Wall Street Banks Warn Downturn Is Coming

Societe Generale SA

 

• HSBC, Citigroup, Morgan Stanley say end of market boom is nigh
• Breakdown in trading patterns is signal to get out soon

HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.

Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.

Goldman Says There’s an Elevated Risk of a Big Market Selloff

Video available at the source.

 

And it’ll be tough to find a place to hide.

“With the S&P 500 close to all-time highs, stretched valuations and a lack of growth, drawdown risk appears elevated.”

So says Goldman Sachs Group Inc. Managing Director Christian Mueller-Glissmann, who highlights that selloffs in excess of 20 percent for major bourses occur relatively frequently and recently have been brought about by concerns of a global nature. With a possible Brexit, the U.S. presidential elections, and a Fed that appears committed to continuing to lift policy rates, this level of event risk is certainly on the table.

Deutsche Bank: Chinese Stocks Are More Distressed Than During the Financial Crisis

Investors are pricing in a crisis.

With concerns about a hard landing in China playing the starring role in the risk-off environment that’s dominated so far in 2016, it’s no surprise that equities in the world’s second-largest economy have fared particularly poorly.

In local-currency terms, the Shanghai Composite is down almost 17 percent this year, far underperforming the MSCI World Index’s 7.5 percent retreat.

Yellen Is Trapped in the Worst Nightmare Ever

Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate they MUST raise rates of they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

China’s Stocks Plunge as State Intervention Fails to Stop Rout

China’s benchmark stock index fell to a three-month low on concern a raft of measures to stabilize equities is failing to stop the bear-market rout as traders unwind margin bets at a record pace.

The Shanghai Composite Index slid 3.6 percent to 3,592.35 at 1:04 p.m., after plunging as much as 8.2 percent, the most since 2007. Power, health-care and consumer companies led declines, as only 46 stocks among the 1,106 that trade in Shanghai rose. PetroChina Co. and Industrial & Commercial Bank of China Ltd., the two biggest stocks, lost more than 2 percent.

Goldman Asks, Is The Bundesbank “Ominously” Trying To Sabotage The ECB’s QE?

Goldman previously argued that the weak activity reading rattled a market that had been operating on a core thesis of strong US growth. The resulting uncertainty caused Bund yields and EUR/$ to rise, with the DAX also selling off on the day. Since then, something more ominous has come into play…

One clue has been the communications ping pong from the ECB. On May 18, Executive Board member Coeure said “the rapidity of the reversal in Bund yields is worrisome,” citing it as another example of “extreme volatility in global capital markets.”

ECB President Draghi sent the opposite message on Jun. 3, saying “one lesson is that we should get used to periods of higher volatility,” followed on Jun. 10 by Executive Board member Coeure stating that “the ECB does not intend to counter [Bund] volatility in the short term.”

Goldman took a dim view of all this in our last FX Views, even if a charitable interpretation is that President Draghi basically sent a dovish message on Jun.10 and simply didn’t want to signal “activism” in the face of short-term volatility.

Hedge fund manager: It’s a ‘truly scary time’

“I think it is a truly scary time,” Andy Redleaf, CEO of $4.2 billion hedge and mutual fund manager Whitebox Advisors, said in an internal memo Sunday night obtained by CNBC.com.

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“We do not know exactly where all the credit creation of this cycle has gone. Certainly money sits idly as excess reserves, but just as certainly money that would not exist but for unconventional monetary policy has distorted prices and resource allocation,” Redleaf wrote.

Japan to keep printing money for years to come, so learn to enjoy it

There are no one-way bets in global finance, but Japan’s stock market comes close. The authorities are about to funnel large sums into Japanese stocks openly and deliberately under the next phase of Abenomics, both by regulatory fiat and by purchasing the Nikkei index directly with printed money.

Prime minister Shinzo Abe is unshackling the world’s biggest stash of savings, the $1.3 trillion Government Pension Investment Fund (GPIF). Officials say the ceiling on equity holdings will rise from 12pc to around 20pc as soon as August, opening the way for a $100bn buying blitz.

US banks are told to be prepared for 30-day crisis

The biggest US banks would be required to hold enough easily sold assets to survive a 30-day credit drought under proposed new Federal Reserve liquidity rules.

The Federal Reserve liquidity coverage ratio proposal, approved unanimously at a meeting in Washington, goes further than the Basel III measure adopted in January and calls for earlier implementation than the EU.

REPORT: UBS Is Going To Send A Letter That Could Scare The Heck Out Of Clients Invested In Bonds

In order to avoid financial loss for the clients as well as the business, UBS is now classifying what were once medium-risk investors into high-risk investors. It also doubles as a warning which possibly indicates anticipation of a looming catastrophe.

It really looks like the investment industry is trying to get investors to participate in this “great rotation” from bonds to equities.

According to Charlie Gasparino (via Josh Brown) some clients of UBS are about to get a shocking letter in the mail.

Bank of America issues `bond crash’ alert on Fed tightening fears

The 1994 bond shock – and seared in the memories of bond-holders – ricocheted through global markets. It bankrupted Orange Country, California, which was caught flat-footed with large bond positions. It set off the Tequila Crisis in Mexico as the cost of rolling over `tesobonos’ linked to the US dollar suddenly jumped.

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Bank of America said the “Great Rotation” under way from bonds into equities closely tracks the pattern of 1994, with bank stocks leading the way.