It's not Japan (although they had a record collapse in private machine orders), it's not the F_O_M_C minutes although they reveal that the committ-E is more concerned about the market than Yellen let on, actually right about in line with Bullard's "The market is wrong" comments.
It's something I just described yesterday in Possible Scenario,
"The reason I have said for years that I think this bear market will be the opportunity no one alive has seen if you are on the right side of the trade is because it is unprecedented in scale....We have a globally interconnected economy like never before and there are few countries any better off than the US. China is in trouble, Japan is in more trouble than ever, Europe is in trouble, South America is in trouble. Talk about the butterfly effect! "
And that's exactly why futures are down so badly this morning with (at last check) the FTSE 100 down -0.85%, the DAX down -1.55% with DAX futures printing multi-month lows and the CAC 40 down -1.56%, it's the Butterfly effect.
This all started yesterday with a missed bond payment by a Portuguese bank, Espirito Santo International, yesterday their bonds collapsed, today they are considering an insolvency request.
Then in early European trade, Espirito Santo Financial Group which owns 25% of ESI saw its share price collapse by over 16% and suspended trading in its shares and bonds.
This, being a banking issue which is of course closely connected to sovereign bonds in Europe as that's what the ECB has encouraged sent Portuguese bonds (largely in the 5-10 year space) to huge blowouts as a missed bond payment in a Portuguese lender quickly became a sovereign debt issue not only effecting Portugal, but other EU periphery like Greece and Ireland.
Since, someone (probably the ECB has stepped in to try to stem the bleeding in bonds,
This then led to the flight to safety trade and saw German 10 year bunds print a record September contract high with 10-year yields at all time lows of 1.17%, the European markets were CLEARLY risk off and by this time the major markets were feeling it as stocks fell.
At the same time there were huge misses in French, Italian and Dutch Industrial Production.
Next the S&P futures were taken down...
ALL OF THIS STARTED WITH ONE PORTUGUESE LENDER MISSING ONE BOND PAYMENT, THIS IS THE CASTLE BUILT ON SAND THAT WE CALL A MARKET AND THE BUTTERFLY EFFECT IS VERY REAL, JUST WAIT UNTIL SOMETHING BIGGER HAPPENS.
As far as our plans, as I said last night, Daily Warp , the highest probability scenario I considered was the following.
That's what we have this morning...
We need to determine via 3C accumulation or not, whether Wall St.'s bounce is still on track or whether this fundamental development that was not discounted just changed the whole story, either way, we are fine as we already have significant short exposure. It usually takes a lot for Wall St. to abandon a cycle once they invest in it, but this may change things, again this is why we don't chase.
We'll let the market tell us whether the Wall St. bounce to be used to short in to is still on track as we expected prices to come down and make a wider base as well as a stop run or whether as I said, this changes everything, but now you see why the SKEW Index has been elevated and pros have been buying low priced puts in huge demand, this market is built on sand foundations that are quickly eroding.
Unprecedented opportunity... The butterfly effect...
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