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Economic data is pointing downward and investor sentiment is turning negative.
Perhaps most worrisome is the massive pile of highly levered debt that continues to grow. BAML's survey finds that corporate leverage is the top concern among investors surveyed for the first time since 2009.
Still, there seems consensus among many in the market that it's not yet time to panic.
Economists and market strategists have often pointed to U.S. bank balance sheets, which currently hold historically low levels of risky assets and debt, as evidence that there is not significant systemic risk. The issue, however, is just how much debt is held by institutions other than banks — those without FDIC protection and trillions of dollars in deposits to fall back on if things go bad.
What they're saying: “We’ve never been in an environment where there were quite this many non-banks,” Michael Bright, executive vice president and chief operating officer of Ginnie Mae, a government housing agency that buys and insures many of the loans issued by non-bank lenders told the Washington Post in September. “So we need to take some additional measures, in my view, to prepare for an economic environment with either higher delinquencies or higher interest rates.”
U.K. Prime Minister Theresa May lost yesterday's Brexit vote by an astonishing margin, cobbling together only 202 votes for her Brexit deal, writes Axios' Felix Salmon.
Worse, there were 432 votes against it, including 118 of the 317 MPs representing her own Conservative party. That makes this vote the biggest and most consequential government defeat since at least the 1840s.
The only choice left would seem to be no Brexit. Britain can change its mind and decide to stay in the EU after all, or it can ask the EU to agree to a delay, pending a second referendum. That second referendum would probably result in a vote to remain, especially given that about 1.5 million young voters have become eligible to vote since the 2016 referendum, and a huge majority of young Britons want to be part of Europe.
Be smart: Don't believe anybody who tells you that they know how this is all going to play out. Britain is caught up in political chaos, and just about any option is still possible, including a hard Brexit, another general election, or a change in Conservative party leadership. That said, the possibility that Brexit might not happen at all is looking increasingly likely.
European Commission President Jean-Claude Juncker (L) and President of the European Central Bank Mario Draghi (FREDERICK FLORIN/AFP/Getty Images)
European Central Bank President Mario Draghi gave hints that he may continue the central bank's bond-buying program through this year, saying the economy of the 28-member bloc is weaker than he previously expected.
Germany's 5-year low in economic growth reported this week along with unimpressive reports from Italy, Britain, France and Spain (the euro zone's largest economies) in recent months have given that impression, even as the bank said it would solider on raising interest rates and cut its 15 billion euro per month stimulus.
The central bank just last month began to phase out its bond purchase stimulus program that has totaled 2.5 trillion euros, in a first step toward higher interest rates. Interest rates on some deposits are still negative in the euro zone.
Stocks globally bounced on Tuesday, despite this week's troubling news from China. The world's second largest economy reported much weaker than expected trade data, noting a 4.4% drop in exports and a 7.6% decline in imports. In response, Chinese authorities announced a new raft of stimulus measures.
Some investors expect that the new stimulus is just what markets to jump-start returns in 2019.
"More imports, fewer exports in December reflect lagging data. It’s the next two quarters that matter due to the lagged effect of Beijing’s policies."— Nancy Tengler, chief investment strategist at Tengler Wealth Management
Kansas City Fed President Esther George said in a speech yesterday that the central bank could "take a pause" on raising interest rates and "reassess" its policies. That's surprising for a member of the Fed's rate-setting committee who's historically been so hawkish, writes Axios' Courtenay Brown.
Why it matters: With George's comments, the entire new class of voting FOMC members (and a few permanent ones) have come out on record preaching "patience."
The market has it wrong pricing in no interest rate hikes (and even a possible rate cut) for 2019, Michel del Buono, chief investment officer at Jordan Park Group tells Axios.
"'Patient' doesn’t mean nothing. That we’re getting near the low end of the [Fed's target] range doesn’t mean we’re done. People will jump to these red light/green light conclusions. It’s not that binary.
"Being patient doesn’t mean no more [rate] hikes. Being patient means two hikes. The market is pricing in no hikes, and some people are pricing in rate cuts. Unless there’s a big recession dropping on us in next three months that’s completely ridiculous. There's a translation loss between 'patient' and do nothing that’s just interesting.
"I think a bunch of people think that there’s an imminent recession. That’s the only thing that could justify a cut is an imminent recession. The other possibility is people continue to believe in the Fed put — that the Fed will do anything to save the market. Since there’s really no indication right now of any recession — yes, things are slowing down, but slow down is different than recession — it's got to be that people believe in the tooth fairy, the Fed put."
If PG&E follows through on plans to file for bankruptcy before the end of the month, it will be the biggest utility bankruptcy since 2001... which was the first time PG&E filed for bankruptcy, writes Courtenay.
Bonus stat: It's incredibly rare that companies default within one year of holding an investment grade credit rating, Bank of America-Merrill Lynch notes.
Days without a factual error: 1