The collision of global markets and social mood

Wednesday, November 16, 2016

Wednesday -- Rate Madness, OPEC, VIX Term Structure

S&P E-mini Futures:
Down from yesterday's post-close high.

Stop the madness. Rates have been declining for 35 years and people still think it's automatically bullish when they go up.

Trump-fueled risk rally shifts to Japanese bonds, euro -- Reuters

Japanese JGBs got whacked last night and the curve flattened, in opposition to the BOJ's stated goal. Italian and Spanish 10-year yields are 4X higher today than similar German bunds. The euro is down currently (could bounce soon however).

In debt-laden credit-based economies, rising rates indicates possible stress as borrowing costs (and debt repayment costs) shoot higher.

As a reminder, during the Greek debt crisis yields skyrocketed. It was not a good thing.

I even heard an Elliott Wave practitioner pontificate on YouTube that rising rates and the end of QE will be bullish for equities because all the extra interest income will be plowed into the stock market.

The practitioner is also a follower of Paul Krugman.

Dumped the CAD trade yesterday after it didn't act right. USD still showing strength.

Prices appear to be rolling over once again.

Hope. No hope. Day after day as OPEC can't seem to get it together. WTI crude down 1%. NG higher.

Gold and silver have yet to corroborate the post-election inflation thesis. Copper down over 1%.

S&P Outlook:
Nothing much changed yesterday. The market levitated higher. A/Ds improved vs the big post-election rally. Volume did too. That's about it.

VIX term structure is signaling negative divergence. This chart could still be in play and can even accommodate a new record high. Not to be used for timing. And as always, not real Elliott labels, just simple as possible.

One other thing. Federal Reserve Bank of Minneapolis President Neel Kashkari just floated his plan to end Too-Big-to-Fail banks by imposing an increase of loss-absorbing capital to 23.5 percent of risk-weighted assets, up from 10.5% (still way too low in my opinion).

In addition to the end of QE and rising rates, his plan would further drain liquidity from the financial system. Banks may be a bit ahead of themselves.

High-yield credit, junk bonds, and real estate at the bottom,
SPY in the middle,
banks straight up in the air

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