After stating that The ECB will relax the previous QE parameters, allowing it to buy bonds with yields below the deposit floor, 5Y German yields have dropped below -40bps. The entire European bond yield curve has steepened dramatically (German 2s10s +12bps to steepest since July 2014).
5Y yields drop below the depo floor…
The long-end is dumping as the short-end is bid…
Sending the yield curve to its steepest since July 2014…
esterday saw the VIX solidly higher despite the fact that stocks rallied hard; what do similar precedents tell us?
Markets have been on a parade of peculiarity since the presidential election a month ago. Today’s rally on Wall Street was no exception. Yesterday, we noted the 3-month low in the S&P 500 Volatility Index (VIX), and the historically bullish connotations for the rest of December. Today, the VIX pulled an about-face, despite the strength in stocks. Specifically, the VIX uncharacteristically jumped 3.5% even though the S&P 500 (SPX) was up more than 1%. We thought that was odd so we looked at the historical data. It turns out that it was.
Since the VIX’s inception in 1986, today marks just 30th time in which the VIX rose at least 3.5% on a day that the S&P 500 gained at least 1%. 22 of those days occurred with the SPX within 2% of a 52-week high, as was the case today.
So, who’s right – stocks or volatility? Well, from a glance at the chart, there are a handful of glaring occurrences at cycle highs (e.g., August 1987, July 1990, March 2000). However, let’s look at the aggregate performance of the S&P 500 and the VIX following these 22 prior occurrence.
Prior precedents would suggest that the VIX is in the right here. The SPX saw median losses from 1 week to 3 months following previous occurrences, though median returns were never worse than -1.2%. The consistency of losses was the biggest offender, with almost ¾ of the events showing losses after a month and 1/3 after 2 months. Whatever effect this scenario had on forward performance, it seems to be a short to intermediate-term one. By the 6-month mark, median returns turned positive and began a path toward “normal” returns.
As for the VIX, the opposite occurred (predictably, as the VIX tends to move counter to stocks, today’s events notwithstanding). The VIX showed median gains from 2 days out to 3 months. Its peak median gain came at the 2-month mark at +10%. VIX gains were pretty consistent as well, with about 2/3 of the dates showing a rising VIX over all durations, 2 days to 3 months. Again, by 6 months, the VIX seemed to settle down, posting a 1% median drop.
There are a lot of positive factors going for the stock market right now, not the least of which is price action. Therefore, we don’t want to make too much of this odd data point with its limited sample size. However, to the extent that this face-off between rising stocks and a rising VIX has any influence on future performance, historical precedents suggest it may be the stock market that blinks – at least in the shorter-term.
* * *
That Reuters trial balloon was right.
In an unexpected, to the conesnsus, announcement, Mario Draghi turned hawkish after all, and while the ECB kept all rates unchanged, it announced that it would effectively taper its bond purchases from €80 billion to €60 billion starting in April 2017 until the end of the year: “From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”
However, the ECB hedged, and also added that “if the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration.”
So tapering, but conditional on the market not falling apart; should risk return, the ECB will return to the familiar program of €80 billion per month, or more.
Additionally the ECB suggested that it will address bond scarcity and expand the scope of eligible bonds, saying that “to ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP, which will be communicated at today’s press conference and in a separate press release.”
Full press release:
Monetary Policy Decisions
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.
To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP, which will be communicated at today’s press conference and in a separate press release.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
Overnight Media Digest
WSJ
– U.S. stocks posted their biggest rally since the election, sending major indexes to fresh records as investors increasingly conclude President-elect Donald Trump will be good for business and the economy. http://on.wsj.com/2h8mFLj
– The CEOs of AT&T Inc and Time Warner Inc on Wednesday defended their proposed $85 billion merger to lawmakers, trying to navigate a tricky political landscape in which President-elect Donald Trump has expressed hostility to the deal. http://on.wsj.com/2hjV7yR
– President-elect Donald Trump on Wednesday chose Oklahoma Attorney General Scott Pruitt to lead the Environmental Protection Agency, according to a transition official, turning to a climate-change skeptic and sharp critic of the agency to take its helm. http://on.wsj.com/2gbVAae
– Rampant use of an accounting sleight of hand means Chinese banks don’t have to set aside capital to cover potential losses, sowing fears of a crisis. http://on.wsj.com/2hkJhV0
– President-elect Donald Trump turned to a third retired military officer to help him run the country when he takes office in January, a move that represents an unusual level of military influence in the executive branch. http://on.wsj.com/2hlLn7r
– Passage of legislation aimed at speeding up Food and Drug Administration approvals, combined with an incoming president who has pledged to “cut red tape” at the agency, is expected to usher in a new, more industry-friendly era of drug and device regulation. http://on.wsj.com/2h7fbbb
– Syrian rebels on Wednesday proposed a civilian evacuation and negotiations over the future of Aleppo, a stark admission the opposition is all but defeated in a divided city seen as a bellwether in the country’s nearly six-year war. http://on.wsj.com/2gb850P
NYT
– The Russian government announced Wednesday that it will sell nearly 20 percent of its state oil company, Rosneft , to Swiss commodity trading firm Glencore and the sovereign wealth fund of Qatar. http://nyti.ms/2h8jqDt
– City Council in Portland in Oregon voted on Wednesday to impose a surtax on companies whose chief executives earn more than 100 times the median pay of their rank-and-file workers. The surcharge, which Portland officials said is the first in the nation linked to chief executives’ pay, would be added to the city’s business tax for those companies that exceed the pay threshold. http://nyti.ms/2h8kS90
– The European Central Bank is expected to say on Thursday that it will buy large quantities of government bonds and other assets for longer than initially planned, an attempt to protect the eurozone economy from an increasingly unpredictable political landscape. http://nyti.ms/2h8brWU
– China’s highest court ruled largely in favor of former basketball star Michael Jordan on Thursday in a closely watched trademark case. The decision held that Jordan owns the legal rights to the Chinese characters of the equivalent of his name, overturning a lower-court ruling. The lawsuit pitted Jordan against Qiaodan Sports Company, which he accused of using the Mandarin transliteration of his name on its goods. http://nyti.ms/2h8kN5j
– President-elect Donald Trump is considering formally turning over the operational responsibility for his real estate company to his two adult sons, but he intends to keep a stake in the business and resist calls to divest, according to several people briefed on the discussions. http://nyti.ms/2h8fgLI
Canada
THE GLOBE AND MAIL
** The civil servant in charge of the government’s spy-watchdog agency says Canada may have to reconsider how it shares intelligence with the United States if president-elect Donald Trump makes good on his promise to torture terrorists to gather intelligence. https://tgam.ca/2h6uqyd
** Chicago-based PrivateBancorp Inc. is postponing the shareholder vote for its $4.9-billion sale to Canadian Imperial Bank of Commerce, raising questions about whether CIBC will have to sweeten its bid next year. https://tgam.ca/2h6tkCy
** Canada is set to overhaul the way financial transactions are processed as changing technology and globalization reshapes the way individuals and businesses move money and access their funds. https://tgam.ca/2h6weYc
NATIONAL POST
** Ontario officials said the province’s own land-use restrictions around its largest city have constrained the supply of detached homes. http://bit.ly/2h6wO88
** A major international union has taken the first step towards unionizing pilots at WestJet Airlines Ltd, taking over the work begun internally last year. http://bit.ly/2h6nJw6
The leftards at the British news site metro.co.uk cover this story but fail to inform their readers that the yobs are Afghan Muslims. Likewise, the Daily Mail omits the fact that Merkel’s so-…
Source: Shocking! Watch What These Filthy Muslims Do to a German Woman for No Reason
There was never much doubt in the mind of anyone with a functioning brain that Obama wasn’t really a Muslim.
Islam is its own worst enemy and once the true about about their primitive beliefs is more generally known they will become piranha to the rest of the civilized world.
Lets hope these fools never bother to vote and they probably would so heir lack of any knowledge will not matter!
To get everything that you deserve you must live in a communist country.
Aint’ socialism grand? From Yahoo: LA PARADA, Colombia (Reuters) – Women from crisis-hit Venezuela are crossing the border in droves and selling their hair in a Colombian border town in order to afford scarce basic necessities such as food, diapers or medicines. The trend, which has taken off in recent weeks, is another sign of […]
via Venezuelan women flock to Colombia border town to sell hair — Fellowship of the Minds
Reblogged on kommonsentsjane/blogkommonsents.
Hope the kids in college absorb some of this socialism and how grand it isn’t. We don’t have to be rich – we just need jobs and then people can be whatever they want to be. The problem was – Obama wanted to make everyone poor but himself – then he could look down his nose and think how smart he was. Just a little history so that the young-un’s won’t forget how kool and hip…
View original post 4 more words
If you don’t see anything wrong with this then you are a Muslim!
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