The collision of global markets and social mood

Tuesday, November 1, 2016

Tuesday -- USD Supply & Demand, M&A, Libor

S&P E-mini Futures:
Modestly higher in choppy trade.

News:
Giddy feelings from gains in China and Russian PMI readings, yet very mixed trade in Asia and Europe thus far. And Japan had to extend the likely time needed to reach 2 percent inflation just six weeks after announcing its new yield curve policy. In other words, it's not working.

Amid this backdrop, here is a must read.


When there are far more dollar credits on computer screens around the world than there are actual cash dollars backing them up, there is a supply and demand problem.

When there is a supply and demand problem, the price of whatever is in short supply goes up.

When the cost of dollars goes up, interest rates must adjust accordingly, no matter what the Fed with its puny $4T balance sheet may or may not want.

In a leveraged credit and debt economy, when interest rates go up, things break.

Wonder why we just had the hottest month for M&A in the past 12 years?

Fear.

Fears that rates are about to rise and thus make debt-funded deals more expensive, according to Bloomberg.

Last week Gluskin Sheff's David Rosenberg pointed out that M&A manias like the one we are experiencing "invariably takes place at or near cycle peaks, as companies realize that they can no longer grow their earnings organically," Zero Hedge reported.

Almost half a trillion dollars of mergers and acquisitions were announced globally in October.

More than the previous record of $471 billion . . . back in April 2007.

So if anyone wonders why the regulation deadline for US prime money market funds has come and gone yet Libor rates (which were supposedly going up because of the new regs) are still elevated, there may be another reason worth considering.

FX:
USD weaker. AUD, CAD & EUR higher. Slight Risk On tone. CHF stronger though.

Treasuries:
Prices still under pressure.

Energy:
WTI crude looking decidedly less messy in its decline and looking more impulsive in sympathy with NG. Both looking oversold and in need of at least a bounce.

Metals:
Metals cheering a more complex decline in USD. Silver leading.

S&P Outlook:
Yesterday the Dow, Nasdaq, and S&P each closed below its 2015 record high on a monthly basis.

3rd time for the Dow, 1st time for the Nasdaq, and 1st time for the S&P.

Such action is weighing on the 2016 breakout and increasing the odds that it has been a false one with much lower retests to come.

However probably not much action at least until the Fed meeting concludes on Wednesday at 2pm.

And even then, for the S&P, the 2050-2070 area still stands, and more importantly, so does 1991.68.

Still thinking the market can surprise to the upside until it surprises to the downside.

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