“Something weird happened in September, for reasons that remain a little murky. The repurchase agreement or “repo” market seized up.
“I’ll spare you a plumbing lesson; all you need to know is that repos are really, really important for overnight funding.
“Without them, it’s very hard for banks, brokers, funds, and other market participants to square their books. Modern banking simply wouldn’t function and the system would shut down.
“Now, this wasn’t a catastrophe. The Fed injected some liquidity and everything seems okay for now. The important part is that it shouldn’t have happened and worse, apparently no one saw it coming.
“We had a string of similar hiccups in 2007–2008. All were manageable but eventually they added up to something much worse. So, this wasn’t a good sign for market stability.
That’s the problem with unconventional monetary policy. It may solve your immediate problem but create bigger ones later… the Fed looks rattled and a rattled Fed is not what we need.”
“…the Federal Open Market Committee’s summary of economic projections in September 2018 showed all its members calling for no interest-rate cuts in 2019. Instead they have cut rates three times this year.
“So why should we believe the Fed can protect the market against a sell-off in stocks and bonds when it is implying both are at risk of happening so it gave us three rate cuts and a $1trillion repo liquidity infusion?”
““Euphoric” U.S. equity futures positioning among asset managers is nearing July 2019, September 2018 and January 2019 peaks that are in line with highs seen just before the global financial crisis.
“That means stocks could be vulnerable to bad news… Earnings forecasts for 2020 are too high… Stocks are already accounting for the benefits of a phase one trade deal…”
“Those who assume the recent inversion – and reversal – in the U.S. Treasury yield curve are foreshadowing an oncoming recession might be missing the point, said Jeffrey Kleintop, senior vice president, chief global investment strategist at Charles Schwab.
“Instead, the steady decline in long-term rates speaks to pessimism about the prospects for the global economy, Kleintop told advisors…”
“These are tumultuous times in South America. Chile and Ecuador have been convulsed by violent protests…
“Bolivia stands on a knife edge after Evo Morales was elected to a fourth term as president… Argentinians have just returned to office Cristina Fernandez de Kirchner as vice president… The context to remember is that Latin America suffers some of the worst income inequality on the planet.”
“A million salmon are starving or rotting in abandoned farms and processing plants in Chile, the world’s second-largest producer of the fish, as protests prevent workers from accessing facilities.
“The risk of environmental damage is imminent, with 800,000 fish waiting to be fed and harvested, and 320 tons decaying in processing plants…”
“Tens of thousands of people have been protesting in Chile after a student protest against a 3% hike in subway fares, later scrapped, sparked nationwide uprising demanding economical and political changes.
“At least 18 people have died and thousands have been arrested amid widespread outbreaks of violence and arson.”
“The UK’s service sector stagnated last month while car production slumped 6.7 per cent in the latest signs that Brexit uncertainty is damaging the economy.
“Output by services firms, which make up four-fifths of the UK economy, flatlined in September according to a closely watched poll of purchasing managers.”
“Germany’s manufacturing sector remained stuck in recession in October as new orders fell for the 13th month running and factories slashed jobs at the fastest pace in almost 10 years….
“IHS Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of Europe’s largest economy, edged up to 42.1 last month from September’s 41.7, staying well below the 50.0 mark separating growth from contraction.”
“Moody’s Investors Service on Tuesday downgraded Lebanon’s rating to Caa2, citing the increased likelihood of a debt rescheduling it would classify as a default, following protests that toppled the government and shook investor confidence.
“Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade, Moody’s said. Moody’s classifies Caa ratings as very high credit risk.”
“Iraqi security forces shot dead at least 13 protesters over the past 24 hours, dispensing with weeks of relative restraint in favour of trying to stamp out demonstrations against political parties that control the government…
“More than 260 protesters have been killed since the anti-establishment demonstrations erupted in early October in Baghdad and several southern cities.”
“Thousands of anti-government protesters, led by Jamiat Ulema-e-Islam Fazi (Jui-F) party leader Fazl-ur-Rehman, have been camped out on a highway in the Pakistani capital since Thursday night, demanding that Prime Minister Imran Khan resign and fresh elections are held…
“Khan’s PTI government inherited an economy on the ropes with a spiralling current account and fiscal deficits and rising inflation.”
“Whether they sell luxury watches from Switzerland or farm hens from Mississippi, a surprising concern is occupying a number of corporate executives this earnings season: Hong Kong’s protests…
“The far-reaching impact of the protests speaks to the outsized role that Hong Kong has hitherto played as a thoroughfare for Chinese shoppers. Buyers have flocked to the city for its zero consumption tax and variety of global imports, whether luxury handbags or infant formula.”
“China on Tuesday sold 4 billion euros in a three-part debt deal, its first re-issue of euro-denominated sovereign bonds in 15 years.
“The deal sets a benchmark for Chinese issuers in the euro market, which could help steer corporate issuance away from dollar-denominated debt, at a time when China and the United States aim to defuse a 16-month-old trade war.”
“Japanese Services sector activity fell into contraction for the first time since 2016 in October, mainly due to a powerful typhoon and dwindling domestic demand on the sales tax hike, the latest survey conducted by Jibun bank showed on Wednesday.
“The final Japan Services Purchasing Managers’ Index (PMI) dropped to 49.7 in October…”
“Chesapeake Energy helped pioneer America’s shale natural gas revolution. Now, the company is warning that it may not survive the era of cheap gas it helped to usher in.
“The Oklahoma-based energy company said Tuesday in a filing to the Securities and Exchange Commission that if “depressed prices persist,” there is “substantial doubt” about its ability to continue as a “going concern.””
““Signs of stress have appeared in the global economy, and the outlook for global growth, at least in the short- and medium-term, has been revised down repeatedly over the past year,” OPEC said in its World Oil Outlook.
“The group said it would likely cut production of crude and other products to 32.8 million barrels per day by 2024, down from 35 million barrels per day in 2019.”
“…it appears that negative interest rates have failed to boost inflation rates closer to central bank targets… negative rates have not lead to any consistent improvement in GDP growth.”
FWIW my impression is that the latest round of interest rate cuts by the central banks + the Fed’s hurried return to (don’t call it) QE have helped calm some jitters – there’s less of a sense of panic in the news.
Of course the very fact that the central banks have had to intervene so significantly in the economy is itself cause for concern.