Standard & Poor’s stripped the U.K. of its AAA credit rating on Monday following the shocking Brexit vote to leave the European Union. …read more
Source: Downgraded: U.K. loses perfect AAA credit rating
Brexit is a major wake up call for world leaders. Trade and globalization are under fire. CNNMoney looks at what it will take for the global economy to triumph. …read more
Source: Brexit is a big wakeup call on inequality
By Tyler Durden
For the first time since early March, The Dow dropped back near 17,000 earlier (down over 1000 points from the pre-Brexit peak) with a modest bounce off the EU close lows. However, this plunge across risk assets has erased all post-QE3 gains with Trannies down 20% since Oct 2014. Having been almost 200 points ‘rich’ to the Fed balance sheet, it appears reality is setting in once again and risk is mean-reverting.
Post-QE3…
Which, once again, reverts S&P to its Fed Balance Sheet implied level…
FV is around 1960 – but as we saw in Aug 2015 and Jan 2016, the market must overshoot before The Fed will jawbone it back to hope.
Charts: Bloomberg
Source: US Stocks Erase All Post-QE3 Gains, Tumble To Fed Balance Sheet ‘Reality’ Once More
By Tyler Durden
There is nothing one can add to these three Dallas Fed Manufacturing Activity respondents, who in just a few brief sentences successfully explain pretty much everything that is wrong with the US economy right now.
Response #1: “the Fed, Credit Conditions and Employment”
The economy is nervous, shaky and uncertain. Fed policy has us locked into a lethargic and tenuous position. It appears the Fed doesn’t know how to get off the horse it created. The Fed talks interest rate increases but looks for every reason not to do it. Until the Fed backs out of trying to manage the economy, we will be stuck on the cusp of slow growth and a recession. Add the difficulty in getting commercial and retail financing and rising employee costs (health care, minimum wage threats and the ridiculous overtime executive order), and hiring for many of us will be minimal. We cannot have millions of people out of the workforce and be healthy economically—they are a burden not a benefit.
Response #2: “the Government and Regulation”
We are experiencing major demand instability in the U.S. Continued management focus on upcoming regulatory changes is keeping us from pursuing new markets (especially internationally) and delaying making long-term investments. Major human resources policy updates and changes have resulted in eliminating positions (in the future as people are promoted or leave the company they will not be replaced) and considering moving all salary people who do not travel to hourly. Although we need more people, we are increasing the requirements for the open positions to reflect higher cost thresholds and most likely will delay hiring decisions for most positions until the impacts of the changes are fully understood.
Response #3: “Obamacare, Productivity and Deflation”
The Affordable Care Act (ACA) continues a downward push on productivity as it limits our hiring because we can’t afford the estimated 60 percent increase in health care premiums that an ACA-compliant policy would cost. Steel raw material costs are rising, but the steel scrap is falling, therefore increasing our costs. Customers are not accepting price increases. It is slow, and the general business climate seems tepid at best.
So if Texas manufacturers get it, why can’t the world’s “smartest” economists and central planners?
* * *
Bonus Response:
“Labor availability in Juarez and other areas of Mexico has tightened considerably.”
Source: These Three Survey Responses Explain Everything That Is Wrong With The US Economy
By Tyler Durden
WTI Crude has tumbled back to a $46 handle this morning (from over $50 on Friday) with Brexit volatility weighing on every asset class and Nigeria and Canada restart production (following rebel attacks and wildfires respectively) but as OilPrice.com's Charles Kennedy notes companies pumping oil from the Gulf of Mexico will ramp up production in coming months, propping up American output, despite efforts to curb production and raise barrel prices.
The United States currently produces 8.7 million barrels a day – a half a million less than where the figure stood last year, according to data from the Energy Information Administration (EIA).
Low prices caused by the high output levels have kept oil exploration efforts at a minimum.
Around 500,000 more barrels of crude from Mexico’s namesake gulf will go online by 2017, according to analysis by the Wall Street Journal that included government and private sector sources.
“The projects are coming faster and sometimes bigger than expected,” Roger Diwan of IHS Energy told Dow Jones. “The ramp-up seems to have accelerated during low prices.”
A handful of sizable fields had been funded for construction years prior, when prices were higher. The projects completed construction as scheduled and will begin production in the coming months.
Once the fields become operational, the U.S. Department of Energy predicts offshore oil production will set a record in 2017 with 1.91 million barrels – 24 percent more than in 2015 – flowing out of surrounding bodies of water by next December.
The year 2009 held the previous record for highest offshore oil production rate, but British Petroleum’s spill in the Gulf of Mexico later that year caused a moratorium on the category of drilling.
Mexico has also begun efforts to encourage drilling in the Gulf. A total of 21 companies, including the Who’s Who of Big Oil, have registered to take part in Mexico’s deepwater oil auction to be held in December.
Shell, Chevron, ExxonMobil, British BP, French Total SA, Spanish Repsol, Norwegian Statoil and Mexican Pemex are among the major players now registered to bid for 10 blocks in the Gulf of Mexico, Prensa Latina reports.
Some 76 percent of the country’s potential oil resources are in the Gulf of Mexico’s deep waters, according to Forbes.
Furthermore, returning production in Canada and Nigeria, combined with the Brexit result, could mean “the drop in prices in the short term may be serious,” Russia’s Novak said in an e-mailed statement. If supply isn’t restored, a return to fundamentals is likely fairly quickly, he said.
Source: Oil Tumbles Amid Bad News For Glut As US Offshore To Hit Record In 2017
One of Trump’s advisers is firing back at the Moody’s Analystics ‘hit piece’ that claimed the GOP candidate’s plans would throw the U.S. into a recession. …read more
Source: No way Trump will cause a recession, adviser says
By Tyler Durden
How do you know that “things are getting serious”? Well, one way as Jean-Claude Juncker explained before, is that “you have to lie.” Another is when central bankers start withdrawing from cental bank gatherings, which as Reuters reported is what both Mark Carney and now Janet Yellen have done, in this case pulling out of the ECB Forum on Central Banking that starts today and lasts through Wednesday. Clearly they have bigger things on their plate…
As Reuters notes, Federal Reserve Chair Janet Yellen is no longer due to speak at a global central bank summit starting on Monday, the second high-profile defection after the Bank of England’s governor pulled out following Britain’s vote to leave the European Union.
An updated version of the programme of the event, organised by the European Central Bank, showed on Monday that a panel with Yellen, ECB President Mario Draghi and BoE Governor Mark Carney had been taken out. Carney had cancelled his attendance over the weekend.
The ECB’s Forum on Central Banking takes place every year in Sintra, Portugal.
Cited by Bloomberg a Fed spokesman said that Yellen will not participate in the Wednesday policy panel at the ECB conference as was originally scheduled. She will be returning to Washington following the BIS meetings. The Fed did not offer an explanation for Yellen’s change in schedule.
We are curious how long it will take algos to “analyze” that this is great news as it implied imminent central bank intervention and promptly send stocks back to near all time highs.
Source: Yellen, Carney Pull Out Of ECB Forum In Portugal
By Tyler Durden
It is somewhat ironic that the man who made a $1.5 billion profit on Black Wednesday in 1992 when he bet against the pound sterling ahead of the UK exit from the ERM would be the same one to suffer major losses on the same currency 24 years later. According to Bloomberg, Soros was long the pound before Britain’s vote to leave the European Union on Friday, and didn’t “speculate against sterling while he was arguing for Britain to remain,” a spokesman said in an e-mailed statement Monday. In other words, Soros did put his money where his Op-Ed was.
As a reminder, before the Brexit vote, Soros warned in a Guardian Op-Ed that the pound could slump more than 20% against the dollar as voters were grossly underestimating the true cost of Brexit. Sterling plunged 8.1 percent on Friday to its lowest level in more than three decades, and tumbled again on Monday.
It is more interesting, however, what Soros’ trade is following his Op-Ed sequel in which he said that the “catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible” adding that “The consequences for the real economy will be comparable only to the financial crisis of 2007-2008.” If he is again trading as per his conviction, we would expect Soros to now be negative the EUR much more so than the GBP, which is now merely sliding lower in attempts to spook and punish the UK public into changing its mind into voting Remain in a potential second referendum as a result of the ongoing financial turbulence.
“Britain eventually may or may not be relatively better off than other countries by leaving the EU, but its economy and people stand to suffer significantly in the short to medium term,” Soros wrote in his June 25 essay. Financial markets “are likely to remain in turmoil as the long, complicated process of political and economic divorce from the EU is negotiated,” he said.
However, despite the historic crash in the pound, which tumbled over 8% on Friday and has slid nearly another 4% this morning, almost triple the loss the currency suffered on Black Wednesday, it appears that Soros was well hedged: “Because of his generally bearish outlook on world markets,” Soros did profit from other investments, according to the statement. As a reminder, on June 9 the WSJ reported that Soros Returns To Trading With “Big, Bearish” Bets On Economic Turmoil.
Those bets have so far paid off.
Source: Soros Suffers Major Loss On Long Pound Trade Ahead Of Brexit
By Tyler Durden
Overnight Media Digest
WSJ
X- Spanish Prime Minister Mariano Rajoy’s Popular Party did better than expected on its way to being the top vote-getter in national elections on Sunday, but Rajoy faces the same difficulty forming a government that he confronted after inconclusive elections last December. (http://on.wsj.com/293bnFG)
– Iraqi Prime Minister Haider al-Abadi said the country’s military wrested full control of Fallujah from Islamic State, paving the way for an offensive to reclaim Mosul, the last major city controlled by the extremist group in Iraq. (http://on.wsj.com/293bpx6)
– Nissan Motor Co’s South Korean unit has filed a lawsuit over the Korean government’s claims that the Japanese automaker rigged emissions tests on its Qashqai diesel sport-utility vehicles. (http://on.wsj.com/293bvVH)
– Pressure abated on the UK to serve swift notice of its intention to leave the European Union after last week’s referendum, as senior European policy makers suggested Britain should be allowed time to rethink the decision. (http://on.wsj.com/293bSzA)
– Amazon this week plans to announce it is adding dozens of new brands to its Dash buttons feature that enables shoppers to order consumer items by pressing a button. (http://on.wsj.com/28WqUmU)
FT
12 members of the opposition Labour party stepped down, and another 20 resignations are expected on Monday after Jeremy Corbyn sacked his shadow foreign secretary, Hilary Benn.
Spain’s acting prime minister, Mariano Rajoy, won Spain’s general election on Sunday after his People’s Party won 33 percent of the vote.
Intel Corp is considering options for its cyber security business, Intel Security, including potentially selling the unit.
NYT
– Some economists warn that the policies largely favoured by the banks could further alienate the public and increase the frustration that encouraged Britons to vote …read more
Source: Frontrunning: June 27
By Tyler Durden
After a modestly stronger open, which saw sterling rebound to just under 1.35, the British currency has taken another sharp leg lower in recent trading tumbling another 3%, to a low of 1.3224 – taking out Friday’s post-vote lows when the currency plunged over 8% – as it remains under heavy selling pressure as of this moment.
As the following chart shows, with the expetionf of just one currency, cable is the worst performing in the world this morning on ongoing Brexit fears.
Today’s 3%+ drop has added to an unprecedented 8.1% tumble on Friday, which was almost double the 4.1% decline on Black Wednesday in 1992, when the U.K. was forced out of Europe’s exchange-rate mechanism.
The flight to safety has meant that gains in U.K. government bonds pushed the 10-year gilt yield below 1% for the first time, while the FTSE 100 slid 1.3%,
And with money rushing into safety, it promptly left the local banks, as a result both Barclays and Royal Bank of Scotland fell more than 10% leading to their stock being halted due to excess volatility.
Not helping the local banks was a double-downgrade of Barclays by Jefferies to underperform from buy as its IB operations are too exposed to downside risk on capital and earnings, Jefferies said. The mid-market US bank cut its BARC PT to 115p vs 287p noting that Brexit outcome “changes everything”:
It’s not just these two banks: the entire UK banking sector is down 13% today, after plunging 17% on Friday, meaning in just two days UK banks have lost nearly a third of their market cap.
Meanwhile, traders were on the sidelines, unwilling to commit capital: “People are finding it difficult to comprehend what Brexit implies for the future — we don’t know yet what the magnitude of the shock will be,” said Steven Barrow, head of Group-of-10 strategy at Standard Bank Group Ltd. in London. “So far, in terms of sterling-dollar, we’ve seen half the decline we’re likely to see this year.”
“We’ve seen so many developments around Brexit over the weekend since the FTSE closed and things are now looking even more concerning,” Angus Nicholson, Melbourne-based analyst at IG Ltd., said by phone. “It’s hard to have any idea about where fair value for the pound should be when you look at the fact that Scotland and Northern Ireland could no longer be part of the U.K. within the next year or two. ”
Pessimism prevailed: “From here, a 10 percent fall relative to the U.S. dollar seems about right,” Kit Juckes, a London-based strategist at Societe Generale SA, said in a Bloomberg Television …read more
Source: Pound Plummets To New Lows; 10Y Gilts Slide Under 1%; British Banks Halted After Crashing
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