Wild Volatility Crushes Risk Appetite

Economic Data

- (US) MBA Mortgage Applications w/e Oct 10th: +5.6 v +3.8% prior
- (IL) Israel Sept CPI M/M: -0.3% v -0.2%e; Y/Y: -0.3% v -0.1%e (first negative annual reading in 7 years)
- (US) Oct Empire Manufacturing: 6.17 v 20.25e
- (US) Sept Advance Retail Sales M/M: -0.3% v -0.1%e; Retail Sales Control Group: -0.2% v +0.4%e
- (US) Sept PPI Final Demand M/M: -0.1% v +0.1%e; Y/Y: 1.6% v 1.8%e
- (US) Sept PPI Ex Food and Energy M/M: 0.0% v 0.1%e; Y/Y: 1.6% v 1.7%e
- (CA) Canada Sept Existing Home Sales M/M: -1.4% v +1.8% prior
- (US) Aug Business Inventories: 0.2% v 0.4%e
- (US) Sept Monthly Budget Statement: $105.8B v $90.0Be

Trading volumes are running about double recent levels this morning as wild moves whip around markets. The DJIA has moved 600 points in the first 1.5 hours of trading, dropping 300 points before and just after the open then bouncing higher. The S&P500 dipped below 1840 briefly, to lows last seen in mid April, before bouncing back. With volatility running very hot, the VIX is up sharply, touching 28 at its highs. As of writing, the DJIA is down 1.27%, the S&P500 is down 0.96% and the Nasdaq is off 1.05%. European indices were slumping ahead of the wild US action, and are closing down 3% or more after a brutal session.

Bond yields have also fluctuated wildly this morning, with the US 10-year dropping as low as 1.87% before popping back above 2% to 2.05% as of writing. This is the biggest one-day move in the US benchmark note since March of 2009. In Europe, the 10-year German bund dropped as low as 0.677% before moving back up to 0.76%. There was a massive move in EUR/USD, with the pair shooting up more than two big figures, from 1.2650 above 1.2880 before turning around.

The data out this morning suggests that the global slowdown seen over recent months may be finally catching up with the US economy. September US retail sales were negative, with the key control group, which is used to help calculate GDP, way off expectations. That is the first negative reading for that series since January, when severe winter storms depressed the series temporarily. September PPI producer prices were softer than expected, turning in the first decline of the year. The New York Fed's Empire manufacturing index was well under expectations, with the new orders component turning negative.

The US Treasury's decision to erect roadblocks to tax inversion merger deals is claiming its next big victim. AbbVie warned Shire this morning that its board was considering whether to withdraw or modify its $54 billion acquisition offer for the company, given the diminished returns it can expect from the deal. The decision is having a massive impact this morning, given that many hedge funds had arb trades riding on the deal (long Shire/short AbbVie). Note that ADRs of Shire are trading down more than 22% this morning, pummeling the funds and forcing liquidation, which may have touched off the big slide.

Texas health officials disclosed that a second healthcare worker has tested positive for Ebola in Dallas. The woman in question worked at the same hospital that treated US patient zero Thomas Eric Duncan at Texas Health Presbyterian Hospital for 11 days before he died on October 8th. The worker was immediately isolated after reporting a fever on Tuesday.

Bank of America reported net income of $168 million and a small loss in its third quarter. The loss was fully expected, resulting from the bank's massive $5.8B DoJ fine for mortgage issues, and the quarterly loss was much less than expected. Meanwhile, trading revenue rose nearly 10% q/q and mortgage originations grew. Shares of BAC are down more than 4% and headling lower.

Hewlitt-Packard issued a cryptic press release this morning, noting that its stock buyback program had been suspended because of the possession of "material non-public information," but had then been restarted as it no longer in possession of the information. The release followed another round press reports that HP had broken off negotiations to acquire EMC, because of disagreements over price and management structure. The same sort of story was seen earlier in October and late September, but given the HP release it seems like talks are really dead this time around.

Qualcomm has managed to snatch UK fabless semi name CSR away from Microchip Technology. CSR agreed to a $2.5 billion acquisition after rejecting Microchip's offer in late September. CSR makes computer chips and components expected to benefit from the so-called internet of things, complementing Qualcomm's presence in mobile devices.

In other deal news, giant Brazil conglomerate Safra Group hiked its offer for Chiquita Brands to $14/shr from $13/shr prior after completing due diligence. Chiquita rejected as too low, and Safra had opposed Chiquita's plan to acquire Fyffes.

Looking Ahead

- 14:00 (EU) ECB's Draghi to speak in Frankfurt
- 14:00 (US) Federal Reserve Beige Book
- 14:00 (BR) Brazil Sept Total Formal Job Creation: +142.5Ke v 101.4K prior