Another Brutal Day In Brazil: Stocks Down After A Million Protestors Take To The Streets (EWZ)

Brazil's Bovespa is down nearly 2% to 47,258.

About a million Brazilians took to the street across 80 cities, prompting president Dilma Rousseff to call an emergency meeting. The protests were sparked a week ago over a hike in bus fares but have  mushroomed since.

"We view these protests as a wake-up call that the government needs to continue catering to the new demands of the rising middle class," wrote Barclays' Marcelo Salomon. 

"It is not enough to increase social transfers or create stimulus programs to push consumption up. Brazilians are now clamouring for a leaner and more efficient government, one that spends tax revenues in a sound manner, according to their needs. A necessary condition of  the uprising was the use of social media, which allowed for a leaderless movement to bring to the streets this incredible demonstration of power."

Brazil's measure of inflation, the IPCA-15 price index climbed 0.38%, above expectations and annual inflation ticked up to 6.67%. Brazil's central bank has a two percentage point tolerance against its 4.5% target.

On Thursday, Brazil's central bank sold currency swap contracts to help support the real which continues to be down 12% against the U.S. dollar since May.

President Rousseff's approval rating has fallen to 55%, according to the CNI/Ibope opinion poll.

Here's a look at Brazil's Intraday chart from Bloomberg:

Bloomberg

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David Zervos Has The Best Explanation For What Bernanke Was Trying To Do When He Tanked The Market On Wednesday

On Wednesday, Ben Bernanke came out guns blazing.

He said that plans to "taper" the pace of Fed purchases were going ahead, and that the rise in interest rates was not a big concern to the Fed.

And so the market tanked.

What was Bernanke going for?

According to Jefferies David Zervos, this is really all about injecting a little bit of uncertainty into the market to ward off excessive speculation.

[Wednesday's] pronouncements appear to be a conscious effort to inject uncertainty into a fixed income market that feeds on certainty. He was taking a cue from the great Hyman Minsky. By acting against a market that had become too complacent, he was attempting to force out the dangerous and excessive leverage in the system. And while that may feel a little painful right now, we may end up being very thankful that the Committee took the actions it did Wednesday in the name of preserving future financial stability.  Our path to recovery does not rely on 6 guys and Bloomberg levering up spready EM, mortgage or corporate debt.

Our recovery comes from individuals taking on real investments, in real economic endeavors. Increasing the funding opportunities for companies that innovate, put a real return on capital, generate real growth and create real jobs is the primary goal of QE. That is the portfolio balance channel at work. And the side effects related to too much leverage in bond markets have been a thorn in the side of developed market monetary policy implementation for decades. The Fed seems to have learned this lesson and it has decided to purge some of the QE demons from the fixed income markets early, before its too late and we have a souped-up version of 1994 on our hands.

The beauty, says Zervos, is that the Fed is still there to ease further if needed:

If economic prospects sour, they will buy more bonds and stay lower for longer. Ben said as much Wednesday. So the "Bernanke Put" is very much alive and well.

Find more Zervos at Markit Hub -->

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Now That The Dust Has Settled, Here Are The 6 Themes That Are Dominating Markets

Markets are rising today after the big declines yesterday and Wednesday.

The big event this week was, of course, the FOMC announcement, wherein Ben Bernanke confirmed the Fed's intention to "taper" the pace of bond purchases, provided the economy remains on its current trajectory.

So what does the landscape look like now?

Citi FX analyst Steven Englander explains the 6 big themes that are dominating global markets:

1)    The degree of Fed optimism on the US economy, its clarity on the proposed path of winding down QE and the apparent giving up of the objective of restoring employment-population ratios that reflect the pre-2008 trend. From a markets perspective this came across as a much more hawkish Fed.  In addition to this major theme, we have a continuation of themes that were earlier in play… 

2)    EM underperformance, especially among commodity producers. The weak China data overnight and concern about liquidity add to the headwinds EM and commodity currencies face. 

3)    Low, but rising yields and risk premium. There is a crucial difference between yield increases in the US where the economy is improving, and elsewhere where readings are worsening or, at best, as weak as expected. 

4)    Long USD positioning seems to have dropped off the map as a factor, possibly because positions had been greatly wound down going into FOMC. 

5)    Euro and UK stabilization – but these are also the regions where the central banks may be most aggressive in trying to counter the headwinds form tighter US liquidity. 

6)    Abenomics losing its unspoken fourth arrow – extremely easy liquidity outside as well inside Japan. The question now is what measures the Japanese authorities can take to get Japanese stimulus back on track.

For more on what's going on this morning, see here -->

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Why Greece Is Back In Chaos

REUTERS/Yorgos Karahalis

Greece was thrown back into chaos Friday after the country's Democratic Left party ditched Athens' ruling coalition, IBTimes' Renee Maltezou reports.

The move came in protest of of PM Atonis Samaras' decision to shutter the country's public broadcaster. Earlier, BBC reported talks to reinstate ERT, which last Tuesday had all of its assets seized and entire staff laid off, had broken down.

Greek 10-year yields temporarily hit 11.34%, the highest level since April, but have since come down slightly.

The Democratic Left was the coalition's smallest, and Samaras will maintain a slim majority in parliament.

DL officials have not yet decided whether they will still offer "external support" of votes to keep the country's bailout terms on track, IBTimes says. The Wall Street Journal's Stelios Bouras, Ed Ballard and Tommy Stubbington say support will be offered "on a case-by-case basis."

The party had given an imprimatur of leftist support to the Troika's harsh bailout terms. As we wrote earlier this week, Samaras' decision to close Greece's equivalent of PBS without consulting coalition members has now caused the goodwill he'd built up to vaporize. 

The move is also really bad timing. The FT's Peter Spiegel reported that Eurozone banks are refusing to roll over Greek debt, prompting the IMF to threaten to withhold its part of the Troika's bailout package. Troika leader Jeroen Dijsselbloem has denied there are any hiccups.

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The ETF Market Kind Of Broke Yesterday

Yesterday's big selloff exposed a weakness in one of Wall Street's darling products, Exchange Traded Funds (ETFs), the FT reports, and no one really saw it coming.

ETFs are a baskets of goods that can be traded like a single asset. They've become really popular on the Street over the last decade to the point where you can buy an ETF of almost anything — gold, kinds of companies, groups of countries (like emerging markets)... the list goes on.

And just like everything else, they got killed yesterday (the list below is just a small sampling).

The problem wasn't just that ETFs got swept up in the general panic of the moment. It was that as traders sold off and ETFs got cheaper, the discount between the price of the ETF and the assets that made it up widened.

Suddenly, everyone wanted to redeem those underlying assets from banks like Citi and State Street.

Now you can imagine what happened next (from FT):

One Citi trader emailed other market participants to say: "We are unable to take any more redemptions today?.?.?.?a very rare occurrence due to capital requirements we are maxed out on the amount of collateral we have out."

A person familiar with the situation said it was a temporary suspension affecting only some clients, caused by the significant amount of sell orders. Citi declined to comment.

State Street said it would stop accepting cash redemption orders for municipal bond products from dealers.

In short, people couldn't get their money, and there is fear that this selloff will continue.

While all of this was unexpected, it wasn't necessarily unheard of. In 2010, the Kauffman Foundation put out a report saying that ETFs were more dangerous than even high frequency trading (this was in the aftermath of the Flash Crash) and cause a flash crash themselves.

Specifically, Kauffman said that the problem with ETFs was that they end up driving the price of the underlying assets that make them up. The actual value of the asset ceases to matter as the activity of the ETF takes it over.

That, Kauffman said, could cause what we saw yesterday — "failure to settle" (market participants freaking completely out because they can't get their money).

Investors are starting to talk about this too. It's usually just a quick comment here or there about how, in the future, the most taxing job of a Wall Street analyst may be to get under the hood of an ETF and see what's really going on in there.

This is one to watch.

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Oil Prices Are Tumbling

Oil prices are way down today.

Brent prices were off -1.9% to $100.27, while West Texas Intermediate declined -2.0% to $93.27.

Citi's Timothy Evans notes the US dollar index is 0.5% higher today, which has sparked more risk-off trade flows many commodity markets including oil. 

"The price weakness in oil, particularly in contrast with the performance of the equity market, helps call attention to these weak physical fundamentals that have long been ignored," he writes.

Plus, he says, the market remains oversupplied, especially in the U.S.

FinViz

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