T-15: A global market that stomps on the edge of the cliff
The predicted Black Monday was barely avoided. With the Japanese market closed on holidays, global attention has been focused on Europe and the US market. All European markets began with a sharp decline, and the US market, which took over this trend, also fell sharply. However, towards the close, buybacks began to occur due to expectations that "there would be some kind of intervention by the central bank," and the collapse did not lead to a catastrophic crash. This is not a source of relief. Market interest focused on the subprime car loan issue that was exposed over the weekend, particularly the primary dealerships at the heart of it. Stock prices of JPMorgan and Barclays have plummeted, and CDS spreads that show their credit risk have skyrocketed. The market has begun to take into account the damage to the "piping" itself of the entire financial system, rather than the collapse of individual companies. Although the breakup was avoided, the countdown was definitely a day when the next phase was moving.
The biggest factor that Black Monday was avoided was the central bank's expectation of "invisible hands." Market participants refrained from panic-stop sales in anticipation that the Fed and ECB will implement some liquidity supply measures. But this is merely a procrastination of the problem. It cannot be denied that the Tokyo market's closures could have served as a temporary breakwater to stop the panic chain in Asian time.
The essential problem is that the size of the losses in the subprime automotive loan ABS market is completely invisible. It has been pointed out that Tricolor's "double collateral" may be rampant in other businesses as well, and the market is becoming suspicious. Until the losses are confirmed, financial institution stock prices will be forced to go upwards.
Our signal analysis shows that the most notable is the movement of the primary dealer's CDS spread. As long as this number continues to rise, it will be difficult for them to play their true role in US Treasury bids. The market focus is no longer on the good or bad economy. It has moved to the core of national credibility: "Will US Treasury be really issued without breaking the bill?"