JPM Head Quant Explains How The Algos Traded The Brexit Crash, And Why He Sees “Elevated Risk”

When looking at the kneejerk devastation in the aftermath of the Brexit vote, JPM’s head quant Marko Kolanovic said that he expects up to $300 billion in program selling, coupled with 5-10% in near-term downside to the S&P500. While Kolanovic was correct about quant and technical fund flows, what he likely did not factor in was the dramatic crisis response by central bankers who have now made it very clear their only mandate is to keep global equity markets disconnected from reality and artificially bid higher no matter the cost.
So what does he think happens now that the S&P has wiped out all losses from Brexit in the past three days?
Here is his explanation, released moments ago:
Flows and Price Action – Largely a Repeat of August 2015
In our note last week we discussed how the impact of Brexit would likely be similar to August 2015. Market price action and flows observed so far this week are fully consistent with the moves that followed August 24. The Figure below (left) shows S&P 500 moves over the four days starting with the ‘crash’ day (i.e., August 24, 2015, and June 24, 2016). The ‘crash’ day itself both witnessed futures hitting limit down during pre-market hours and a significant move on the day itself (-3.9% on 8/24 vs. -3.6% on 6/24). The following day’s move was again lower, largely driven by flows from convex strategies (e.g., CTA outflows, derivatives hedging). The bounce-back that followed on days 3 and 4 were also similar in August and this week (in fact, the market rallied more on days 3 and 4 in August 2015). We would like to point out that both in August and now, market realized volatility reset significantly higher, and market outflows from various ‘VAR-based’ investors (volatility targeting, risk parity, etc.) followed in the days and weeks ahead. This contributed to the market bottoming only weeks after the crash (in 2015, the market bottomed on 9/28).

This post was published at Zero Hedge on Jun 30, 2016.

It Gets Real: Manhattan Apartment Sales Plunge

And Manhattan condo prices plummet 14.5% in 3 months.
Real estate is local. And so housing bubbles are local. When enough of them happen, they coagulate into a national phenomenon. This has already happened. In March 2013, we started calling this phenomenon Housing Bubble 2, and we’ve watched in awe how it bloomed, nurtured by ultra-low mortgage rates, government subsidies, the Fed that is relentlessly ‘healing’ the housing market, yield-desperate investors, private equity firms, Wall Street, a surge of foreign buyers who want to get their money – however they’d obtained it – out of harm’s way, and a million other factors. All of it has been accompanied by a national boom in hype.
Now there are signs that our awe-inspiring Housing Bubble 2, like all housing bubbles, is beginning to unravel. This too is local, here and there, while still booming in other places. It shows up in some key markets. Then it spreads. When it spreads far enough, the unraveling of Housing Bubble 2 becomes a national phenomenon.
It has now started to unravel in some markets that were among the hottest and craziest until last year: Miami, San Francisco, and Manhattan. All three are bogged down in a condo glut.

This post was published at Wolf Street by Wolf Richter ‘ June 30, 2016.

Peso Soars To Pre-Brexit Levels As Mexico Raises Rates More Than Expected

A day after the most awkward three-way handshake in history between Obama, Trudeau, and Nieto, the latter’s central bank just pushed rates higher by a bigger than expected 50bps to 4.25% (exp 25bps). The Peso is surging back (extending its bounce off January lows) retracing all the post-Brexit losses… on what seems like fears of a surge in food inflation.
*WORSENED GLOBAL CONDITIONS COULD IMPACT CPI: BANXICO *BANXICO LOOKS TO KEEP MXN FROM HITTING INFLATION EXPECTATIONS *BANXICO SAW STEEP RISE IN FOOD MERCHANDISE PRICES *BANXICO: EXTERNAL CONDITIONS DETERIORATED IN SIGNIFICANT WAY *BANXICO TO ALSO WATCH CURRENT ACCOUNT DEFICIT *BANXICO TO ALSO WATCH MONETARY POSITION RELATIVE TO U. S. *BANXICO SAYS MORE PUBLIC FINANCE TIGHTENING WOULD BE DESIRABLE Sparking a rapid bid for pesos…

This post was published at Zero Hedge on Jun 30, 2016.

Gerald Celente: Globalists Will Collapse the Entire World Economy As ‘Currency War Has Begun’

Major financial storms are coming, and they may cause a great deal of damage.
There is every indication that what has now starting in Europe could end up on the dollar’s doorstep, and upend the whole house of cards.
As economic forecaster Gerald Celente told the Alex Jones Show, the Brexit campaign was something of a launching point for what is going to become a total collapse scenario. Though it isn’t completely clear yet, this could be the reverberations of the big one.
But what Celente sees coming is severe indeed… and quite ominous.
Markets have rattled with major currency swings surrounding the Pound Sterling, and everyone is in for a devastating sequence of events. The future of the EU, and its tenuous relationship with Britain is unclear, and the financial reaction is significant.
Immigration pressure is creating social chaos, and the population is becoming fed up with the establishment and their abuse of power. Europe faces an even larger threat of further concentrated and more heavy-handed government power, through a more desperate EU regime.

This post was published at shtfplan on June 30th, 2016.

Why the Brexit Vote Isn’t Doomsday for the UK

Although the Brexit vote has spawned countless dire predictions about the fate of the UK once it exits the European Union, common sense suggests the reality won’t be nearly so apocalyptic.
Yes, that’s despite the 3% drop in the U. S. stock markets Friday and much steeper declines in stock markets elsewhere, particularly in Japan (8%) and Germany (6.8%). The British pound sterling fell more than 10% against the U. S. dollar.
The market turmoil continued Monday, with U. S. stocks declining about 2%. Meanwhile, both the Standard & Poor’s and Fitch credit agencies stripped the UK of its perfect AAA rating.
The forces that favored the UK remaining in the EU have used this as an ‘I told you so’ moment. All along the opponents of Brexit have warned that leaving the embrace of the EU would cripple the UK economy and trigger a global recession.

This post was published at Wall Street Examiner by David Zeiler ‘ June 30, 2016.

Chris Wood: “It Will Take A Political Genius To Hold The EU Together”, Italy Is The Flash Point

CLSA’s Chris Wood, author of the popular Greed and Fear newsletter, chimes in on the consequences for Brexit with a note titled “Disintegration Dynamic” in which he focuses not so much on Britain as Italy and specifically theproposed Italian bailout which was first reported here and which circumvents European bailout rules, however which Renzi hopes will pass as a result of scapegoating Brexit (even if Angela Merkel was quick to shut down).
This is what he says, excerpted:
GREED & fear continues to believe that the real flash point in the EU is likely to be Italy. GREED & fear was reminded of this reading this week that Italian Prime Minister Matteo Renzi is now seeking Europe’s agreement for a 40bn state-funded recapitalisation of the country’s banking system. This would seem in conflict with the EU’s new rules that taxpayer money cannot be used for bank bailouts before bank shareholders and, critically, bank bondholders are first bailed in. The tricky point here is that 29% of Italian bank bonds were still owned by retail depositors as at the end of 2015 (see Figure 1).

This post was published at Zero Hedge on Jun 30, 2016.

Gold Daily and Silver Weekly Charts – Hi Yo Silver!

Tony Sanders made a confoundedly interesting observation today.
“I keep hearing from anti-Brexit cheerleaders that it is about immigration. While there may be some who voted for Brexit to get their borders under UK control again, it is mostly about the big banks and who is going to bail them out. Again.”
And that may be a good question for most of the beleaguered citizens of the Western developed nations to consider.
Mexico’s central bank raised interest rates 50 basis points today to 4.25%, largely in a market positioned move to give a pause to the forex traders who had been players various crosses short the peso. It certainly wasn’t due to a robust economy.
The British pound fell today as the Bank of England’s Mark Carney suggested today that they would be back in the monetary stimulus saddle in response to Brexit.
And as you can see below we saw the first significant deliveries in Comex silver, as the July contracts come into play, which is an active month for silver and not gold.
So keep an eye on it, because except for the huge physical hoard in JPM’s warehouses, physical silver seems a little on the tight side against demand at these prices historically.

This post was published at Jesses Crossroads Cafe on 30 JUNE 2016.

Brexaggedon: Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis

Bloomberg had yet another Brexit Armageddon (Brexageddon?) story entitled ‘Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis.’
Britain’s decision to leave the European Union has ‘unleashed’ a crisis in financial markets similar to the global financial crisis of 2007 and 2008, George Soros told the European Parliament in Brussels.
‘This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent,’ the billionaire investor said on Thursday.
Soros rose to fame as the money manager who broke the Bank of England in 1992, netting a profit of $1 billion with a wager that the U. K. would be forced to devalue the pound and pull it from the European Exchange Rate Mechanism. He has warned that a hard landing in China is ‘practically unavoidable,’ arguing that its debt-fueled economy resembles the U. S. at the onset of the financial crisis.
Continental Europe’s banking system hasn’t recovered from the financial crisis and will now be ‘severely tested,’ Soros said. ‘We know what needs to be done. Unfortunately, political and ideological disagreements within the euro zone have stood in the way’ of using the European Stability Mechanism as a backstop, he said.

This post was published at Wall Street Examiner by Anthony B. Sanders ‘ June 30, 2016.

S&P Downgrades European Union From AA To AA – Full Text

First S&P downgraded the UK, now it’s the EU’s turn.
Long-Term Rating On Supranational Institution The European Union Lowered To ‘AA’ On Brexit Referendum; Outlook Stable
The European Union (EU) supranational borrows on the capital markets to lend to member states and certain other governments on a back-to-back basis. The long-term rating on the EU partly relies on the capacity and willingness of its 28 members to support it. We currently rate the EU at ‘AA’.) OVERVIEW
After the decision by the U. K. electorate to leave the EU as a consequence of the June 23 consultative referendum, we have reassessed our opinion of cohesion within the EU, which we now consider to be a neutral rather than positive rating factor. We think that, going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will be subject to greater uncertainty. As a consequence, we are lowering our long-term rating on the supranational European Union to ‘AA’ from ‘AA ’ and affirming the ‘A-1 ’ short-term rating. The outlook is stable, reflecting our opinion that under most scenarios, including a U. K. withdrawal from future (though not current) budgetary commitments, our anchor ratings on the EU will remain at the current level of ‘AA/A-1 ’. RATING ACTION
On June 30, 2016, S&P Global Ratings lowered its long-term issuer credit rating on supranational institution, the European Union (EU), to ‘AA’ from ‘AA ’. The ‘A-1 ’ short-term rating was affirmed. The outlook is stable.

This post was published at Zero Hedge on Jun 30, 2016.

SP 500 and NDX Futures Daily Charts – BofE’s Carney Saves the End of Quarter

Today was the last trading day for the second quarter of 2016.
The Bank of England’s Mark Carney pledged today to do whatever the Bank must do to support Britain’s economy.
And on that accommodative note, global paper assets turned around and took some legs higher.
I am starting to think bearish thoughts here, but wish to see what stocks do when they hit the overhead support levels.
As you can see, they bounced very nicely on the underlying support. The NDX is particularly well-behaved, with the SP futures being the pivot on stock market upside interventions.

This post was published at Jesses Crossroads Cafe on 30 JUNE 2016.

Oil Bulls Beware: Crude Demand Is About To Slide As China’s SPR Is “Close To Capacity”

Throughout oil’s torrid rally from the February lows, one major driver of demand – namely China – had been broadly ignored by the punditry which instead focused on supply, whether excess OPEC oversupply or lack thereof, due to production disruptions in Canada or Nigeria. And yet, China and specifically its demand, may have been the elephant in the room all along.
Two months ago we reported that “China Is Hoarding Crude At The Fastest Pace On Record“, a move which among other things was attributed to China’s aggressively filling up its Strategic Petroleum Reserve. However, just a few weeks ago, we followed up with “China Oil Imports Drop To Four Month Low As Demand Is Expected To “Moderate Significantly” In 2016.”
We now may have an answer what has caused this drop.
As Bloomberg says, citing a JPM report, “one of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling.”
The reason: as many speculated, a big source of China’s demand in the past 5 months was Beijing’s decision to stockpile oil for its SPR. However, that is now over as China is likely close to filling its strategic petroleum reserves after doubling purchases for it this year as prices plunged. JPM estimates that China’s SPR demand was equivalent to approximately 1mm bpd. More importantly, stopping shipments for the reserve would wipe out about 15 percent of the country’s imports, according to the bank.

This post was published at Zero Hedge on Jun 30, 2016.

JUNE 30/SILVER BREAKS OUT FROM ITS LAST BARRIER OF $18.50 AND IMMEDIATELY PROCEEDS TO CLOSE IN THE ACCESS MARKET AT $18.78/IMF ADMITS THAT DEUTSCHE BANK IS THE GREATEST RISK TO THE FINANCIAL SYST…

Good evening Ladies and Gentlemen:
Gold: $1,318.40 down $5.50 (comex closing time)
Silver 18.58 UP 22 cents
In the access market 5:15 pm
Gold: 1323.30
Silver: 18.78
Today is the last day for June gold contract. Last night we had a fair sized 185 notices filed last night, for 18500 oz to be served upon today. The total number of notices filed in the first 20 trading days is enormous at 15,785 for 1,578,500 oz. (49.09 tonnes) This completes June gold
ii) in silver we had 0 notice filed for nil oz. for the June contract month. Total number of notices served in the 20 days: 616 for 3,080,000 oz
Thus we can safely say that the final amounts standing for gold is 1,578,500 oz for 49.09 tonnes:
For silver: 616 notices for 3,080,000 oz
And now for the July contract month
For the July gold contract month, strangely we had 0 notices served upon for 0 ounces
In silver we had 234 notices served upon for 1,170,000 oz
Today, the big news was the fact that silver broke its last resistance line at $18.50 and then it immediately shot up to $18.78. The bankers must be terrified as they are massively short and they had no time to cover their comex short contracts.
Let us have a look at the data for today.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 288.78 tonnes for a loss of 14 tonnes over that period
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In silver, the total open interest fell by a considerable 2874 contracts down to 208,522, BUT STILL CLOSE TO AN ALL TIME RECORD. THE OI DECLINED DESPITE THE FACT THAT THE PRICE OF SILVER WAS UP BY 52 CENTS with respect to YESTERDAY’S trading. In ounces, the OI is still represented by just over 1 BILLION oz i.e. 1.042 BILLION TO BE EXACT or 148% of annual global silver production (ex Russia &ex China). The bankers are running scared as they saw the potential for the price of silver to pierce $18.50
In silver we had 0 notices served upon for NIL oz.
In gold, the total comex gold OI ROSE by a HUGE 7,769 contracts UP to 621,297 as the price of gold was UP $9.00 with YESTERDAY’S trading (at comex closing).
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With respect to our two criminal funds, the GLD and the SLV:
GLD
No changes in gold inventory./
Total gold inventory: 950.05 tonnes
SLV
No changes in silver inventory at the SLV
Inventory rests at 333.544 million oz.
First, here is an outline of what will be discussed tonight:

This post was published at Harvey Organ Blog on June 30, 2016.

A Path Toward Inflation

Yes, it’s another inflation post going up even as inflation expectations are in the dumper and casino patrons just cannot get enough of Treasury and Government bonds yielding 0%, near 0% and below 0%.
Feel free to tune out the lunatic inflation theories you’ve found at nftrh.com over the last few weeks. But if by chance you do want to look, here’s a visual path we have taken to arrive at the barn door, behind which are all those inflated chickens, roosting and waiting. All sorts of animals will get out of the barn if macro signals activate.
Gold led silver ever since the last inflationary blow off and blow out in early 2011. The gold-silver ratio rose through global deflation, US Goldilocks, good times and bad. There was no inflation problem, anywhere. Then early this year silver jerked leadership away from gold and now for the second time the ratio of gold to silver has broken below the moving average that has defined its trend (it did so in 2012 as well).

This post was published at GoldSeek on 30 June 2016.

Brexit Shows Why the US Income Tax Is So Bad

Following the success of the vote for Britain to withdraw from the European Union, many Americans renewed talk of the possibility of American states seceding from the United States.
When we consider the size and wealth of some American states, especially the larger ones, we find that many American states, are comparable both in size and wealth to many European counties. Once accomplished, independence does not present any more impediments to success than it does in Denmark or Switzerland.
On the other hand, thanks to the regime of direct taxation (primarily the federal income tax) used in the United States that transition to independence would be far more difficult than it would be for a country that withdraws from the European Union.
One major factor that eases the secession of member states in the EU is the fact that European Union is not primarily funded by direct taxes on Europeans, but mostly by remittances from member states.
According to EU budget documents, funding sources for the EU include “contributions from member countries, import duties on products from outside the EU and fines imposed when businesses fail to comply with EU rules.”

This post was published at Ludwig von Mises Institute on Jun 29, 2016.