And the mkts are getting crushed this morning…..blood running in the streets from Asia to Europe with the US next in line…… In Asia – Japan lost 1.9%, Hong Kong – 2.47%, China – 2.16% and ASX gave up Europe the bloodletting continues with those mkts all under assault……FTSE – 2.52%, CAC 40 – 2.45%, DAX – 2.38%, EUROSTOXX – 2.21%, SPAIN – 2.22% and ITALY – 2.4%.....Switzerland down 2.03%, Netherlands – 2.3%, Belgium – 2.30%, Denmark – 1.6%, Norway -3.34%, Sweden -2.1%

And here in the US – futures are pointing much lower…..S&P futures are down 50 pts or nearly 2%, Dow futures down 440 pts or 1.7% and Nasdaq futures losing 158 pts or what is now the complete unravelling of global mkts…..If today shapes up the way it looks now – all indexes will go negative on the year…..So - was there a ‘precise catalyst’….I mean did something new happen to send the mkts into a tailspin overnight?  YES and NO……..

Remember – US mkts were closed on Wednesday as the country mourned the passing of President George H. W. Bush (41) – and celebrated his long life…..the US mkts closed on or near the lows on Tuesday and that alone set us for a test lower today……(it’s a technical indicator)………While that was happening – news out of the BoJ (Bank of Japan) set the tone….Governor Kuroda saying that the economic risks from ‘abroad’ could be severe… without naming who – the implication is the US…….. and there are plenty of risks to consider…….continued concern over rates and coming increases, and continued concern over trade talks with China and what that means for the global economy…..In addition the FED’s Beige Book is showing fading optimism in growth prospects here in the US, - which btw – goes hand in hand with earnings growth projections for 2019…..recall that earnings are expected to grow back in the single digit range vs. the double digits that we have been experiencing of late……but again – we knew that – and if you didn’t – you must be living in a cave…..because it was all the talk during the 3Q earnings season as we listened to countless CFO’s and CEO’s discuss the future……

Then there was news that the Canadians (at US insistence)  arrested Wanzhou Meng – CFO of Huawei Technologies – a Chinese tech company accused of selling technology to Iran in the face of US sanctions against that country…..and this is leading some talking heads to suggest that this arrest will NOT help US/China relations at all….Toss in Donny’s tweet yesterday that he is all about Tariffs….and you get the distinct impression that he is not going to let Xi come up for air… in a negative environment – anything that has a negative tone will be blown up and anything that is the least bit positive will be pushed to the side….it will be one of those accentuate the negatives/eliminate the positives kind of day…..

BUT …….. something else is happening in clear sight -  that is not getting enough (if any) attention and has somehow gotten lost in the conversation……QT – or Quantitative Tightening……Oh boy!

So what is QT?  Well – it is the opposite of QE (Quantitative Easing) the policy set in place by the global central banks that brought rates to near zero (if not below) during the GFC (Great Financial Crisis) – This also included the purchases of gov’t bonds and in the case of the US – mortgage bonds in order to lower rates, increase the money supply and attempt to save the global financial system from implosion….It was a global policy of INCREDIBLE proportion……and it took on many iterations…..QE1, QE2, QE3 and then finally QE Infinity…..with what looked like the never ending handout…..Recall that the S&P had lost nearly 60% of its value between October 11, 2007 and March 6, 2009 when the first round of QE was announced…..which brought a halt to the slide that had decimated the US and global capital mkts….soon after the ECB (European Central Bank), the BoJ (Bank of Japan), BoE (Bank of England), PBoC (Peoples Bank of China), RBA (Reserve Bank of Australia,   Bank of Canada, etc….(you get the picture…) all moved towards policy that brought global interest rates to zero…..(if not negative – which is a whole other conversation) to help save the global financial system from Armageddon……global mkts recovered- the US climbed from 666 on the S&P to the highs of 2950 this year (or a 330% move) over that time and calm took the place of fear and all was good…..

Well folks – as discussed ad nauseum over the past 8 or so yrs – what was going to happen to the mkts when the party stopped?  How were investors/traders/asset managers/fiduciaries going to respond when the narrative changed and we went from easing to tightening?  But you say – this didn’t just happen….we didn’t go from easing to tightening last night!

Of course not – the FED announced the beginning of the ‘tightening’ phase almost 16 months ago…..(summer of 2017) although talk of how to tighten and when to tighten had taken place for months before that…..and the answer was then as it is now – NO ONE REALLY knows (or knew) what would happen when QT finally began to impact the financial system……no matter how slow we went…because remember the easing went on for a decade (that’s 10 yrs) so was the tightening going to take the same amount of time?  Or was it going to happen faster to combat the possibility of hyperinflation?  Now we do not have hyperinflation – so slow down….but we do have tightening…and the mkts will have to re-price based on the tightening….but toss in the ongoing and exhausting trade talks – along with all the threats -  and the possibility of a weakening global economy and you have the recipe for volatility as global central banks all embark on QT as they all try to normalize…..But what is normal anymore? 

Look – we talked about this….we all knew that QT was not going to be like QE…we just may not have really wanted to understand what the unwinding process was going to look or feel like. 

Next -
Oil coming under pressure again _down $1.20 at $51.69 -  as OPEC meets in Vienna to cut production – just as the EIA (Energy Information Agency) gets ready to release their week data….and if it is anything like the API’s (American Petroleum Institute)  report  on Tuesday - guess what?  It is expected to show an unexpected increase in supply…..on Tuesday – the API reported that US inventories of crude oil, gas and other distillates ROSE by 13 mil barrels – as the talking heads will tell you that it is waning demand as the global economy softens…..(blah, blah, blah)   (I’m not sure why this is a surprise really – how long have we been talking about increasing US production?).   And if the EIA report suggests the same on a global scale then this will clearly help the Saudi’s and OPEC move to cut production – maybe – more aggressively… what some suggest is ‘bearish data’ (rising supply) could end up being bullish for oil prices as OPEC announces the size of production cuts to re-balance supply/demand.   And while these arguments are not NEW – they do continue to simmer on the front burner, causing angst and investor caution…..

Eco data today includes the ADP Employment report – exp of +195k jobs, Unit Labor Costs of +1% (which should be down from 1.2% - which should be bullish), Init jobless claims of 225k, Cont Claims of 1.69 mil, Markit US services PMI of 54.4 – still bullish as it is better than 50, ISM Non Manf Index of 59 – that is bullish as well, Factory orders of -2% (bearish), Durable Goods of – 2.4% (bearish).  

So expect investors/traders to ‘take no prisoners’ -in today’s action…the algo’s are set to hit the SELL button and the buyers have positioned themselves down about 2% from Friday’s close…..there is a VOID in liquidity inline….buyers see the blood bath happening around the world and will NOT stand in its way…….the only question is how desperate will the sellers be to unload some stock and raise cash?  We are about to find out….Strap in….it is sure to be a bumpy ride.
If we open down 50 pts as suggested – then we will be testing the lows of November…..if we fail there then we will surely test the October low of 2603 ish….and I think we will find support there…or we better hope we do!

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