Chaos: Bitcoin bounced back $1500 from the lows, rising as high as $10,400 from nearly $2000 lower just an hour earlier, before trading in a range around $10,000.

*  *  *

Update: The crash is continuing with Bitcoin now collapsing below $9000…

Ethereum and Litecoin are also under pressure.

Numerous exchanges and trading platforms are suffering outages.

*  *  *

Having soared in the last 24-48 hours to as high as $11,395 this moring, Bitcoin has just tumbled back below $10,000…

While a notable pump and dump, this drop is a mere 13% (following an 8% drop overnight after initially breaking $10,000).

There is some chatter than Bitcoin flash-crashed to as low as $9130 on Coinbase…

Remember on November 8th to 10th, Bitcoin crashed 30% amid rumors of its death.

image courtesy of CoinTelegraph

And as we noted previously, Bitcoin crashes at least once every quarter…

Amid a record day for traffic, Coinbase website is down once again…

Despite a Wednesday dive in high-flying U.S. tech stocks on worries their boom may have peaked following a MS downgrade, which pressured Asian stocks leading to a slide in Hong Kong and South Korean share, on Thursday morning the dip buyers have emerged and both European stocks and US equity futures are once again solidly in the green as yesterday’s tech selloff is quickly forgotten. Confirming that algos have moved on, US stock-index futures climbed briskly (ES +0.3%), and Dow futures were above 24,000 with Europe green across the board as signs of progress on the tax reform plan led some investors to shift to positions that are seen benefiting from lower corporate tax.

Following a lackluster Wednesday session, and some mixed results in Asia, Europe’s Stoxx 600 has advancds to session’s high, up 0.6%, as defensive sectors including telecommunications, utilities and real estate outperform more cyclical sectors like construction, financial services and technology, with the FTSE 100 once again lagging (-0.3%) as the firmer GBP continues to hamper the index. Despite opening relatively flat, European bourses have drifted higher amid the declines seen in EUR with little else in the way of fresh fundamental catalysts to guide price action. All sectors trade in positive territory with the exception of energy names in the wake of yesterday’s sell-off in oil prices.

Germany’s Dax and France’s CAC 40 both inched up for a third day, though London’s FTSE was back in the red as hopes of a breakthrough in Brexit negotiations pushed the pound higher again.

Earlier, Hong Kong and South Korean-listed shares tumbled, while Japanese stocks gained. Asia stock markets were mostly negative as the tech-sell off on Wall St. dampened sentiment in the region and overshadowed better than expected Chinese PMI data. ASX 200 (-0.7%) was pressured by its largest weighted Financial sector after the announcement of a royal commission inquiry into the industry, while Nikkei 225 (+0.6%) recovered from opening losses as JPY weakness provided support. Elsewhere, KOSPI (-1.5%) weakened as the BoK delivered a widely anticipated 25bps rate hike and Chinese markets were also subdued with the Hang Seng (-1.5%) reeling on tech weakness, although losses in the Shanghai Comp. (-0.6%) were somewhat stemmed by encouraging Chinese Official PMI data.

In global FX and macro, the Bloomberg Dollar Spot Index was higher a fourth day, its longest winning run since August, before key U.S. data releases including personal income, spending, deflator, initial claims, and Chicago PMI; the pound held on to Asia session gains as Brexit talks seemed on track to soon enter phase 2, the hardest part of the negotiations. As noted earlier, the euro reversed gains after inflation in the currency bloc missed estimates, while the 10-year bund yield fell from a two-week high; equities were mixed amid profit taking in EMFX and month-end flows in G-10 currencies. Some other key FX observations, from Bloomberg:

• The pound was the only G-10 currency to strengthen against the dollar on Thursday after news that Ireland and the U.K. were close to a border deal
• EUR/USD set a fresh session low after annual euro-zone flash CPI rose 1.5% in November versus an estimated 1.6% rise
• Kiwi dropped after business confidence fell to the lowest level since 2009
• The yen fell to a one-week low on the back of a rally in Japanese stocks and as better-than- expected U.S. economic data sapped haven demand
• Norway’s krone slid to a nine-year low against the euro, with low liquidity exaggerating the move, after retail sales unexpectedly contracted 0.2% m/m in October versus an estimated 0.7% rise

Weighing on tech were concerns, sparked by a Morgan Stanley report
earlier this week, that the “super-cycle” in memory chip demand looks
likely to peak soon. Yesterday, shares of Amazon.com, Apple, Alphabet
and Facebook fell between 2 percent and 4 percent. Among the year’s
other high fliers, Netflix slid 5.5 percent while Asia’s bellwether
Samsung slumped 4.3 percent to two-month lows, also on some Morgan
Stanley skepticism.

“I‘m not sure one would say it’s a bubble (in tech stocks),” said Andrew Milligan, head of investment strategy at Standard Life. “By and large the companies are generating either good profits or the potential for good profit growth”. But “Tech is a sector unto itself… it’s utterly a view about barriers to entry.”

Still, the Nasdaq index remains up 26.8% so far this year, roughly 7% points above gains in the MSCI world index. “It is true that if you look at the world’s semiconductor sales on chart, their year-on-year growth appears to be peaking out,” said Hiroshi Watanabe, an economist at Sony Financial Holdings. “But if you look at what’s driving demand, it’s not just smart phones and actually a lot of things.”

In the US, Senate Republicans voted 52-48 to begin debate on their sweeping tax-overhaul bill, touching off a process that could produce an up-or-down vote before the end of this week. Outgoing Federal Reserve Chair Janet Yellen said Wednesday the central bank would welcome and support a faster expansion of the economy stemming from changes in the tax code, provided it was the right kind of growth. Other notable US events overnight:

• White House adviser Kushner said to have met with Special Counsel Mueller’s team for discussions regarding former National Security Adviser Flynn.
• Marvin Goodfriend was nominated for the Fed Board of Governors position.

Other changes are afoot: JPM Asset Management global head of rates David Tan predicted on Thursday that there will be some 1,000 rate hikes globally over the next decade. “The current period of economic expansion has therefore been extraordinarily long, almost 10 years and counting, but we know that the days of super low global central bank rates are in the process of coming to an end,” he said.

Meanwhile, interest rates in Germany rose to their highest in just over two weeks, while 10-year U.S. Treasuries yield climbed too, reaching 2.389% to near this month’s high of 2.414%.

There was no immediate market response after U.S. President Donald Trump nominated Carnegie Mellon University professor Marvin Goodfriend, viewed as a policy hawk, to be a member of the Federal Reserve Board of Governors.

Oil meanwhile moved cautiously ahead of an OPEC meeting in Vienna later in the day, with members set to debate an extension of the group’s supply-cut agreement. While the Organization of the Petroleum Exporting Countries and key non-member Russia look set to prolong oil supply cuts until the end of 2018, they have signaled that they may review the deal when they meet again in June if the market overheats.

Market Snapshot

• S&P 500 futures up 0.3% to 2,633
• STOXX Europe 600 up 0.3% to 389.17
• MSCI Asia Pac down 1.1% to 170.05
• MSCI Asia Pac ex Japan down 1.6% to 553.31
• Nikkei up 0.6% to 22,724.96
• Topix up 0.3% to 1,792.08
• Hang Seng Index down 1.5% to 29,177.35
• Shanghai Composite down 0.6% to 3,317.19
• Sensex down 1.1% to 33,245.95
• Australia S&P/ASX 200 down 0.7% to 5,969.89
• Kospi down 1.5% to 2,476.37
• German 10Y yield rose 1.1 bps to 0.396%
• Euro down 0.1% to $1.1835
• Brent Futures up 1.5% to $64.08/bbl
• Italian 10Y yield rose 1.3 bps to 1.527%
• Spanish 10Y yield fell 0.5 bps to 1.48%
• Brent Futures up 1.5% to $64.08/bbl
• Gold spot down 0.2% to $1,281.27
• U.S. Dollar Index up 0.2% to 93.36

Top Overnight News

• U.S. Senate begins a marathon debate on the Republican tax bill after an intensive bargaining phase. Lawmakers reached a deal on pass-through business and were still discussing adding a trigger to include up to $350b in automatic hikes if revenues were not met.
• The pound advanced after news the U.K. and the EU are working against the clock to reach a compromise on the Irish border that will allow a breakthrough in Brexit talks at a key meeting next week
• German unemployment declined for a fifth month as Europe’s largest economy continues to boom. Business confidence is at the highest level since the country’s reunification with the hiring spree driven by companies seeking to expand their ranks to keep up with a growing backlog of work
• Marvin Goodfriend, a widely respected monetary economist and sometime critic of the Federal Reserve under Chair Yellen, was nominated by President Trump to be a governor at the U.S. central bank, the White House announced on Wednesday
• The International Monetary Fund is projecting the volume of trade in goods and services will have climbed 4.2 percent over the year, up from 2.4 percent in 2016. That would be the first time trade has outpaced output growth since 2014 and goes against the view earlier this year that 2017 would be the year of trade wars
• The U.S. is rejecting China’s claim of market-economy status, saying the country doesn’t deserve to be treated as such in anti-dumping investigations because the state continues to play a pervasive role in the economy. The stance will be made clear in a document that will be published Thursday.
• The U.K. and the European Union are moving to a compromise on the Irish border which will allow Brexit talks to move on to trade next week. All parties want to avoid a hard border, U.K. Prime Minister Theresa May told reporters.

Asia stock markets were mixed as the tech-sell off on Wall St. dampened sentiment in the region and overshadowed better than expected Chinese PMI data. ASX 200 (-0.7%) was pressured by its largest weighted Financial sector after the announcement of a royal commission inquiry into the industry, while Nikkei 225 (+0.6%) recovered from opening losses as JPY weakness provided support. Elsewhere, KOSPI (-1.5%) weakened as the BoK delivered a widely anticipated 25bps rate hike and Chinese markets were also subdued with the Hang Seng (-1.5%) reeling on tech weakness, although losses in the Shanghai Comp. (-0.6%) were somewhat stemmed by encouraging Chinese Official PMI data. Finally, 10yr JGBs were lower amid spill-over selling from their US counterparts and as a mixed 2yr auction failed to inspire demand. Chinese Official Manufacturing PMI (Nov) 51.8 vs. Exp. 51.4 (Prev. 51.6). Chinese Non-Manufacturing PMI (Nov) 54.8 (Prev. 54.3) PBoC injected CNY 150bln via 7-day reverse repos, CNY 120bln via 14-day reverse repos and CNY 10bln via 63-day reverse repos to total a net neutral operation for a 4th consecutive day once maturing repos are accounted for. PBoC set CNY mid-point at 6.6034 (Prev. 6.6011) BoK 7-Day Repo Rate (Nov) 1.50% vs. Exp. 1.50% (Prev. 1.25%). BoK Governor Lee said the rate decision was not unanimous as board member Cho dissented, while he added that uncertainties for the economy are higher than ever and that additional adjustment depends on growth and inflation.

Top Asian News

• BOJ Cuts Buying Range for Debt Due Up to 1 Year in December Plan
• BOJ Reflationist Harada Sees No Problem in Continuing Stimulus
• China Bond Selloff Abates as 10-Year Yield Falls Most Since June
• China Factory Gauge Unexpectedly Rises as Global Demand Firms Up
• Hong Kong Regulator Says Agreement Reached on Investor ID Plan
• BOJ Cuts Buying Range for Debt Due in Up to One Year in December

European equities trade higher across the board (Eurostoxx 50 +0.6%) with the FTSE 100 once again lagging (-0.3%) as the firmer GBP continues to hamper the index. Despite opening relatively flat, European bourses have drifted higher amid the declines seen in EUR with little else in the way of fresh fundamental catalysts to guide price action. All sectors trade in positive territory with the exception of energy names in the wake of yesterday’s sell-off in oil prices. A rather timely rebound in the 10 year German benchmark just ahead of the Eurozone inflation data, as the slightly softer than forecast headline measure inspired more upside to a fresh 162.75 high for the Eurex session (+27 ticks vs -24 ticks at the other extreme). Relatively dovish, albeit typical comments from ECB’s Praet may also have impacted and countering speculation about a leak or pre-release whisper, USTs squeezed higher around the same time. Whatever the catalyst or inspiration,  the price recovery to intraday peak represents a 50% retrace of Wednesday’s move, to the precise tick. Short term longs will now be eyeing 162.96 ahead of 163.10.

Top European News

• Hong Kong Stocks Pare Monthly Gain as Technology Selloff Spreads
• BOE’s Carney Hints at Scrapping Banker Bonus Cap After Brexit
• Turkey Cenbank May Raise LLW Rate Without MPC Meeting: Ertem
• IPT: Bunzl Finance Expected GBP300m 7.5Y UKT +135 Area
• IPT: TSB Bank GBP Bmark 5Y Covered 3mL +30 Area

In FX markets, GBP is still riding high on expectations that the UK and EU are getting closer to striking an agreement on the key issues that need to be settled before a Brexit transition and trade talks can begin. JPY softer again on broadly upbeat risk sentiment (amidst above forecast Chinese PMIs, healthy Fed Beige Book and commentary), with USD/JPY up near 112.50 and the next chart resistance level at 112.70. EUR is holding above key tech support vs the USD at 1.1813 again, but struggling to maintain bullish momentum given the ongoing Greenback recovery. Expiry interest close by at 1.1840-45 (2.8 bln). In terms of Eurozone inflation, headline Y/Y printed at 1.5% for Nov vs. Exp. 1.6% with ex-food and energy firmer at 1.1% vs. Exp. 1.0%. Eurozone Inflation, Flash YY (Nov) 1.5% vs. Exp. 1.6% (Prev. 1.4%); Eurozone Inflation ex-food, energy, tobacco (Nov P) Y/Y 0.9% vs. Exp. 1.0% (Prev. 0.9%); Eurozone Inflation Ex Food & Enr Flash (Nov) 1.1% vs. Exp. 1.0% (Prev. 1.1%).

In commodities, WTI and Brent crude futures initially traded with little in the way of the firm direction after yesterday’s modest recovery from the initial sell-off, however, heading into US trade have been met with a bid. In terms of the latest OPEC rhetoric, energy ministers all appear to be on the same page with their desire for a 9-month extension to the existing deal (subject to a review in June). The Kuwaiti oil minister also added that production caps have been confirmed for Libya and Nigeria at around 1mln bpd and 1.8mln bpd respectively. In metals markets, spot gold has drifted lower throughout the session, briefly breaking below USD 1280/oz to the downside where some contacts had reported stops. Elsewhere, Copper was subdued overnight alongside the broad risk averse tone triggered by the US tech sell-off.

Looking at the day ahead, in the US the big focus will be on October personal income, spending and PCE data all due out at 8.30am ET. Also due is the November Chicago PMI and the latest weekly initial jobless claims data. The big focus away from the data will be a possible Senate vote on tax reform while central bank speakers today include the ECB’s Mersch and Praet, Fed’s Kaplan and BoE’s Sharp. The OPEC meeting in Vienna is also worth keeping a close eye on given that the meeting should include a discussion around extending production cuts.

US Event Calendar

• 8:30am: Initial Jobless Claims, est. 240,000, prior 239,000; Continuing Claims, est. 1.89m, prior 1.9m
• 8:30am: Personal Income, est. 0.3%, prior 0.4%; Personal Spending, est. 0.3%, prior 1.0%
  • PCE Deflator MoM, est. 0.1%, prior 0.4%;  PCE Deflator YoY, est. 1.5%, prior 1.6%
  • PCE Core MoM, est. 0.2%, prior 0.1%; PCE Core YoY, est. 1.4%, prior 1.3%
• 9:45am: Chicago Purchasing Manager, est. 63, prior 66.2
• 9:45am: Bloomberg Consumer Comfort, prior 51.7
• 12:30pm: Fed’s Quarles Speaks on Payments Systems in Cleveland
• 1pm: Fed’s Kaplan Speaks in Dallas

DB’s Jim Reid concludes the overnight wrap

It might be the last day of November but it still feels like we have some way to go before markets finally ease their feet off the pedals for the holiday season. We’re at the business end of the week now and one event which is waiting in the wings is the Senate vote on tax reform. It’s unclear if we’ll get a vote today or even this week with the latest update being that the Senate approved a motion to proceed on party lines yesterday, clearing a path for a vote on the bill. The vote to approve followed more debate yesterday with GOP senators negotiating compromises with their leaders. One of those was a more generous tax break for pass-through business. Politico reported that there are still a number of issues to resolve so keep an eye on how things progress today.

Away from politics it’s also worth watching some of the data due out today and especially the various inflation readings. This morning we’ll receive the November CPI report for the Euro area where the consensus expect a small pickup in the core to +1.0% yoy from +0.9%. Across the pond this afternoon we’ll then get the October personal income and spending data in the US which will also provide the latest reading for the Fed’s preferred inflation metric – the core PCE deflator. Our US economists and the market expect a +0.2% mom reading which if it holds would push the annual figure up one-tenth to +1.4% yoy. We talked extensively about inflation in our outlook and how the risks are to upside in the second half of next year especially, so this data is becoming more and more significant in our view as we look ahead to 2018.

Back to the present now where the biggest action in markets over the last 24 hours has been that in the tech sector. The Nasdaq closed -1.27% last night, although did pare heavier losses intraday, for its biggest one day decline since August. An index tracking FANG stocks fell -3.72% with an impressive $62bn wiped from the four stocks’ combined market value. That’s pretty much the equivalent of the GDP of Uzbekistan. In contrast, the S&P 500 (-0.04%) finished pretty much flat while the Dow closed +0.44%. In Europe the Stoxx 600 also closed +0.24%. So it was very much a tech only story with much of the commentary pointing towards sector rotation as the reason for the selloff ahead of US tax reform which is seen as doing little to benefit the sector given the already low effective tax rates. In fairness, the Nasdaq move looks like an afterthought compared to the 21.21% high-to-low range for Bitcoin yesterday. After nearly touching $11,500 intraday, in the space of five and a half hours the cryptocurrency tumbled all the way to $9,000, before then rallying back above $10,000 by the close to end the day more or less unchanged. For some context, while the  intraday range in percentage terms was ‘only’ the fifth biggest this year, the range in US $ terms ($2,424) is actually the same as where the cryptocurrency traded back in July. Mind boggling.

Elsewhere, bond markets didn’t offer much in the way of protection yesterday with yields sharply higher across the globe. 10y Treasuries finished +6.1bps higher last night with a combination of a Gilt led selloff following the Brexit  developments late on Tuesday (more on that below), tax reform talk and Yellen’s testimony all seemingly playing a part.

This morning in Asia it’s more of the same with weakness across tech names generally weighing on sentiment. The Hang Seng (-1.28%) has been the biggest mover with tech names down -2.47%, while the Kospi (-0.70%), ASX (-0.57%) and Shanghai Comp (-0.25%) are also in the red. The Nikkei is back to flat following a similarly weak start while US equity index futures are mixed. It’s worth noting that there doesn’t appear to be any follow on to President Trump’s tweet yesterday when he warned of “additional major sanctions” for North Korea following a phone call with President Xi Jingping of China.

Speaking of China, this morning China’s manufacturing PMI for November was reported as rising slightly to 51.8 from 51.6 the month prior. Expectations had been for a modest decline. The non-manufacturing PMI was also reported as rising, to 54.8 from 54.3. The other significant overnight news is that at the Fed, with Bloomberg reporting that monetary economist Marvin Goodfriend has been nominated by President Trump to be a governor at the Fed following an announcement by the White House. Goodfriend has previously questioned the use of QE post 2008 and was instead said to favour negative interest rates, despite acknowledging that it could require abolishing paper currency.

Back to Yellen, as was pretty much expected the Fed Chair played a relatively straight bat in what was likely her last testimony to Congress in her current role. As a broad conclusion, her tone seemed to somewhat reiterate a willingness at the Fed to continue with tightening but clearly dependent and limited on the data. A “gradual” need for rate increases was noted as being appropriate to sustain a healthy labour market and stabilize inflation. Recent inflation readings were highlighted as transitory which was also no change although she did note that the Fed has seen modest upward pressure on wages. She also made mention that the lesson from modest wages is that the labour market and economy are not overheated which was a similar comment to one made by the  incoming Chair Jerome Powell the day before. On growth Yellen also said that “economic growth appears to have stepped up from its subdued pace early in the year” and is now “increasingly broad-based across sectors as well as much of the global economy”. One topic which Yellen chose to refrain from addressing however was tax reform.

The Fed Chair’s comments around growth also came as the second reading for Q3 GDP was revised up a tenth more than expected to +3.3% qoq annualized, compared to the initial +3.0% estimate in the flash reading. Meanwhile the details showed that while headline PCE prices were revised down a tenth (+2.1% vs. +2.2%) the core PCE was however revised up a tenth to +1.4% qoq (compared to expectations for no change). It’s worth noting that corporate profits also rose +4.3% qoq and in year over year terms have now risen for four consecutive quarters following five quarters of consecutive declines ending in Q3 2016.

Yellen’s colleague at the Fed, the NY Fed President William Dudley, was also busy speaking yesterday. In comments at a moderated forum in New Jersey, Dudley played down any concern about the relative strength in markets currently although did make a special mention of being sceptical about Bitcoin. On the economy Dudley said that he thinks that the expansion has “got lots of room to go”. Meanwhile later on in the evening San Francisco Fed President John Williams said that four rate hikes in 2018 is his base case, roughly two more than that currently implied by market pricing.

Closer to home, as noted earlier UK assets spent much of yesterday absorbing the latest Brexit developments. Tuesday’s headlines regarding the agreement between the UK and EU on the divorce bill was confirmed by most major UK press outlets yesterday. It remains to be seen how PM May will deal with some likely fallout from her cabinet and a resolution on citizens’ rights and Northern  Ireland also remains outstanding, but it is still being taken as a key breakthrough of sorts.

Sterling rallied +0.52% and +0.47% respectively versus the Greenback and Euro yesterday, weighing on the FTSE 100 (-0.90%), while 2y, 10y and 30y Gilt yields rose +3.5bps, +8.4bps and +6.5bps. In contrast 10y Bunds were +4.5bps higher. Quickly wrapping up the remaining data yesterday, pending home sales in the US came in a much stronger than expected +3.5% mom (vs. +1.0%  expected). In Europe there was a modest upward surprise in the November flash CPI report in Germany where headline CPI came in at +0.3% mom (vs. +0.2% expected), helping to lift the YoY rate to +1.8% from +1.5% and the highest since February. In France Q3 GDP was left unrevised at +0.5% qoq while in the UK there wasn’t a huge amount interesting in the October money and credit aggregates data. Lending growth in consumer credit continued to flat line slightly but not to levels which would likely concern the BoE.

Looking at the day ahead, this morning in Europe we’ll kick off with German retail sales data for October alongside the latest November house price data in the UK. Following that we’ll get the flash November CPI report for France where market expectations are for a modest +0.1% mom headline increase. That data comes before the wider Euro area report where the consensus is for a two-tenths increase in the headline to +1.6% yoy and one-tenth increase in the core to +1.0% yoy. In the US the big focus will be on the aforementioned inflation data too with the October personal income, spending and PCE data all due out at 1.30pm GMT. Also due is the November Chicago PMI and the latest weekly initial jobless claims data. The big focus away from the data will be a possible Senate vote on tax reform while central bank speakers today include the ECB’s Mersch (at 8am GMT) and Praet (10am GMT), Fed’s Kaplan (6pm GMT) and BoE’s Sharp (6.10pm GMT). The OPEC meeting in Vienna is also worth keeping a close eye on given that the meeting should include a discussion around extending production cuts.

The longest short-squeeze streak in history continues…

John McCain’s “Yes” at 1051ET seems to have been the catalyst that extended overnight gains into melt-up mania… (Small Cap smanaged to scramble back green on the day as Trannies rose 2%)

But the Nasdaq remains red on the week…

Futures show the crazy moves best…

The market is convincing itself that tax reform is going to happen as high-tax stocks soar relative to low-tax…

And bookies’ odds are soaring to 80%…

The short-squeeze continues for a record 10th day in a row (the biggest percentage squeeze since the election)

Financials and Retailers are ripping higher…

But even Bloomberg notes that this looks a lot like a short squeeze…“There’s a short squeeze here,” said Eric Balchunas, ETF analyst at Bloomberg Intelligence. “XRT is being lent by people who borrowed it, so the release valve when that happens is they have to create new shares.”

But while everyone was excited about The Dow, Tech stocks barely managed a blip in context to yesterday’s turmoil…

On the month, FANG and SOX were lower…

On the month, Trannies were best – roaring higher in the last week…

The Momo vs Value chaos this week seems to have normalized the month’s moves…

Here’s the month in bonds/stocks… equities rally, bonds ignore it, then stocks plunge back to reality and they both squeeze higher…

HYG (high yield bonds) fell for the 2nd straight month – the biggest drop since October 2016 and remain below the 200DMA…

While bonds were all sold on the day, the short-end underperformed…

Once again flattening the yield curve in the face of the equity market melt up…5s30s -3bps!

On the month, yields are very mixed with the short-end higher and long-end lower…

In fact the 2s30s yield curve collapse in November is the biggest flattening since Sept 2011

While on the topic of rates, very few mainstream media types have commented on the massive spike in EONIA the last two days!!

European money markets were shaken by an unexpected jump in the Eonia benchmark rate for the second time Thursday, that left the overnight interbank rate 12.1 basis points higher and traders looking for answers. The move spurred heavy selling across front-end euribors. Bund and Treasury futures were also weighed, extending earlier losses. Traders had few explanations for the sudden move, the scale of which would normally be justified by a shift in the European Central Bank’s benchmark rate. One potential reason is month-end related flows, such as an account locking in funding for the turn of the month a day early, a trader in New York said. Thursday’s fix was higher by 6bps at -0.241%, highest since March 9 2016 and comes after Wednesday’s 6.1bp move higher; the European Money Markets Institute (EMMI), which publishes Eonia, said that Wednesday’s fixing data was correct.

The Dollar Index ended November lower – the first drop since July…

On the month, gold managed to cling to green as Crude led the gains with copper and silver lower…

Gold tumbled once again but managed to scramble and close abovee its 200DMA (blue dotted line)…

Finally, we note that Bitcoin was up 49% in November (slightly less than the 52% gain in October)…

Bonus Chart: Your Fun-durr-mental driven equity markets…

Well that escalated really quickly…

And as stocks go full bitcoin, VIX is surging higher too…

Quite a different picture… Dow +350 Points

Tax Trumps Nukes…

Authored by James Rickards via DailyReckoning.com,

I managed a track and field in team in high school. I was not the team coach, I was a student-manager who helped out with equipment, scheduling, training and other logistics.

Back in the days before internet I was the kid in the locker room phoning in athlete times and results to the local newspapers before the deadline for the next day’s edition.

I loved the faster track events like the 440-yard sprint and the half-mile distances. I always thought the most challenging track event was the high-hurdles. This combined speed and endurance, with precision coordination and athleticism on the jumps. One mistake in mid-air could result in a disastrous crash on a cinder track and a bloody injury.

It’s hard to picture Janet Yellen in a track suit, but she’s about to run a high-hurdle race of her own. She needs to clear three hurdles perfectly to make it to her self-imposed rate hike finish line on December 13. One false move and her plan to hike rates could end up in a bloody mess on a cinder track.

As you know, the Fed is on track (no pun intended) to hike rates at their FOMC meeting on December 13. This is as close to a “done deal” as you can get. Markets give this rate hike a 100% probability based on the implied probability from the CME fed funds futures contracts.

I’m the outlier.

I’m alone on an island saying that the Fed won’t hike rates based on nine straight months of bad inflation data. I’m not trying to be “in consensus” or “out-of-consensus,” I’m just trying to follow a Fed model that has been almost flawless in its predictive power since 2013.

That model has hit a lot of home runs. If I strike out this time, I’m not going to abandon the model. Even Babe Ruth, Henry Aaron and Willie Mays had their share of strikeouts even as they had slugging percentages in the .700+ range. Fine by me if we can keep up those kinds of long-term results.

Yet, even if you don’t use my Fed model or don’t like to be out-of-consensus, you still have to acknowledge the hurdles facing Janet Yellen as she races down the track to December 13.

Here they are:

Today, November 30:

This is when the Commerce Department releases the “PCE deflation, core year-over-year” number. Sounds geeky, but that’s the specific inflation number the Fed uses as a benchmark.

The Fed’s target is 2%. The last reading was 1.3%, down from 1.9% at the beginning of 2017.

If this number comes in at 1.3% or less (expectations are at 1.4%), it’s hard to see how the Fed raises rates unless they are willing to ignore their own benchmark in favor of the mythical Phillips Curve and even more mythical “stimulus” effects of the proposed Trump tax bill.

Important voices like Neel Kashkari, Charles Evans, Lael Brainard, Benn Steil and others are already warning that a rate hike in December could be a huge blunder if the inflation data is weak.

We’ll see how this plays out. For now I’m betting on more weak data and that the Fed blinks at the last minute by not raising rates.

Friday, December 1

This is when the Senate votes on the Trump tax bill. The actual macroeconomic effects of this bill are irrelevant for the moment. What matters is the importance of a “win” for the Republican Party and the stock market.

Right now the Republicans do not have the 50 votes they need. Can they get them by Friday? That’s uncertain, but there’s a good chance they won’t succeed.

In that case, you’ll have a replay of the failure the of Obamacare “Repeal and Replace” drama. Markets will sell off big time if the tax bill fails. That kind of sell off, plus the failure of the presumed stimulus will be enough to get the Fed to pause in their rate hike path on December.

Friday, December 8

This is when the government spending authority shuts down and the Treasury hits the debt ceiling. A “Daily Double” for government dysfunction!

The debt ceiling won’t immediately impact the Treasury market because the Treasury can use “extraordinary measures” (including a gold price reset) to keep paying the bills until early next year. Then a hard debt ceiling will be hit. Still, any market uncertainty is one more reason not to raise rates.

[ZH: The T-Bill market is starting to get anxious:]

Of greater immediate impact is a government shutdown. Of course, shutdowns have happened in the past, and have always been temporary, never the end of the world. Some last minute fix is possible. Even if the shutdown occurs, it’s likely to be over in a week or so.

But, there are only three business days between the scheduled shutdown and the FOMC meeting. It’s hard to imagine the Fed tightening financial conditions when the entire government (or at least “non-essential personnel”) are locked out of their offices.

The issues that could cause a shutdown are all difficult to compromise including Trump’s “Wall,” Obamacare funding bailouts, Planned Parenthood funding, immigration, disaster relief, flood insurance bailouts, and many more.

Here’s the bottom line:

If PCE is hot (1.6% or higher), the tax bill passes, and the government does not shut down, then Yellen has cleared all three hurdles, and she’s on her way to a rate hike finish line.

If she stumbles on any one of these hurdles, let alone all three, then a rate hike is off the table. If the odds of failure are each hurdle are 33% (about right in my view), then the odds of failure on one out of three are 99%.

No one in the market is thinking about the odds that way, but a statistician will tell you that’s the right way to analyze it.

Since markets are 100% priced for a rate hike, nothing much happens if the FOMC actually hikes rates. But if the rate hike does not happen, markets need to reprice for the new reality. That means gold, euros, yen, and Treasury bonds will soar, and the dollar, bond yields, and stocks could crumble.

These are asymmetric “heads you win, tails you don’t lose” trades. You could have big gains if the Fed pauses, but won’t lose much if they don’t.

These hurdles are coming up in days, so the time to enter these trades is now. The easiest way is to buy gold or gold mining stocks.

Then sit back and enjoy the show.

President Trump has made it widely known that he will not tolerate sanctuary cities like Baltimore, Chicago, Los Angeles, and New York. Since taking office, he has threatened to slash federal funding to cities who do not comply with federal immigrations laws, along with ICE agents circumnavigating local authorities in a nationwide federal operation to arrest undocumented immigrants.

In the latest immigration raids, ICE agents targeted a Swiss supplier of hamburger buns for McDonald’s Corp., who saidit’s Chicago bakery lost 35% or about 800 of its workers at the Cloverhill Plant.

The company is owned by Zurich-based Aryzta AG, who makes baked products for fast-food chains and supermarkets.

ICE agents pinpointed the Chicago bakery after its job placement agency went under federal investigation earlier this year.

Kevin Toland, Chief Executive Officer of Aryzta said on a call with analyst, “it’s proceeding very, very slowly because it’s like having a brand new factory and a brand new workforce. That’s presenting a lot of challenges, as you can imagine.”

According to Bloomberg, President Trump’s immigration raids are a major headache for U.S. companies who employ undocumented works. The challenges that Aryzta faces are likely to cause short term economic pain for the company, but on the longer end could cause its end products to increase prices directly impacting the consumer.

For employers, the loss of illegal immigrants can be expensive. Training a new workforce of American hires can increase the cost of labor and certainly cut into margins.

But in Cloverhill’s case, the cost of labor is relatively inexpensive not because of the illegal immigrants, but each of their factories (2) have highly automated production lines that involve minimal human interaction. Future wage pressures are not expected to threaten profitability too much due to automation, but in the intermediate timeframe a severe loss in margins is due to volume loss.

According to RT, the Chicago Immigration Court has never been busier since President Trump entered office. Across the United States, there are an estimated 11 million illegal immigrants, which signals immigration raids are just getting started.

The Chicago Immigration Court has 24,844 pending cases in its system as of this spring, according to the DOJ’s Executive Office for Immigration Review. That is up from 13,000 pending cases in 2010. Nationally, the pending caseload has doubled since 2011.

According to EOIR, total orders for removal between Trump’s inauguration and the close of the fiscal year hit 63,634. At the end of fiscal year 2017, some 1,940 people were detained in Chicago, up from 1,669 at the end of the prior year. Most of them are of Mexican descent, statistics show.

The Trump administration set in motion sweeping changes in how the federal government dealt with those living in the US illegally. It is estimated there are 11 million immigrants living the US without legal status.

Authored by David Stockman via Contra Corner blog,

The lemmings are now in full stampede toward the cliffs. You can literally hear the cold waters churning, foaming and crashing on the boulders far below.

From bitcoin to Amazon, the financials, the Russell 2000 and most everything else in between, the casinos are digesting no information except the price action and are relentlessly rising on nothing more than pure momentum. The mania has gone full retard.

Certainly earnings have nothing to do with it. As of this morning, the Russell 2000, for instance, was trading at 112X reported LTM earnings.

Likewise, Q3 reporting is all over except for the shouting and reported LTM earnings for the S&P 500 came in $107 per share. That’s of signal importance because fully 36 months ago, S&P earnings for the September 2014 LTM period posted at $106 per share.

That’s right. Three years and $1 of gain. They talking heads blather about “strong earnings” only because they think we were born yesterday.

What happened in-between, of course, was the proverbial pig passing through the python.

First, the global oil, commodities and industrial deflation after July 2014 took earnings to a low of $86.44 per share in the March 2016 LTM period.

After that came the opposite—the massive 2016-2017 Xi Coronation Stimulus in China. The new Red Emperor and his minions pumped out an incredible $6 trillion wave of new credit, thereby artificially stimulating a global rebound and a profits recovery back to where it started three years ago.

The difference of course is that $106 of earnings back then were priced at an already heady (by historical standards) 18.6X, whereas $107 of earnings today are being priced at a truly lunatic 24.6X.

After all, nothing says earnings bust ahead better than an aging business cycle, a cooling Red Ponzi, an epochal shift toward central bank QT (quantitative tightening) and a massive Washington Fiscal Cliff. Yet every one of those headwinds are self-evident and have made their presence known with a loud clang in the last few days.

Self-evidently, we are now 36 months closer to the next recession in a business cycle which at 101 months is already approaching the 1990s record of 118 months and facing far greater headwinds. Foremost among these is the unprecedented but unavoidable turn of the central banks—after two decades of relentless expansion— toward interest rate normalization, QT (quantitative tightening) and trillions of debt and other securities sales (demonetization or balance sheet shrinkage).

The new Janet Yellen in tie and trousers made that perfectly clear at yesterday’s confirmation hearing:

Powell said he expected the balance sheet to shrink to about $2.5 trillion to $3 trillion over the next three to four years under a program set in motion by Yellen..….On interest rates, Powell said: “I think the case for raising interest rates at our next meeting is coming together.”

Actually, the promised balance sheet shrinkage process is going to rapidly escalate from $10 billion per month of Fed bond sales now, to $30 billion by spring and $50 billion by next October. That amounts to a $600 billion annual run rate; and when the ECB and other banks join the “normalization” party in 2019 and beyond total central bank bond sales will pierce through the $1 trillion per year level.

And that’s a very big deal because the law of supply and demand has not yet been abolished, meaning prices and yields in the global bond market are heading for a big reset. For instance, if the UST 10-year benchmark note normalizes to a yield of 4.0%, its price will fall by more than 40% from current levels (2.35%).

Needless to say, the entire market for risk assets including equities, junk bonds, corporates and real estate is predicated upon current ultra low yields and historically unprecedented leverage. So smash the price of the benchmark bond by 40% and you have a cascading chain of downward valuation adjustments that will reach the tens of trillions.

But that’s not all. The 19th Party Congress is over, but the Red Suzerains of Beijing wasted no time throttling down China’s red hot credit bubble and hyperventilating housing market. The chart below is the smoking gun—-and puts the lie to the foolish Wall Street meme of the moment that the world economy is in the midst of an outburst of “synchronized growth”.

Actually, it’s puffing on the exhaust fumes of a veritable housing hysteria during the run-up to China’s 19th Party Congress, which saw home mortgage issuance soar by nearly 60% in 2016.

Now, however, Beijing’s clampdown is giving Ross Perot’s famous “sucking sound to the south” an altogether new definition. In the most recent period, year over year mortgage growth actually turned negative—-meaning China’s gigantic apartment construction and building materials complex will be cooling rapidly, too.

Needless to say, what happens in the Red Ponzi does not stay in the Red Ponzi. The modestly rebounding global figures for industrial production, trade and GDP reported recently were just feeding off the massive credit impulse evident in the red line below.

When S&P earnings were peaking back in September 2014, China’s total credit growth from all sources—including its $15 trillion shadow banking system—had slowed to a 15% annual run rate, but then was gunned to upwards of 30% during the Coronation Boom from early 2016 onwards.

But now that Mr. Xi’s very thoughts have been enshrined in the Communist Party constitution—check-by-jowl with the wisdom of the Great Helmsman, Mao Zedong—-credit growth is plummeting. Even China’s new Red Emperor recognizes that $40 trillion of debt on a purported $12 trillion economy (actually far lower when massive malinvestments are deleted from the reported GDP “flows”) is a recipe for collapse.

Xi Jinping may well be delusional about the capacity of centralized bureaucrats–even ones with all the guns— to tame and stabilize the greatest Ponzi-style digging, constructing, borrowing, spending and speculating scheme in recorded history. But his goal is a third term in 2022, and in the interim he means to mop down China’s fevered borrowing and building spree with alacrity.

Accordingly, the global commodity and CapEx cycle will rapidly weaken as the red line in the chart heads toward the flat-line. The talking heads will not be gumming about synchronized global growth much longer.

But what they will be talking about soon is a US Fiscal Cliff like none before. It now seems that the desperate GOP politicians of Capitol Hill have come up with so many fiscal gimmicks that they may actually cobble together 51 votes in the Senate.

But the emerging Rube Goldberg Contraption, which sunsets all of the individual tax cuts after 2025, and then piles on top a “trigger tax”, which most surely would turn the whole things into massive ($350 billion) tax increase after a 2024 “growth” test, is actually a giant debt trap.

In fact, between 2018 and 2024 the emerging Senate “compromise” would generate upwards of $1.4 trillion of new debt including interest on the added borrowing. That’s because as we explained yesterday the Senate tax bill is front-loaded with the annual revenue loss peaking at $250 billion in 2020 and diminishing steadily thereafter to just $145 billion in 2025 and a slight surplus in 2027.

Consequently, the public debt builds up rapidly in the early years—long before any added growth could possibly move the needle. We will provide more detailed calculations on this crucial point tomorrow and completely debunk the “growth will pay for it” story.

But suffice it to say here that the massive front-loaded borrowing embedded in the Senate tax bill would come on top of the $6.1 trillionalready built into the CBO baseline for the 2018-2024 period and another $1 trillion that will be needed for disaster relief and the Donald’s massive defense build-up and dramatically heightened pace of global military operations.

In a word, we do not think you can finance $8.5 trillion of new Federal debt in an environment in which the Fed and its convoy of fellow traveling central banks are also selling bonds by the trillions. That is, without triggering a “crowding out” effect of the kind that has been in hibernation every since Greenspan’s cranked up the Eccles Building printing presses after the 22% stock market plunge in October 1987.

The irony is that the GOP is setting up a fiscal cliff which will exceed $1 trillion per year of new borrowing as early as 2020 ($775 billionbaseline plus $225 billion of revenue losses and added interest from the tax cut) based on the erroneous view that domestic economic growth is being stunted by high corporate taxes.

This chart below should put the lie to that confusion once and for all. Even as the effective corporate tax rate has been marching down hill for decades, the trend rate of economic growth has been steadily falling.

Notwithstanding today’s GDP blip, real final sales have grown at just 1.2% per year over the last decade or by only one-third of the rate extant when the effective corporate tax rate was more than double the current 20% level.

So today’s lemming actually are marching toward a Fiscal Cliff—- oblivious to the true meaning of the Senate tax bill maneuvers. But by definition, at the blow-off peak of a great financial bubble markets are oblivious to everything except the price action.

In that context, Bitcoin is neither an outlier nor a one-off freak; it’s a poster boy for an unhinged financial system where honest price discovery, two-way markets, fear of risk and financial discipline have been completely destroyed by the central banks.

Whatever its eventual merits as a private money and payment system away from the grasping hand of the Deep State, bitcoin (and the mushrooming slate of other cryptos) at the moment is in the throes of the kind of mania that reminds us of why runaway bubbles eventually generate their own demise.

For want of doubt, Zero Hedge early today calculated out bitcoin’s accelerating rate of rise.

Needless to say, the sequence below is not the birthing throes of a new money being born; it’s just another iteration of the same old lemmings stampeding toward the cliff:

• $0000 – $1000: 1789 days
• $1000- $2000: 1271 days
• $2000- $3000: 23 days
• $3000- $4000: 62 days
• $4000- $5000: 61 days
• $5000- $6000: 8 days
• $6000- $7000: 13 days
• $7000- $8000: 14 days
• $8000- $9000: 9 days
• $9000-$10000: 2 days
• $10000-$11000: 1 day

Big dip overnight was bought and as US equity markets prepare to open, Bitcoin just topped $11,000…