On the heels of the recent carnage in global markets, today one of the greats just warned “something is different.”

Crude Oil In Danger Of Doing Even More Major Technical Damage
November 21 (King World News
) – From Andrew Adams at Raymond James:  
All is not well in crude oil, however. I mentioned last week that $55 really needed to provide support and stop the freefall in the commodity, and it appeared to happen at least for a few days. Yesterday, though, WTI broke down through $55 without putting in much of a bounce, which looks to be a red flag (see chart below).

There is still time to repair some of the damage; if oil pops back above $55 quickly, preferably by the end of this week, then perhaps it was just a frustrating false breakdown. There is some minor support around $52.50, but $55 does have the stronger history of importance so it would not be a good sign to get a weekly close below there. Overall, the chart for oil looks very poor and it’s hard to expect much out of oil and oil-related stocks until conditions improve.

Also of importance…

Something Is Different
Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness:  
While US Treasuries rallied last week in response to the stock market selloff, the 94 point decline in the S&P 500 the past two days saw no rally in US Treasuries. Right now and stated here before, US Treasuries are just not the safe haven like they’ve been in the past. Something is different, whether it’s too much supply, shifting foreign flows, QT, the end of ECB QE and 50% decline in BoJ QE, etc…

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Italian bonds are ignoring the threat from the European Commission that they will fine Italy in response to their budget which the EC claims violates their rules. “The Commission confirms the existence of a particularly serious case of non compliance.” The EC VP said “With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability.” Interestingly, the chief economist at the OECD is defending Italy’s budget, somewhat, as he said it “stabilizes debt, but obviously there can’t be another shock to growth.” Deputy PM Salvini did say he was open to slightly altering the budget to satisfy the EC and that is why Italian stocks and bonds are rallying. The euro is up too.

Bottom Line
Bottom line, what has gone on Italy I believe is just the beginning of what I believe will be more instability in European bond markets next year when the 800 pound gorilla in their markets, aka the ECB, stops expanding its balance sheet and tries to exit NIRP. The bond market has already called out Italy and their excessive debt and lack of growth. They did it to Greece, Spain and Portugal in 2011-2012. Hopefully it stops there but it won’t stop yields from going higher everywhere in just a process of mean reversion and normalization (meaning rates move closer to where inflation is). As a reminder, at peak QE, the ECB was buying 7 times net sovereign issuance. The Fed was never buying more than 25%.

Mortgage Rates
The average 30 yr US mortgage rate was little changed w/o/w at 5.16%, just off the 8 1/2 year high of 5.17% last week. Purchases did rebound by 3.1% w/o/w off the lowest level since February 2017 but they are down 4.8% y/o/y. Refi’s fell by 5%, down for a 4th straight week and to a fresh 18 year low. They are lower by 40% y/o/y. Bottom line, mortgage rates are up almost 100 bps y/o/y and that combined with persistent 5-6% annual home price gains has finally caught up with buyers who have now said ‘no mas.’

With the market oversold by some metrics, sentiment as should be expected continues to get less bullish. Investors Intelligence said Bulls fell to 39.6 from 42.9 and that is the least since May 2016. Again, most only went to the Correction side as they rose to 40.6, the most since May 2016 from 38.1 last week. Bears were up but just by .8 pts to 19.8 and why I said sentiment was ‘less bullish’ rather than bearish. I’m still amazed that the most bearish people have gotten are those just expecting a correction that should be bought but memories are short and it’s certainly worked over the past 10 years.

Adding to the sentiment data, the Daily Sentiment Index on the S&P 500 and NASDAQ are down to 8 (in a range of 0-100) which means that 92% are bearish (thanks Helene). The Fear/Greed index from CNN is down to 7. Thus, I believe we are set up for a short term bounce and I emphasize short term because we have the Trump/Xi meeting to digest and what the Fed will do next month. Will they blink with no hike or a hike and a pause? This debate all with REAL rates only back to ZERO.

Global Economic Forecast
The OECD did lower their 2019 global economic forecast to 3.5% from 3.7% and did acknowledge that we are all growing aware of, “Should the soft landing turn out to be a sharper downturn then you need to cooperate together because there’s not much ammunition in the macro tool box.” Certainly not on the monetary side and why they said “fiscal stimulus will be needed if global growth slows sharply.” Unfortunately the US doesn’t have any room on the fiscal side where deficits are now sitting and with the tax cuts already in place (however positive long term). The OECD did say the Fed is along the normalizing process but are still about 200 bps below where they’ve been historically in terms of reloading.

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