strength. JPY hovering flat, but CHF showing strength. EUR stronger, while USD gives back a bit from its violent gap up.

Continuing a low volume pullback on the way to higher prices and lower yields.

WTI crude continues to increase altitude from its recent low. NG extended its impulse to yet another rally high.

Gold, silver, platinum, and palladium higher. Copper sitting it out.

S&P Outlook:
Watching 2064.75 on the E-mini futures. Above that would mean a 3-wave decline from the recent pre-UK referendum highs -- a potentially bullish set up.

Of course the market could still correct lower, but the resolution from whatever lower level that was tested would likely be higher highs, and quite possibly a retest of 2134.72.

The cash S&P does not have the same structure. Since it represents the "real" market, unfettered by leverage and thin overnight trading, or suddenly being pushed around by tens of thousands of contracts at opportune times, it remains the one I watch most (levels of which are always bolded, while E-mini levels are never bolded). It is not traded, but is a mathematical number of all 500 issues calculated in real time, and thus is often makes a "truer" chart.

At present, though, the S&P chart is a bit vague, which is why I'm using the E-mini chart for now.

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