Why they sell of course. As Bloomberg also adds, "shares in Europe and Asia dropped the most since the aftermath of the U.K. Brexit vote in June, and U.S. stock-index futures fell as concern spread that central banks are preparing to wean markets off unprecedented stimulus. Treasuries extended their slide into a fourth day as the U.S. prepared to sell three- and 10-year notes, and the yield on benchmark German bunds reached the highest since Britain’s decision to exit the European Union was confirmed. Oil sank toward $45 a barrel as nickel tumbled the most in four weeks. The yen advanced and the won slid. Samsung Electronics Co. tumbled after airlines and regulators warned against the use of its Note 7 smartphones." Come to think of it, it really is starting to look like a bloodbath, especially considering the dominant color in the following market summary table...
Last week we first warned that the incipient selloff in long-dated bonds, which the market had ignored for months, would spill over into all global markets and products, and sure enough that is precisely what is taking today, continuing Friday's sell off. Starting with a tumble in longer-dated government bonds, "financial markets have been jolted out of a period of calm by an uptick in concern over the outlook for central bank policies. Lael Brainard, a member of the Federal Reserve’s board of governors, speaks Monday in Chicago, days after Fed Bank of Boston President Eric Rosengren said the economy could overheat." Not helping risk sentiment, the ECB last week played down the prospect of further stimulus and Bank of England Governor Mark Carney said the chances of a U.K. recession had fallen. With the the Bank of Japan set to unveil the results of a comprehensive policy review at its its Sept. 20-21 meeting, traders are on tenterhooks especially after a Friday Reuters report that the BOJ is now actively considering steepening the JGB yield curve. “It was only a matter of time for this selloff,” said Bankhaus Lampe, Germany. “We had seen post Brexit a really notable rebound in markets even if fundamentals hadn’t improved accordingly. I expect some more downside going forward. There’s also the risk of the Fed meeting coming up.” As a result, the MSCI All-Country World Index of shares fell for a third day, dropping 0.8 percent in early Europe trading. All major western-European stock markets dropped as the Stoxx Europe 600 Index lost 1.7 percent. The VStoxx Index tracking euro-area equity volatility headed for its biggest jump since January, signaling a return of instability after an extended period of stable prices. Miners posted the worst performance of the 19 industry groups on the Stoxx 600 today as commodity prices retreated.
Energy companies slid as oil extended declines after U.S. producers increased drilling. Linde AG tumbled 8.4 percent after saying it terminated talks for a combination with Praxair Inc. EON SE slid 15 percent after spinning off its Uniper SE unit. RWE AG fell 3.1 percent after confirming plans for an initial public offering of Innogy SE shares in the fourth quarter. SVG Capital Plc jumped 15 percent after HarbourVest Global Private Equity Ltd. offered to buy it for about 1 billion pounds ($1.3 billion) in cash. Emerging Markets allowed no safe haven today, and the MSCI Emerging Markets Index slid 2.3%, the most since the June 24 Brexit vote. The gauge has tumbled 4.2% in two days, poised for a one-month low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 4 percent, the most in seven months, and South Korea’s Kospi lost 2.3 percent.
Samsung plunged 7 percent after U.S. regulators joined the company in cautioning users to power down their Note 7s and refrain from charging them. Aviation authorities and airlines have called on passengers to stop using the gadgets during flights. The company announced a recall of millions of big-screen smartphones on Sept. 2 after about three dozen of them were found to have batteries that caught fire or exploded. S&P 500 Index futures slipped 0.7%, and were aggressively propped up by the key support level of 2,100. Crude oil was down 1.7%, flirting with $45, after Friday's Baker Hughes report that U.S. active rigs rose once again, while bets on falling prices also increased. OPEC’s monthly market report due at 6:45am ET. But the asset class currently in the driver's seat remain bonds, where the selloff at the long end continues. Germany’s 10-year yield climbed four basis points, or 0.04 percentage point, to 0.05 percent, and touched the highest level since June 24. Spanish bonds with a similar maturity dropped a fourth day, pushing the yield to the most in seven weeks.
Yields on 10Y Treasuries rose two basis points to 1.69 percent, before sales of a combined $44 billion of three- and 10-year notes. The three-year noes being sold later on Monday yielded 0.95 percent, an increase of 10 basis points compared with the previous auction on Aug. 9. Brainard, seen as a leading opponent of rate increases for much of the past year, is the last scheduled Fed speaker before the self-imposed blackout period running up to the Sept. 20-21 policy meeting. Any hawkish shift in her rhetoric may stoke volatility in financial markets, which on Friday put the probability of a hike in borrowing costs this month at 30 percent. Ten-year yields in Australia surged nine basis points to 2.05 percent, after gaining 10 basis points on Friday, and that for New Zealand debt with a similar due date jumped 11 basis points to 2.47 percent. Japanese government bonds with maturities of less than a decade advanced and longer-dated securities declined. The moves follow a Reuters report on Friday that said the Bank of Japan was studying options to steepen the nation’s yield curve. The cost of insuring corporate debt against default jumped the most since late June. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies climbed four basis points to 72 basis points. A measure of swaps on junk-rated corporate issuers rose 16 basis points to 332 basis points. Both gauges are at the highest in about two months.
◦S&P 500 futures down 0.6% to 2104
*) Global Headline News;
◦Global Stocks Sink With Bonds, Commodities as Fed Angst Builds: Fed’s Brainard is among officials due to speak on Monday
◦Linde, Praxair Agree to Terminate Discussions on Merger: Deal would’ve created world’s biggest industrial gas supplier
◦HP Inc. Buying Samsung’s Printer Business for $1.05b: HP seeking to become a bigger player in copiers and printers
◦North Korea Seen Ready to Conduct New Nuclear Test at ‘Any Time’: ‘High’ probability next detonation could come this year
◦Clinton, Suffering From Pneumonia, Cancels Trip to California: Incident fuels speculation about Clinton’s health
◦Perrigo Targeted by Activist Starboard With New 4.6% Stake: Activist critical of missteps since drugmaker rebuffed Mylan
◦Starbucks New Tea Line Chases China’s $9.5b Tea Market: Launches tea products in Asia-Pacific after U.S. growth
# Looking at regional markets, we start in Asia where stocks traded negative across the board following Friday's US sell-off, where all 3 major indices slumped over 2% following hawkish Fed rhetoric and weakness in commodities. ASX 200 (-2.2%) printed fresh 2-month lows, weighed on by commodity weakness in which WTI crude futures declined over 3%, while a firmer JPY dampened hopes of a rebound in Nikkei 225 (-1.7%). KOSPI (-2.3%) fell below 2,000 amid continued geopolitical concerns and losses in Samsung Electronics. Shanghai Comp (-1.9%) and Hang Seng (-XX%) conformed to the widespread negative tone in the region, with the latter suffering from an increase in Hong Kong money market rates after the 3-month HI BOR gained the most since February amid speculation that the PBoC could be intervening in the CNH to prevent CNY depreciation ahead of the first Special Drawing Rights (SDR) operation at the start of next month. 10yr JGBs fluctuated with early support seen as the downbeat tone across equity markets increased demand for safety, however, prices then reversed aggressively in late trade following the BoJ's buying operations which was for a relatively reserved amount.
*) Top Asian News;
◦Traders Most Bearish on Yuan in Four Months as Loan Rates Surge: Bonds extend drop as 10-year yield rises to 7-week high
◦China Proposes Tighter Bond Market Leverage Rules After Defaults: An investor’s repo holdings can’t exceed 70% of bond holdings
◦Bond Rout in Japan Will Pass, Says Analyst Who Picked Rally: Falling liquidity exposes market to spike in yields, Sano says
◦Ex-SAC Trader Said to Shut Hedge Fund Backed by Alibaba Founders: Pinyin is led by Bazarian, who worked at SAC for 10 years
◦Samsung Drops After Warnings to Stop Using Note 7 Phones: Global aviation authorities warn against use while on planes
# Friday's selloff in the US remains at the forefront of traders' minds today, with the downside filtering through to Europe, with all major European indices in the red (Euro Stoxx: -2.3%). In terms of a sector breakdown, all sectors reside in negative territory, with financials and materials among the worst performers. E.on (-12.5%) remain the worst performer, given that today sees the first day of trade for Uniper, combined with reports of higher liabilities for nuclear waste storage. Also of note, Linde (-8%) are among the worst performers after their merger with Praxair fell through. Fixed income markets have also continued their decline, with Bund yields soaring further into positive territory, with the US weighed on by a significant quantity of supply, in the form of USD 24b1n 3yr notes and USD 20b1n 10yr note auctions.
*) Top European News;
◦Deutsche Bank CEO Says Asset Management Is ‘Essential Part’; Cryan tells staff not to become distracted by ‘speculation’
◦Basel Capital Revamp Endorsed Without Assurance Sought by Europe: Basel aims to finish capital framework revision this yr
◦HarbourVest Offers to Buy SVG Capital for About $1.3b: SVG shareholders will receive 650p in cash for each share they hold
◦Carney to Assess Post-Brexit Strength as BOE Rate Seen Unchanged: BOE will announce policy decision on Thursday
◦EON Loosens Grip on Old Power Plants as Uniper Starts Trading: Uniper starts trading at EU10.015/share in Frankfurt
◦AB Foods Drops as Primark’s Summer Slowdown Prompts Selloff: Primark’s same-store sales declined about 2% in 4Q
◦Schaeuble Goes Global to Crack Financial Transaction Tax Dilemma: Austria’s Schelling says decision needed in October
◦Volkswagen Eyes Bond Sale as Carmaker Seeks to Move Past Scandal: Has ‘pretty good handle’ on scandal’s financial risk
# In FX, the Bloomberg Dollar Spot Index fluctuated near a one-week high before Brainard’s speech, with regional Fed chiefs for Atlanta and Minneapolis also lined up to speak on Monday. The yen appreciated 0.6 percent versus the greenback. There’s “growing caution over a rate hike as the day of the Fed’s decision draws closer,” said Masashi Murata, a currency strategist at Brown Brothers Harriman & Co. in Tokyo. “Markets had been too confident that a hike wouldn’t happen. But global economies are not in a critical phase, so there’s a limit to selling on risk aversion. Money will eventually seek yields and underpin high-yielding currencies.” The won slumped 1.4 percent, the worst performance among major currencies, after Yonhap News reported that U.S. and South Korean intelligence authorities see a high chance that North Korea will conduct an additional nuclear weapons test after holding one on Friday. The MSCI Emerging Markets Currency Index slid 0.4 percent, leaving it down 1.3 percent over two days.
# In commodities, the Bloomberg Commodity Index fell 0.6 percent, after sliding 1.3 percent on Friday. Crude oil sank 1.6 percent to $45.14 a barrel in New York after American producers increased drilling, adding to a glut. U.S. rigs targeting crude rose to the highest since February, according to data from Baker Hughes Inc. Nickel slid 3.4 percent in London, dropping for the first time in eight days, while tin tumbled by the most since May. Gold rose 0.1 percent, after retreating 1.6 percent over the last three sessions. Iron ore fell in China to the lowest since June amid speculation the nation’s policy makers will tighten property curbs and so cool demand for steel. Steps should be taken to restrain bubble-like expansion in the housing market, Ma Jun, chief economist of the PBOC’s research bureau, said in an interview with China Business News. Wheat in Chicago fell 0.7 percent to about $4 a bushel, approaching a decade-low of $3.8675 reached on Aug. 31. Money managers have their biggest-ever bet on price declines and a global stockpile estimate by the U.S. Department of Agriculture is forecast to still be at a record high after the figure is updated on Monday.
# On today's calendar, with the FOMC blackout period taking effect from Tuesday the Fedspeak is frontloaded to today. Lockhart will speak at 1.05pm BST, Kashkari at 6pm BST and perhaps most significantly the uber dovish Brainard is scheduled to speak at 1.15pm Chicago time.
*) Bulletin Headline Summary from RanSquawk and Bloomberg;
◦Friday's selloff in the US remains at the forefront of traders' minds today, with the downside filtering through to Europe ◦Commodity currencies vs the JPY have been the primary target for risk sellers, and this has eventually weighed on USD/JPY which is now eyeing another test below 102.00
◦Looking ahead, highlights include comments from Fed's Lockhart and Brainard
◦Treasuries slightly lower in overnight in overnight trading with global equities drop amid concern that central banks are preparing to wean markets off unprecedented stimulus. Week’s auctions begin with two events at 1pm ET with $24b 3Y notes, WI 0.945%; sold at 0.85% in August and $20b 10Y notes (re-opening), WI 1.675%; last sold at 1.503% in August, 72.2% awarded to indirect bidders was among highest on record;
◦Fed’s Brainard will begin speaking at 1:15pm ET in Chicago
◦The plunge in euro-area government bonds that has driven German yields to their highest level since the U.K.’s Brexit vote is unlikely to escalate into a full-blown rout, according to Charles Diebel, head of rates at Aviva Investors
◦The U.S. government should consider fiscal and regulatory reforms to boost economic growth because the scope for low interest rates alone to do so is limited, said Federal Reserve Bank of Minneapolis President Neel Kashkari
◦ABN Amro Group will cut as many as 1,375 jobs through 2020 as the Dutch lender begins to implement a 200 million euro ($225 million) cost-cutting plan announced last month
◦Money managers increased wagers on falling oil prices by the most in three months as a meeting between Russia and Saudi Arabia ended without specific measures to support prices
◦Oil extended declines following the biggest drop in more than a month after U.S. producers increased drilling as the market contends with an overhang of crude and fuel inventories
◦The central bank governors overseeing the Basel Committee on Banking Supervision backed the “broad direction” of the regulator’s bank capital-rule revamp, while stopping short of providing assurances sought by Europe on the overhaul’s impact
◦China should take steps to restrain bubble-like expansion in housing markets and tame excessive financial inflows into property, according to Ma Jun, chief economist of the People’s Bank of China’s research bureau
◦China has proposed measures to tighten leverage rules in the onshore bond market, highlighting concern that investors’ borrowings are overextended after a series of defaults
◦Democratic presidential nominee Hillary Clinton canceled a two-day trip to California after her campaign disclosed Sunday that she’s suffering from pneumonia. The cancellation followed Clinton’s abrupt departure from a Sept. 11 commemoration....