Greetings,

Let's begin with Friday's markets where the volatility has finally returned. A confluence of events including the ECB's inaction, some of the Fed officials' hawkish comments, Jeffrey Gundlach turning bearish on bonds and technical factors sent markets into a sharp correction. Machine-driven activity accelerated the selloff. The equity markets were particularly spooked by the sharp correction in global bonds.

1. The Treasury curve steepened as longer-dated yields jumped.

2. The situation was even more severe for Europe. French and Italian 30y government bond yields are shown below. 

 

3. Bunds had a rough couple of days following the ECB's decision to stay pat. 

 

Source: McElligott (RBC)

4. Similar to the moves in the Eurozone, the 30yr gilts yield was up 12.5bp (3.6% drop in price).

1. In the equity markets, the S&P500 futures closed 2.6% lower on the day. Some had been pointing to the "triple top" technical formation.

The  selloff continues in the early Monday morning hours.

Source: barchart.com

2. Citi has recently pointed out that global equity markets are increasingly macro-driven, and Friday's events made that quite clear.

Source: Hans Lorenzen

3. With both bonds and stocks selling off, there was "nowhere to hide". Only bank shares lost less than 1% - as the market telegraphs higher interest rates.

Source: Investing.com

4. To put Friday's market action in perspective, the chart below shows daily moves in the S&P500 futures vs. long-term treasuries (TLO) over the past couple of years. Only the 12/3/15 move - right before the Fed's hike - was comparable.

Source: Bloomberg

5. Charlie McElligott  (RBC) says that low historical volatility (discussed here several times) has pushed the Risk-Parity folks into equities. As Friday's (and possibly this week's) moves make their way into the vol figures, we could see the unwind (a "procyclical" investment strategy). Note that a similar effect will show up in banks' VAR models (with some lag), although the US banking system is less relevant in most markets these days.

Source: McElligott (RBC) 

6. The VVIX (vol of vol) index jumped almost 30%. 

Source: Investing.com

7. Here is the VIX futures curve move over the past week.

Source: Bloomberg

1. In the currency markets, we saw a sizeable reversal in the Australian dollar in response to the risk-off sentiment. Other vulnerable currencies such as the South African rand and the Mexican peso sold off.

Source: myfxbook.com

2. The renminbi 1-month forwards declined as markets started pricing in a higher risk of further devaluation. It's unlikely, however, that Beijing will do anything too drastic at this juncture.

1. In the United States, economists and investors are increasingly concerned about the presidential election risks. The WSJ survey of economists and the BofAML credit investor survey both show rising focus on the issue.

Source:  @WSJecon

Source: BofAML,  ‏@NickatFP

2. Fed's Eric Rosengren was clear in his speech early Friday that he wants to see a rate hike. Fed's Kaplan (Dallas Fed) spoke about the need to raise rates very slowly but said that the Fed "has put markets on notice". Rosengren's speech, in particular, unnerved the markets.

Source: Boston Fed

Source: Reuters

3. In other US-related developments, the ECRI US leading index (somewhat surprisingly) continues to climb. As a result, the ECRI "future inflation" index is climbing also - prompting Jeffrey Gundlach to argue that the market should be pricing in higher inflation and therefore higher interest rates (see Friday's Daily Shot).

Source: @businesscycle

1. In the international developments, Mexico's consumer confidence is struggling despite falling unemployment rate.

Source: SocGen,  ‏@joshdigga

2. Slovakia's industrial production fell sharply.

3. As discussed before, ECB's monthly purchases maturity in the "core" states remains elevated with Bund maturity rising. Will the Thursday's and Friday's correction (jump in yields) change these dynamics?

Source: Jack Di Lizia (Deutsche Bank),  ‏@joshdigga

4. The chart below compares leverage and Capex trends for the Eurozone, the UK, and the US. British firms have seen quite a jump in leverage, while Capex continues to decline (YoY).

Source: HSBC, ‏@joshdigga

Source: HSBC, ‏@joshdigga

5. Speaking of leverage, this next chart shows US corporate debt as a percentage of the GDP. Deutsche Bank points out that the level is consistent with recession.

Source: Deutsche Bank, @NickatFP

6. Japan's PPI continues to decline (YoY), suggesting that the BoJ's inflation target is likely to remain elusive for some time to come.

1. In commodity markets, oil reversed its Thursday's rally. The fact that US oil rig count continues to move higher didn't help.

2. Finally, just in time for winter, cocoa futures fell sharply. The explanation is below.

 

Source: agrimoney.com

1. Turning to Food for Thought, according to Bloomberg, "Facebook is becoming an emerging-markets play, as the user base shifts".

Source: @business,  ‏@Tmp_Research

2.  According to FiveThirtyEight, "the oil and gas industry awakened Oklahoma's sleeping fault lines".

Source: @FiveThirtyEight,  ‏@Tmp_Research

3. The Hillary Clinton dropout risk in the betting markets rises after the 9/11 ceremony incident.

Source: @PredictIt

4. States with medical marijuana laws show lower levels of certain medication prescriptions, particularly pain meds.

h/t Jake

h/t Jake

5. Lung cancer death rates by state.

Source: The American Cancer Society, h/t Daily Shot reader