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[Markets] Global Stocks Rise, Pound Mixed Ahead Of May Confidence Vote After Record Liquidity Injection By China

Stocks in Europe gained along with U.S. futures while Asian stocks were muted as investors saw potential for legislative deadlock to force London to delay its departure from the EU following the heavy parliamentary defeat for British Prime Minister Theresa May’s Brexit deal. The pound fluctuated and gilts fell before a no-confidence vote in Prime Minister Theresa May’s government...

... while S&P futures rose initially then faded some of their gains.

The MSCI world equity index, which tracks shares in 47 countries, was flat, while MSCI’s main European Index gained 0.3 percent.  Europe's Stoxx 600 Index was modestly in the green, led by banks and insurers following China’s plans to boost fiscal stimulus, cut taxes and shore up growth and President Mario Draghi’s comments that stimulus is still needed in the euro area. The U.K.’s FTSE 100 declined as investors contemplated May’s Brexit defeat and the pound squeeze higher continued.

Earlier in the day MSCI's broadest index of Asia-Pacific shares outside Japan ticked up 0.2 percent, with South Korea's Kospi and Hong Long's Hang Seng both scaling six-week highs. Asian shares responded well to China’s central bank injecting a record amount of money into the country’s financial system. That underscored Chinese officials’ commitment to signal more measures to stabilize a slowing economy.

Global markets have drawn succor from the resumption of Sino-U.S. trade talks, though scepticism over the absence of detailed progress was underlined overnight as the U.S. trade representative that he did not see any progress made on structural issues during U.S. talks with China last week.

May’s government faces a no confidence vote on Wednesday after the shattering rejection left Britain’s exit from the European Union in disarray. May is expected to survive the vote but investors see little sign of breakthrough on the Brexit impasse. As a result, they are increasing betting on Britain being forced to postpone its planned March 29 exit, though few have any clarity on what that would mean for the country in the longer run.

Markets had largely priced in the overnight defeat, and in early trade major European bourses mirrored overall resilience in Asian markets. There, stocks were also lifted by signs that China will take more steps to bolster its slowing economy and the U.S. Federal Reserve may pause its run of interest rate rises.

“The evidence yesterday is that there is a quorum of (British) MPs who will do what’s required to avoid a no-deal Brexit,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. “So there’s a strong probability of an extension of Article 50 and that means there’s an increased probability of a softer Brexit or no Brexit at all.”

With some expecting a delay to raise chances of a softer Brexit, for example based on the opposition Labour party's idea of membership of a permanent customs union, sterling was flat against the dollar at $1.2860. “We do think it is unlikely that sterling will fall to fresh lows unless the current government falls, and that unlikely although the risk is not zero,” said Alvin Tan, an FX strategist at Societe Generale in London. “Volatility is expected to remain high, but we do think that there is upside for sterling. Sterling is very cheap on the long-term basis, partly because of the probability of the no-deal Brexit.”

Ahead of today's May confidence vote, Sky Deputy Political Editor said up to 100 Labour MPs will pivot towards a second referendum this morning. Meanwhile, the UK Government minister told business leaders that there is a backbench motion being prepared to delay Article 50, also says no confidence motion will fail. Elsewhere, BBC's Political Correspondent tweets "Boris Johnson tells me May should ditch backstop, withhold at least half money till free trade deal done, accelerate no deal preparations. Says a new agreement can be reached before March 29." At the same time, Talk Radio's Kempsell tweets, Shadow Chancellor John McDonnell tells me he is not ruling out repeated motions of no confidence contrary to suggestions earlier.

Investors are also betting that the U.S. Federal Reserve will slow its interest rate hikes. On Tuesday U.S. policymakers agreed the Federal Reserve should pause further rate hikes until it is clear how much the U.S. economy will be held back by larger risks like slowing growth in China. Investors “are mainly focused on the outcome of the U.S.-China trade negotiations, but it may take more than a month before it will become clear,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

Treasury yields slipped amid large-size selling of call spreads on 5-, 10-year notes and the 10Y yield rose to 2.738% up from 2.71%, while the dollar recovered as the London session progressed, trading in tight ranges. British government bonds underperformed versus their German peers in early trade, with March gilt futures opening 30 ticks lower at 122.90, underperforming German Bund futures by around 10 ticks.

The mood in markets remains fairly buoyant after China pledged to step up efforts to support growth and Draghi said the euro area will avoid a recession even though recent data signaled softening momentum. Still, there are plenty of worries to give investors pause before taking this month’s rally in equities further. The political impasse in Washington continues to leave swathes of the federal U.S. government shuttered, and the U.K.’s Brexit drama threatens to impair business confidence in the second-largest European economy.

Oil prices firmed after climbing about 3 percent in the previous session as expectations that OPEC-led supply cuts will tighten markets despite signs of a global economic slowdown. Brent crude oil futures were at $61.17 per barrel at 0904 GMT, 0.1 percent above their last close.

Expected data include mortgage applications. Bank of America, BlackRock, Schwab, and Goldman Sachs are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.2% to 2,610.25
  • STOXX Europe 600 up 0.07% to 348.96
  • MXAP down 0.05% to 152.37
  • MXAPJ up 0.2% to 494.28
  • Nikkei down 0.6% to 20,442.75
  • Topix down 0.3% to 1,537.77
  • Hang Seng Index up 0.3% to 26,902.10
  • Shanghai Composite unchanged at 2,570.42
  • Sensex up 0.08% to 36,348.11
  • Australia S&P/ASX 200 up 0.4% to 5,835.16
  • Kospi up 0.4% to 2,106.10
  • German 10Y yield rose 2.2 bps to 0.228%
  • Euro up 0.06% to $1.1420
  • Italian 10Y yield rose 3.0 bps to 2.513%
  • Spanish 10Y yield fell 0.9 bps to 1.381%
  • Brent futures little changed at $60.64/bbl
  • Gold spot little changed at $1,289.58
  • U.S. Dollar Index little changed at 95.96

Top Overnight News

  • The Trump administration has ordered thousands of furloughed federal employees back to work without pay to inspect planes, issue tax refunds, monitor food safety and facilitate the sale of offshore oil drilling rights
  • The EU is refusing to remove the Irish-border element that U.K. lawmakers most oppose
  • The European Union said it was horrified by the massive scale of the U.K. Parliament defeat of the Brexit deal agreed with PM May but said there was no option to renegotiate. Brexit pushes Britain to brink as government fights for survival
  • On an hour- long conference call following Parliament’s overwhelming rejection of the government’s deal to leave the EU, Chancellor of the Exchequer Philip Hammond floated the possibility of delaying the departure beyond the March 29 deadline, according to four people with knowledge of the call
  • China’s central bank injected a net 560b yuan ($83b) into the financial system through open-market operations, the biggest one-day addition on record
  • BOE Governor Mark Carney told lawmakers in London that the rebound in the pound after Prime minister May’s Brexit vote defeat would appear to reflect some expectation that the process of resolution would be extended and that the prospect of no deal may have been diminished; said the BOE is in discussions with the U.K. Treasury about the powers it needs to smooth any financial ructions if the country leaves the EU without a deal
  • The German government is planning to extend the contract of Bundesbank President Jens Weidmann by another eight years when it expires at the end of April, according to people familiar with the matter
  • The euro-area economy isn’t headed for a recession, even though softening momentum underscores the need for ECB stimulus, according to President Mario Draghi
  • China’s central bank boosted injections via open-market operations to the most on record to meet seasonal demand for cash due to tax payments and major holidays
  • Federal Reserve Bank of Kansas City President Esther George, who has been one of the most hawkish members of the central bank’s policy group, urged her peers to be patient and pause before considering additional rate increases.
  • Sweden’s Social Democratic leader Stefan Lofven is poised for another four years in power after convincing the Left Party to support his new centrist government, shutting out the nationalists from influence

Asian equity markets traded mixed as the region struggled for firm direction after the tech-led gains on Wall St. and PM May’s Brexit deal defeat in parliament. ASX 200 (+0.4%) finished positive as gains in tech and financials eventually outweighed the weakness across the commodity-related sectors, while Nikkei 225 (-0.6%) suffered the fallout from a firmer currency. Hang Seng (+0.3%) and Shanghai Comp. (Unch.) conformed to the indecisive tone but with the mainland kept afloat for most the session after stronger than expected Loans and Aggregate Financing data, while the PBoC also conducted its largest ever daily net liquidity injection heading into next month’s Chinese New Year celebrations in which it cited rapidly falling liquidity due to tax payments. Finally, 10yr JGBs eked only minimal gains despite the underperformance of riskier assets in Japan and firmer results in the latest 5yr JGB auction.

Top Asian News

  • BOJ Is Said to Cut Inflation Forecast on Cheaper Oil
  • Another Xiaomi Stock Sale Adds Grease to $32 Billion Rout
  • World’s Most Valuable Startup Takes a Hit From China’s Slowdown
  • China Injects Record Funds to Counter Tax, Holiday Cash Demand
  • Top China Fund Sees Bonds Trouncing Stocks Again This Year

Major European equities are mixed after trimming opening gains [Euro Stoxx 50 -0.1%] with outperformance seen in the FTSE MIB (+0.5%) where banking names are up, in particular UniCredit (+2.6%) at the top of the index following the Co. stating they consider their NPE coverage to be fully adequate. Sectors are largely in the green, with financial names outperforming; in particular the Stoxx 600 Banking sector is up by over 1% as some are interpreting the governments Brexit defeat as reducing the likelihood of Britain crashing out of the EU. Other notable movers include Hammerson (+1.7%) after being upgraded at Deutsche Bank and Ryanair (+2.1%) who are up in sympathy following United Continental Holdings posting a beat on their top and bottom line overnight; were subsequently up 6% after-market. Elsewhere, Deutsche Bank (+1.7%) and Commerzbank (+1.5%) are up following reports that German officials have spoken to watchdogs regarding a potential deal between the two.

Top European News

  • Reckitt CEO Kapoor to Leave After 8 Years Capped by Setbacks
  • BASF Is Said to Weigh Pigments Unit Sale as Rival Also Exits
  • Denmark’s DSV Bids $4 Billion for Swiss Freight Rival Panalpina
  • Banks Are Said to Seek Exemptions in Looming Romania ‘Greed Tax’
  • Cineworld Slips; CFO Notes Cost of ‘80s’ U.S. Cinemas Refurbs

In FX, the DXY was little changed following last night’s advances in which the index attempted, but failed to breach 96.000 to the upside, while it creeps closer to the top of a 95.850-96.080 range.  Impetus for the buck was initially provided following yesterday’s comments from US Senator Grassley who cited USTR Lighthizer as US-China talks showed little progress in key issues. The dollar then came off highs as Fed hawk (and voter) George noted that it might be a good time to pause on rate hikes. Subsequently DXY fell to around 95.850 amid the Fed member’s shift in stance before recouping losses. In terms of technical DXY eyes its 100 DMA at 96.03 to the upside, though looking ahead, US retail sales have been postponed amid the ongoing US government shutdown.

  • GBP - The calm after the storm as PM May’s deal was defeated by a historical 230 votes shortly before Labour leader Corbyn tabled a motion of no confidence (as expected), scheduled for 1900GMT today. The move higher came amid hopes that Article 50 will be extended past March 29th as PM May will attempt to conjure up a revised deal with the EU or face a hard-Brexit which is unfavoured by most UK MPs. However, the EU made it clear that renegotiations will not be open, while Commons leader Leadsom mentioned that the UK Government is not looking to postpone the Brexit date ahead of tonight’s vote of no confidence. The Pound was largely unreactive to Corbyn’s no confidence motion as the Conservative party and the DUP (alongside some Labour MPs) are likely to support the Government rather than amplify the chaos in Parliament. Moving on, on the data front, Sterling side-line the release of inflation figures which largely printed in-line with expectations. Cable currently resides just below 1.2900, just above its 100 HMA at 1.2857 after having tested the big figure to the upside on multiple occasions.
  • EUR, JPY- Meanwhile, the EUR is relatively flat against the buck as a lack of fresh catalysts (and all eyes on Brexit) largely shelved the single currency as it moves in tandem to the greenback. EUR/USD further extends losses below 1.1450 and fluctuates on either side of the 1.1400 level ahead of its 50 DMA at 1.1380. Of note, 950mln in options expiries are seen at strike 1.1380-1.1400. Similarly, with the Yen overnight safe-haven driven gains were largely neutralised by the strengthening dollar as USD/JPY rises to the top of a 108.38-73 range with almost 1.7bln in option expiries scattered between 108.75-109.00.
  • TRY – The Turkish Central Bank left rates unchanged at with their main rate at 24.00% while largely reiterating its tight stance, stating that the CB are to further monetary policy tightening will be delivered if needed. As such USD/TRY fell from 5.4134 to an intraday low of 5.3800 before pairing back a third of the move.

In commodities, Brent (-0.1%) and WTI (-0.5%) are drifting further into negative territory, with WTI losing the USD 52.00/bbl handle. As the positive market sentiment following yesterday’s 0.560mln draw in API crude inventories begins to fade; despite a 3% rally in the previous session on the back of this. Elsewhere, ARA region crude inventories rose 2.4mln/bbl to 51.3mln/bbl for the week ending January 11th. Markets will be looking ahead to today’s weekly EIA release, where crude stocks are expected to post a draw of 1.5mln. Gold (-0.1%) is relatively flat, but towards the bottom of it’s slim USD 4/oz range; as the dollar remains relatively uneventful and FX market reaction to the Brexit vote defeat is largely positive as the prospect of a no-deal has lessened. Separately, the US Senate has voted to advance a resolution which criticises sanctions on companies tied to Oleg Deripaska, which includes Rusal.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 23.5%
  • 8:30am: Retail sales data postponed by govt shutdown
  • 8:30am: Import Price Index MoM, est. -1.3%, prior -1.6%; 8:30am: Import Price Index YoY, est. -0.8%, prior 0.7%
  • 10am: Business inventories data postponed by govt shutdown
  • 10am: NAHB Housing Market Index, est. 56, prior 56
  • 2pm: U.S. Federal Reserve Releases Beige Book
  • 4pm: TIC Flows data postponed by govt shutdown

DB's Jim Reid concludes the overnight wrap

I got back late last night from Brussels and I suspect that many more U.K. politicians and Brexit negotiators will be making the opposite journey in the days and weeks ahead. To cut to the chase the DB house view is that in spite of the biggest defeat for a U.K. government (432-202) on record in the big Brexit vote, last night’s news flow was very positive for the pound and very supportive of a soft Brexit.

We’ll come to why it was so positive but first the detail. Some 118 Tory MPs broke ranks to vote against the deal as did all 10 DUP members. PM May slightly outflanked the opposition and offered them the chance to hold a no-confidence vote today, which stole Mr Corbyn thunder a bit, but he promptly demanded one. This will likely be a non-event and actually gives the Government a chance to get a confidence-restoring win with the DUP and the hard Brexit ERG Conservative group almost immediately saying they’ll back the Government. Amusingly, the 6 hour debate and 7pm vote was scheduled to follow a short lunchtime bill today that asks for low letter boxes to be banned to save postmen’s backs and to stop them being attacked by cats and dogs. Hopefully this bill survives as it will be good to see that Parliament can still get other business done in the midst of such political turmoil.

The reason DB feels this was a positive night for Sterling was that PM May surprised by immediately agreeing to cross-party talks to determine a way forward on Brexit. The exact quote from May was “... if the House confirms its confidence in this government I will then hold meetings with my colleagues, our confidence and supply partner the DUP and senior parliamentarians from across the House to identify what would be required to secure the backing of the House. The government will approach these meetings in a constructive spirit, but given the urgent need to make progress, we must focus on ideas that are genuinely negotiable and have sufficient support in this House… if these meetings yield such ideas, the government will then explore them with the European Union”.

On the positive side, since there is a large parliamentary majority in favour of a soft Brexit outcome, possibly in the form of membership of the customs union, the odds of a market-friendly outcome have risen sharply. If you were looking for doubts though then you might say a) Mrs May comments were slightly vague in who she would have cross party talks with. Is senior Parliamentarians wide enough? Will it include Jeremy Corbyn?, b) is there a consensus for anything in Parliament that the EU would accept?, c) previously the Labour Party’s executive have said that if they can’t get a general election (they likely won’t after their first attempt tomorrow) they will move policy towards a second referendum. If such an outcome materialises it might confuse the issue. It would also result in a more binary outcome and increase the risk of leaving with no deal. It could be very positive or negative, and d) how will the Conservative Brexiters react to a softer Brexit? Do they have any power? So these and many more questions remain unresolved but on balance last night opened the way to much more benign Brexit.

On c) above, Sky News reported overnight that up to 100 Labour members will shift to calling for a second referendum today, in an apparent effort to pressure Corbyn into supporting one after the confidence vote likely fails. This might complicate cross-party talks as PM May made it quite clear when extending an olive branch that the U.K. is definitely leaving the EU, so we could reach an impasse very quickly if Labour adopts this strategy. Plus, May’s spokesman said that she remains committed to an independent trade policy, which would preclude a compromise deal that includes membership in the customs union. So it remains to be seen what sort of compromise could emerge from any cross-party negotiations.

DB’s Oliver Harvey has published a special report titled “It’s time to buy the pound,” available here . He outlines the current state of play and the main risks to the view, which are: a) May losing the confidence vote today, b) May reneging on her pledge to seek a cross-party compromise, or c) parliament’s deliberations resulting in a consensus for a second referendum. The last is probably the biggest risk, but Oli is still confident that the most likely scenario is a pivot toward a softer Brexit.

In market terms the pound had depreciated -1.31% ahead of the vote, as defeat for May looked likely, but it completely pared its losses versus the dollar after PM May's speech and her apparent pivot toward cross-party compromise. This was helped by support announced in May’s favour in the confidence vote. Futures on the FTSE 100 traded -0.47% lower after the European close, reflecting the impact of the stronger pound. Sterling is trading largely flat (-0.06%) this morning.

In reaction from the EU to the Brexit vote, officials in Brussels ruled out the prospect of an extraordinary summit of the 27 EU leaders any time soon saying there’s little to discuss if lawmakers in the UK can’t decide what they want while most diplomats said they were stunned by the extent of the loss. Elsewhere, the EC President Jean-Claude Juncker told the UK, “Time is almost up” while, French President Emmanuel Macron said that the EU won’t offer any more concessions to the UK to solve “an internal UK politics problem” and added that ‘I will be very vigilant on that, we went as far as we could.”

Prior to last night’s main event it had for the most part already been a constructive session for risk assets, helped mostly by the China fiscal headlines from earlier in the morning. That said, there was some reasonable divergence across the main US equity markets with the NASDAQ (+1.71%) leading the way in part due to a price hike by Netflix which analysts deemed will be successful (+6.52%) while the NYSE FANG index (+2.72%) turned in its third >2% move of 2019 already. The S&P 500 finished +1.07% as banks lagged a bit (+0.78%) following JP Morgan’s results – more on that shortly – while the DOW closed up a more modest +0.65%. Earlier in the day we’d seen the STOXX 600 end +0.35% and the FTSE 100 +0.58% with the latter benefit from a weakening Pound during the European session.

Elsewhere credit markets were pretty quiet with US and European HY spreads ending -4bps and -2bps tighter respectively. Yesterday we published a short note detailing our updated spread forecasts in light of the moves in credit spreads since we published our 2019 outlook in mid-November. Our qualitative expectations of moderate spread widening by year end with a bear market rally in the first few months of the year still holds. Click here for the link to the report.

Treasuries ended up pretty much unchanged and appear to have finally found a floor for now in the 2.60% to 2.70% range. Bunds (-2.4bps) were a touch stronger although the reality is that they are still in the middle of the 12bps YTD range with ECB President Draghi doing little to shake things up – confirming that “recent economic developments have been weaker than expected and uncertainties remain prominent”. Elsewhere, BTPs (+3.1bps) actually underperformed despite reports of over €35bn of bids for Italy’s first syndicated deal this year (about 10% higher than a sale last year) and Italian bank stocks dropped -2.19% after Il Sole 24 Ore reported that the ECB is implementing new rules on non-performing loans. The banks will have seven years to fully provision for current and future potential losses. Gilts were down -3.9bps and tracked the Sterling move while the eye catching move in the commodity complex came once again from oil where WTI darted back up +2.93% following two days of declines.

Turning to Fedspeak, the most notable comments came from Kansas City Fed President George, who is a voter this year and has recently been the most hawkish member of the committee. She said that another hike "is not urgent" and that called for "patience in considering our policy actions." So a definite shift away from the hawkish end of the spectrum and toward the center of the committee, which is consistent with no rate hikes until June. Separately, Politico reported that Liu He has formally accepted the invitation to meet with US officials in Washington on January 30-31, as expected. So the twin supports of a more dovish Fed and positive progress on the trade front continued to support markets yesterday.

This morning in Asia markets are trading mixed with the Nikkei (-0.58%) leading the decline on a strengthening yen (+0.18%) while the Hang Seng (-0.09%) and Shanghai Comp (-0.06%) are off their lows and trading flattish with the Kospi (+0.37%) up. Meanwhile, the PBoC injected CNY 560bn into the financial system on Wednesday, the biggest one-day addition on record, to meet seasonal demand for cash due to tax payments and major holidays. China’s onshore yuan is down -0.11% on the liquidity injection. In other overnight news, Bloomberg reported (citing sources) that the BoJ is almost certain to cut its inflation forecast for the fiscal year starting in April citing the sharp fall in oil prices, the government’s decision to make pre-school education free and looming cuts to mobile phone charges as the reasons. The BoJ’s next board meeting and policy decision is scheduled on January 23. Elsewhere, futures on S&P 500 are up +0.24%.

Coming back to yesterday and those JP Morgan earnings that we highlighted above, the bank’s share price opened -2.32% lower but rallied to close +0.73% after earnings missed. Similar to Citigroup the day prior, fixed income sales and trading revenues came in much weaker than expected and in fact down 18% yoy and the weakest Q4 revenue in a decade. This was partially offset by strong investment banking revenues, though loan provisions were larger than expected too. Wells Fargo shares fell -1.55% as revenues and expenses both disappointed and management said they expect to operate under the Federal Reserve-mandated asset cap through end-2019, rather than through June as previously expected. A reminder that today we get results from Bank of America and Goldman Sachs.

In other news, yesterday’s economic data in the US was softer than expected but didn’t appear to really phase markets. The January empire manufacturing reading printed at just +3.9 which compared to expectations for +10.0 and an upwardly revised +11.5 in December. That was actually the lowest reading since May 2017 while the expectations component (+17.8) also hit the lowest since February 2016. That also leaves the ISM-adjusted empire index at 51.9 and the lowest since January 2017. So a marked deterioration to start the year, but not a shift into contractionary or recessionary territory. It’ll be worth seeing if the Philly Fed district report conveys a similar message to this tomorrow.

In addition to that, the December PPI reading also aired on the disappointing side at both the headline (-0.2% mom vs. -0.1% expected) and core (-0.1% mom vs. +0.1% expected) levels. That said health care PPI was solid at +0.15% which therefore points to upside for the health care component of PCE inflation and therefore the broader core PCE, which our economists expect to print around 1.89% later this month (or later, depending on the US government shutdown).

Here in Europe the main data focus was Germany’s 2018 GDP reading which hit expectations at 1.5%. Importantly, that implies only modest growth for Q4 (but at least likely positive after recent fears of a negative print) and while our economists had expected some positive payback after the WLTP shock to push growth temporarily above trend in Q1 2019, they have seen very limited evidence of this so far and as such estimate Q1 GDP at around +0.25% qoq. The result of this is a downward revision to their 2019 growth forecast in Germany to 1% from 1.3% previously. Given the recent weakness in the Euro area macroeconomic data, the ECB President Draghi said in his address to the European parliament yesterday that the Euro-area economy is not heading towards recession but to a slowdown and “it could be longer than expected.”

Other than digesting the fallout from last night’s Parliament vote in the UK today and preparing for the confidence vote, we’ll also have the December inflation data docket here in the UK to keep an eye on this morning, while there’s also the final December CPI prints due in Germany and Italy. Given the government shutdown in the US the retail sales report is to be postponed along with business inventories, leaving the December import price index and January NAHB hosing market index data as the only releases due. The Fed’s Beige Book is also due out this evening. Meanwhile the Fed’s Kashkari is due to speak late this evening while the BoE’s Carney and ECB’s Nowotny speak this morning. Earnings wise it’s the turn of Bank of America and Goldman Sachs today.

 

Published:1/16/2019 6:09:01 AM
[Markets] Nasdaq regains 7,000 level, ends above its 50-day moving average for first time in about 3 months The Nasdaq Composite Index on Tuesday closed sharply higher, putting the technology and internet-related gauge to a finish above its short-term average for the first time since early October. The Nasdaq booked a 1.7% gain to end at 7,023.83. That places the index above its 50-day moving average at 6,996.25, for the first time since Oct. 3, according to FactSet data. Market technicians watch moving averages to help assess bullish and bearish momentum in an asset. To be sure, the Nasdaq still remains in a bear market, after dropping by at least 20% from its recent peak. The Nasdaq stands about 13% below its Aug. 29 high at 8,109.69. Meanwhile, the Dow Jones Industrial Average and the S&P 500 index also closed higher. Published:1/15/2019 3:34:24 PM
[Markets] Dow Shakes Off Weak JPMorgan Earnings, Nasdaq Surges After Netflix Price Hike The Dow Jones Industrial Average was rising Tuesday despite an earnings miss from JPMorgan Chase & Co. JPMorgan Chase earned $1.98 a share in the fourth quarter, missing analysts' estimates of $2.20 by a wide margin. Delta was up slightly. Published:1/15/2019 12:04:20 PM
[Markets] Bull Or Bear? Comparing Views

Authored by Lance Roberts via RealInvestmentAdvice.com,

As the trumpets sound to signal the start of earnings season, the battle between fundamentals and “hope” begins. While earnings expectations have weakened markedly in recent months, the bulls remain steadfast in their belief the market correction is now over.

As I discussed in this past weekend’s missive :

“‘The stock market just got off to its best start in 13 years. The 7-session start to the year is the best for the Dow, S&P 500 and Nasdaq since 2006.’ – Mark DeCambre via MarketWatch

While headlines like this will certainly get ‘‘clicks’ and ‘likes,’ it is important to keep things is perspective. Despite the rally over the last several sessions, the markets are still roughly 3% lower than where we started 2018, much less the 11% from previous all-time highs.

Importantly, there has been a tremendous amount of ‘technical damage’ done to the market in recent months which will take some time to repair. Important trend lines have been broken, major sell-signals are in place, and major moving averages have crossed each other signaling downward pressure for stocks. 

“While the chart is a bit noisy, just note the vertical red lines. There have only been a total of 6-periods in the last 25-years where all the criteria for a deeper correction have been met. While the 2011 and 2015 markets did NOT fall into more protracted corrections due to massive interventions by Central Banks, the current decline has no such support currently. 

So, while there are many headlines circulating the ‘interweb’ currently suggesting the ‘Great Bear Market Of 2018’ is officially over, I would caution you against getting overly bullish too quickly.”

However, from a portfolio management perspective it is always a valuable exercise to analyze both sides of the argument to make a better investment decision. Therefore, let’s take a look at the technical case for the markets from both a bullish and bearish perspective.

THE BULL CASE

1) Big Rallies Happen Off Big Lows

It isn’t surprising. given the magnitude of the rally following the Christmas Eve low, the “bullish bias” would quickly return. There is precedent for such exuberance as well as recently noted by Bespoke.

As they showed in their table below, whenever there has previously been a sharp fall of more than 15% in a quarter, followed by a sharp rally of at least 10% in the following days, the markets were higher in the near future.

Such a combination of events has only occurred 12 times over the past 75 years, and the market was higher 75% of the time in 3-months and higher 83% of the time in 12-months.

But note that in some of these cases these were big rallies within the context of a bear market such as the rallies in 2001 and 2008.

2) The Fed Has Gone “Dovish”

In recent weeks, the previously “hawkish” Federal Reserve has become much more “dovish” suggesting a “pause”in monetary policy is possible if needed.

This change has not gone unnoticed by the bulls. Since Fed Chair Jerome Powell used the word “patient” when referring to the Fed’s approach to hiking interest rates, stocks went straight up. Given there had seemingly been a disconnect between the Fed, the markets, and the White House, the change was a welcome support for the bulls.

It is also believed the Fed will back off of their balance sheet reductions if needed, although Jerome Powell has not made any public indication such is an option currently.

While not really a “technical measurement,” such a change in monetary policy would certainly provide support for the bulls in the near term.

3) Advance-Decline Line Is Improving

The participation by stocks in the recent bullish advance has been strong enough to push the advance-decline line above the recent downtrend.

Such a rise in participation suggests the momentum behind stocks is supportive enough to push stocks to higher levels and should not be dismissed lightly.

Currently, as shown above, the short-term dynamics of the market have improved sufficiently enough to trigger an early “buy” signal. This suggests a moderate increase in equity exposure is warranted given a proper opportunity. However, to ensure that the current advance is not a “head-fake,” as repeated seen previously, the market will need to reduce the current overbought condition without violating near-term support levels OR reversing the current buy signal.

There is a good bit of work to do to satisfy those conditions, but things are indeed improving.

Let me be VERY CLEAR – this is VERY SHORT-TERM analysis. From a TRADING perspective, there is a tradeable opportunity. This DOES NOT mean the markets are about to begin the next great secular bull market. Caution is highly advised if you are the type of person who doesn’t pay close attention to your portfolio OR have an investment startegy based on “hoping things will get back to even” rather than selling.

THE BEAR CASE

The bear case is more grounded in longer-term price dynamics – weekly and monthly versus daily which suggests the current rally remains a reflexive rally within the confines of a more bearish backdrop.

1) Short-Term: Market Rally On Declining Volume

The recent market rally, while strong, occurred amidst declining volume suggesting more of a short-covering rally rather than a conviction to a “bull market” meme.

Furthermore, the rally which was one of the strongest seen in the last decade, barely retraced 38.2% of the previous decline. In order for the market to reverse the current “bearish” context, it will require a substantial move higher back above the 200-day moving average.

Given the economic and fundamental backdrop currently at play, such a rally will likely prove to be very challenging.

2) Longer-Term Dynamics Still Bearish

If we step back and look at the market from a longer-term perspective, where true price trends are revealed, we see a very different picture emerge. As shown below, the current dynamics of the market are extremely similar to those of the previous two bull market peaks. Given the deterioration in revenues, bottom-line earnings, and weaker economics, the backdrop between today and the end of previous bull markets is consistent. 

In both previous cases, the market peaked in a consolidation process, broke down through longer-term major trend lines, and did so on falling momentum combined with a long-term moving average convergence-divergence (MACD) “sell” signal.

3) Bonds Ain’t “Buyin’ It”

If a “bull market” were truly taking place we should see a flight from “safety” back into “risk.” As shown below, the declines in the stock-bond-ratio has been coincident with both short and long-term market corrections.

Currently, we are not seeing “risk taking” being a predominate factor at the moment. Could this change, absolutely. However, currently, despite the surge in the markets from the December lows, both Treasury yields and the stock/bond ratio have remained fairly firm.

Such continues to suggest the current market rally remains a “counter-trend rally” within the context of an ongoing correction.

*  *  *

What you decide to do with this information is entirely up to you. As I stated, I do think there is enough of a bullish case being built to warrant taking some equity risk on a very short-term basis. 

However, the longer-term dynamics are clearly bearish. When those negative price dynamics are combined with the fundamental and economic backdrop, the “risk” of having excessive exposure to the markets greatly outweighs the potential “reward. “

Could the markets rocket higher as some analysts currently expect? It is quite possible particularly if the Federal Reserve reverses course and becomes much more accommodative.

For now the upside remains limited to roughly 80 points as compared to 230 points of downside.

Those are odds that Las Vegas would just love to give you. 

Published:1/15/2019 11:33:46 AM
[Markets] Dow Rises but Gains Limited by Fall in JPMorgan Shares, Nasdaq Surges The Dow Jones Industrial Average was rising Tuesday but its gains were capped by a decline in shares of JPMorgan Chase & Co. JPMorgan Chase earned $1.98 a share in the fourth quarter, missing analysts' estimates of $2.20 by a wide margin. posted fourth-quarter adjusted profit of $1.30 a share, 3 cents ahead of estimates, but its guidance disappointed Wall Street. Published:1/15/2019 10:36:50 AM
[Markets] IBM target cut at Instinet but stock remains firm's 'preferred defensive play' Instinet analyst Jeffrey Kvaal reduced his price target on shares of International Business Machines Corp. to $160 from $170 on Tuesday, citing unfavorable foreign-exchange trends. Kvaal nonetheless remains upbeat about the stock, maintaining a buy rating and calling shares his "preferred tech defensive play" due to its annuity revenue, low valuation, and potential to return to sales growth. Stifel analyst David Grossman also cut his IBM target price, to $145 from $178, ahead of the company's Jan. 22 earnings report. "IBM is trading at 12x FCF, which suggests the quarter is an unlikely catalyst given the absence of near-term growth," he wrote. Grossman has a buy rating on the shares. IBM shares are inactive in premarket trading Tuesday. The stock has dropped about 15% over the past three months, as the Dow Jones Industrial Average has fallen 5.3%. Published:1/15/2019 8:32:37 AM
[Markets] Global Rally Fizzles As Traders Look Beyond Latest Chinese Stimulus

One week after unveiling its latest monetary easing in the form of an RRR cut, China unveiled yet more stimulus, this time fiscal, announcing it will cut taxes "on a larger scale," increasingly relying on tax cuts as the first line of defense against a slowing economy, in a departure from the infrastructure binges of the past. And while this was sufficient to boost global equities overnight, and helped push most global markets into the green...

... much of the rally fizzled as US equity futures trimmed half of their overnight gains...

... while European stocks were almost unchanged after starting off sharply higher.

Earlier, Asian stocks rose on Tuesday, supported by a bounce in Chinese shares amid hopes for government stimulus following the latest dismal Chinese trade data. MSCI's index of Asia-Pacific shares ex-Japan recovered from early losses and advanced 1.3%. South Korea's Kospi hit a one-month high and Japan's Nikkei added 1 percent as the USDJPY rebounded in early trading.

In China, the CSI300 index of Shanghai and Shenzhen shares was up 1.7% amid expectations of more government policy measures to prop-up a slowing economy while lending data from the country beat estimates in December. The Shanghai Composite closed at session highs, up 1.4%.

China’s state planning agency said on Tuesday it will aim to achieve “a good start” in the first quarter for the economy in a signal of more growth-boosting steps. State television also quoted Chinese Premier Li Keqiang as saying the government is seeking to establish conditions helpful to meeting this year’s economic goals.

As Bloomberg notes, the potential stimulus in China and warm welcome it received from markets reflects the delicate balance underpinning 2019’s risk-asset rebound: The same weak macro data that prompted a sell-off at the end of last year has the potential to spur looser monetary policies and therefore ignite a rally.

Cyclical shares led the gains in Asia-Pacific, with Australian financial shares at their highest since early December while Japanese electronics and machinery makers shares rose to their best levels in six weeks. “It is interesting that cyclicals are leading the gains today. It appears some contrarian investors are starting to buy cyclicals, looking beyond the last economic slowdown,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities. “But I would suspect there will be heavy selling if we go up further, to around 2,650 in the S&P500 and 21,500 in the Nikkei,” Kuramochi added.

The rally carried over to Europe with the Stoxx Europe 600 Index still higher for the fifth day in six, though the rally fizzled as the session progressed as traders discounted China's latest promise stimulus.

Gauges in Hong Kong and Shanghai were among the biggest gainers after senior Chinese officials vowed tax cuts to boost growth,

Contracts on the S&P 500, Nasdaq and Dow Jones indexes all rose, with the EMini briefly breaching the 2,600 resistance level before heading lower.

The dollar strengthened and the yen fell. The euro dropped after German data confirmed the weakest year for growth since 2013 although after German GDP dipped 0.2%, the Federal Statistics Office said the country had narrowly avoided a recession.

Treasuries edged higher as most European bonds gained. The sterling braced for the vote in parliament over the British government’s plan to exit the European Union.

However, despite a barrage of bank earnings, the British pound is expected to steal the limelight later in the day as the Britain's parliament votes on the proposed Brexit deal. On Monday, May urged lawmakers to take a “second look” at her deal, which lawmakers are expected to reject. Such a result could produce a wide range of outcomes, from a disorderly exit from the union to a reversal of Brexit.

“Markets have priced in a rejection of May’s plan and there are many scenarios after that. Still I’d think the most likely outcome is to extend the (March 29) deadline of Brexit,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Indeed, currency option markets are barely pricing in the chances of sharp moves in sterling. The pound’s one-month implied volatility stood at 12.625 percent, above the average for the past year of around 8.8 percent well off 20-percent plus levels seen in the days just before the UK referendum on June 23, 2016.

The pound dropped below $1.29, having hit a two-month high of $1.2930 on Monday after a report, subsequently denied, that a pro-Brexit faction of lawmakers could support May’s deal. Additionally, Germany denied reports that German Chancellor Merket offered concessions to UK PM May; following reports that German Chancellor Merkel has offered PM May certain last-minute assistance, while reports also noted that PM May is considering a 2nd vote on Brexit deal if first one is rejected. German Foreign Minister Maas later said that if the current deal is rejected by UK parliament there could be new talks with the EU. UK cabinet ministers suggested that PM May will be expected to stand down if she is heavily defeated in the Brexit vote, according to source report.

UK Labour MP Benn has confirmed he has pulled amendment this morning as part of an effort by Labour party to table vote of no confidence this evening. The amendment, if passed, would reject the withdrawal agreement, convey a lack of support for no deal and pave the way for MPs to put forward alternative plans for Brexit. Opposition for the amendment comes from Labour leadership believing that it’s passage would offer PM May the opportunity to pull her deal, therefore sparing her a crushing defeat. Furthermore, Sky analysis believes that the UK Government are to lose the meaningful vote by 226 votes.

In geopolitical news President Trump is said to have sent a letter to North Korea leader Kim and reports also noted North Korean official Kim Yong Chol may visit Washington D.C. this week regarding a 2nd Trump-Kim summit. Furthermore, it was also reported that US Secretary of State Pompeo may conduct talks this week with North Korea. Additionally, US President Trump tweeted that he spoke with Turkish President Erdogan in which topics discussed included economic development between US and Turkey, while he also suggested that there is great potential for a significant expansion.

China's Foreign Ministry says facts show China is safe and Canada has arbitrarily detained foreign citizen; adding that the Canadian side can abandon prejudices and quit making irresponsible remarks. Adding that it is clear the Huawei Executive Meng’s case is not normal and is an abuse of legal procedures

Elsewhere in commodities, oil prices also rebounded on supply cuts by producer club OPEC and Russia. International Brent crude oil futures were at $59.80 per barrel, or 1.37 percent from their last close.

Market Snapshot

  • S&P 500 futures up 0.3% to 2,588.75
  • STOXX Europe 600 up 0.4% to 349.02
  • MXAP up 1.1% to 152.24
  • MXAPJ up 1.4% to 492.62
  • Nikkei up 1% to 20,555.29
  • Topix up 0.9% to 1,542.72
  • Hang Seng Index up 2% to 26,830.29
  • Shanghai Composite up 1.4% to 2,570.34
  • Sensex up 1.2% to 36,281.60
  • Australia S&P/ASX 200 up 0.7% to 5,814.56
  • Kospi up 1.6% to 2,097.18
  • German 10Y yield fell 2.6 bps to 0.205%
  • Euro down 0.3% to $1.1432
  • Italian 10Y yield fell 1.1 bps to 2.483%
  • Spanish 10Y yield fell 3.5 bps to 1.384%
  • Brent futures up 0.9% to $59.52/bbl
  • Gold spot down 0.3% to $1,288.12
  • U.S. Dollar Index up 0.2% to 95.84

Top Overnight News

  • British and European Union diplomats are now working on the assumption that the U.K. will leave the bloc later than the planned exit date of March 29 if Prime Minister Theresa May loses Tuesday’s Brexit deal vote in Parliament
  • China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, in a departure from the infrastructure binges of the past
  • China’s credit growth exceeded expectations in December, with the second acceleration in a row indicating the government and central bank’s efforts to spur lending are having an effect
  • Germany’s economy narrowly avoided a recession at the end of 2018 after a slump in industry raised concerns over Europe’s growth engine
  • Swedish Social Democrat leader Stefan Lofven has one day to form consensus for a new government
  • Donald Trump and Turkish President Recep Tayyip Erdogan spoke by phone and tamped down their public rhetoric Monday after the U.S. president warned the country risked economic ruin if it defies him. Wild lira ride awaits if the central bank cut rates
  • OPEC and its allies plan to hold a meeting in March to assess their oil-production accord in Azerbaijan, and then ministers will gather to set policy in April, according to the organization’s top official
  • Kim Jong Un told the world this month that North Korea took steps to stop making nuclear weapons in 2018, a shift from his earlier public statements. The evidence shows production has continued, and possibly expanded

Asian equity markets were mostly higher as sentiment in the region recovered from the recent China-triggered weakness that had been due to disappointing trade data which dragged the US major indices to their first consecutive loss of the year. Nonetheless, risk appetite improved overnight with both ASX 200 (+0.7%) and Nikkei 225 (+0.9%) positive, in which the latter recovered from early selling pressure as it initially tracked the prior day’s losses on return from its long weekend. Elsewhere, Shanghai Comp. (+1.4%) and Hang Seng (+2.0%) were underpinned amid a deluge of comments from Chinese agencies including the Finance Ministry which stated that China will implement larger tax and fee cuts, while the NDRC said China will continue implementing proactive fiscal policies. In addition, the PBoC conducted a respectable liquidity injection of CNY 180bln but expects a rapid decline of banking liquidity in the approaching days, while there were also hopes for an improvement in the trade environment after reports that super tankers carrying 6mln bbls of crude left the Texas coast and are likely heading to China. Finally, 10yr JGBs were subdued as the gains in stocks sapped demand for safe-havens and following the recent similar pressure in T-notes, but with losses stemmed amid the BoJ’s presence for JPY 1tln of JGBs with maturities spread across the curve.

Top Asian News

  • China’s Yuan Defies Dismal Economy to Head for Six-Month High
  • China Is Making Tax Cuts the Key Weapon Against the Slowdown
  • China Adding Stimulus Emboldens Asia Stock Traders to Hit ‘Buy’
  • UBS Asset Turns Bullish on Junk China Property Dollar Bonds

Major European indices are relatively flat [Euro Stoxx 50 +0.1%] as equity markets gave up initial gains post German FY GDP of +1.5%. Marginal underperformance is seen in the FTSE MIB (-0.2%) where banking names such as UBI Banca (-5.7%), Bper Banca (-4.3%) and Banco BPM (-3.8 %) are at the bottom of the index following the ECB asking Italian banks to set aside additional money to fully cover impaired loans by 2026. Sectors are similarly all in the green, with outperformance in materials and industrials. Other notable movers include gambling names after the US Justice Department stated that all online gambling is now illegal; as such William Hill (-1.6%) and Paddy Power (-1.8%) are in the red. At the bottom of the Stoxx 600 are Provident Financial (-18.0%) following the Co stating that they expect 2018 profits to report towards the lower end of market expectations.

Top European News

  • Draghi Readies for First New Year Speech as Economy Falter
  • Brexit Donor Hargreaves Says U.K. May’s Deal Should Be Rejected
  • Hungary Faces Price Dilemma as Core Inflation Quickens Again
  • Russia Has Room to Cut Dollar Reserves by Another $35b, ING Says

In FX, EUR largely on the backfoot amid a strengthening Dollar and following the release of German annual GDP which printed in-line with forecasts at 1.50% Y/Y, the weakest performance in five years with market participants noting that a German technical recession could have been narrowly missed (with the Q4 release scheduled on 14th Feb). EUR/USD sits around the bottom of a 1.1423-91 band ahead of a double-Draghi day, his first speech however provided little in way of monetary policy commentary. Back to the dollar, DXY received a wave of demand shortly after the German numbers with DXY spiking to highs of around 95.900 from overnight lows of 95.450 with State-side news flow on the light side.

JPY, CHF – Conforming more to the bout of dollar strength rather than an unwind in safe-haven positions with both USD/JPY and USD/CHF higher by around 0.4% on the day ahead of the Brexit meaningful vote. USD/JPY advances further above 108.00 after having reclaimed the handle during overnight trade and currently resides nearer to the top of a 108.15-75 range ahead of a Fib a 109.16 with little to report on the options expiry front. Similar action with the Franc as USD/CHF breached 0.9850 to the upside ahead of its 100 and 200 DMAs at 0.9878 and 0.9889 respectively.

  • GBP – Choppy session for the Pound thus far as traders eye the long-awaited House of Commons meaningful vote scheduled for later today (full schedule available on the headline feed), as PM May attempts to accumulate MP backing to pass her deal. According to the Sun’s Political Editor, Senior Tories believe the Premier is poised for a 150-160 vote defeat tonight, though a list of amendments will be released at the start of the Parliamentary session around 12.45GMT with special focus on Murrison amendment (setting an expiry date of 31st December 2021 to the NI backstop) as a way of snatching a narrow defeat. Tory Brexiteers and the DUPs are known to not support a deal which includes a timeless backstop or a unilateral exit clause, Murrison’s amendment seeks to readdress this and if passed, may shore up some support from the rebels, DUP are said to have rejected this amendment in belief the EU will not be bound by the expiry date. Earlier in the day Hilary Benn’s amendment was pulled out amid the opposition leaders’ desire for PM May to suffer a crushing defeat (the amendment, if it was to be passed, would have rejected the withdrawal agreement, convey a lack of support for no deal and pave the way for MPs to put forward alternative plans for Brexit). As such, Cable pared back overnight gains and gave up the 1.2900 handle to test the psychological (and 50 HMA) at 1.2850 to the downside and currently resides at the bottom of a 1.2831-1.2915 intraday range. Meanwhile, Morgan Stanley assumes that Cable at current levels is pricing in a lot of uncertainty and assumes GBP/USD to reach 1.30 in around 6-month and 1.50 by year-end as Cable’s PPP fair value estimate stands at 1.40.

In commodities, Brent (+1.7%) and WTI (+1.6%) are higher as the risk tone improves from the Chinese-trade sparked downturn seen in yesterday’s session, with prices just under the USD 60/bbl and USD 51/bbl respectively. Focus is on the API weekly release later in the day, where crude oil inventories are expected to have declined by 2.5mln/bbl; separately, the EIA are to release their Short-Term Energy Outlook today which contains their expanded forecast discussion. Saudi Energy Minister Al Falih says he sees oil demand growth for the foreseeable future, and that the 1.2mln BPD OPEC+ cut will have a strong impact which will take some time to be reflected within the market. Gold (-0.1%) prices are down as the demand for safe havens has declined with the improvement in risk sentiment; with the yellow metal trading towards the bottom of its USD 5/oz range. Elsewhere, the US Senate are to begin voting today on a resolution which criticises the Trump administration’s decision to reduce sanctions on companies which are connected to Russian oligarch Deripaska; which includes aluminium company Rusal.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 10, prior 10.9
  • 8:30am: PPI Final Demand MoM, est. -0.1%, prior 0.1%; PPI Ex Food and Energy MoM, est. 0.2%, prior 0.3%
  • 8:30am: PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.3%;PPI Ex Food and Energy YoY, est. 2.95%, prior 2.7%

DB's Jim Reid concludes the overnight wrap

If you want to depress yourself this morning read the guidance from the British Nutrition Foundation released yesterday which suggested that for optimum health food portion sizes should be measured by hands, thumbs and fists. After reading it I indeed wanted to use my fists but not for the reason intended by the author.

As examples, if you’re having jacket potatoes the correct portion size is a clenched fist (I might try to use Mike Tyson’s). For cheese it should be the size of two thumbs (I note that the largest thumb ever recorded was a Chinese man who had one measuring 10.2 inches), for pasta or rice two handfuls is the recommended amount (I shall resort to wearing wicket keeping or baseball gloves while cooking). All rather depressing. Maybe instead you should join me in “Dry January”. Yes this month I shall only be indulging in dry white wine, dry champagnes, dry martinis, dry sherry and dry gins and tonics.

You may need a stiff drink to work out what happens next after tonight’s Brexit vote in the House of Commons. On timings the vote is due to take place after the debate finishes at 7pm GMT with votes on amendments coming first. In all likelihood the vote looks set to fail given that PM May has failed to secure the necessary support from MPs in recent weeks. DB’s Oliver Harvey estimates a 20% probability of May resigning post the vote (or cabinet collectively withdrawing support) and an 80% chance of her staying on as leader. In the case of the latter, the government will have to provide an updated strategy by Monday after last week’s surprise amendment that voted to shorten it from over three weeks to three days.

Throwing all the balls into the air, DB’s Oli Harvey believes there are five corresponding scenarios. The most likely scenario (at a 30% probability) is May pivots towards a cross party consensus on a new mandate which would instruct the government to renegotiate the Political Declaration on the Future Relationship towards a softer relationship. For this to be reached, it might be necessary for the Labour Party to call, and lose, a vote of no confidence in the government first. A small extension on Article 50 is probably necessary for this scenario as well as another round of EU negotiations. The other four scenarios are; a 10% chance of May using multiple votes to force through the existing deal in the face of a crash Brexit, a 15% chance of a second referendum, a 15% chance of a new election and a 10% chance of no deal/crash Brexit. Regarding the worst case latter scenario, the news that the EU appears prepared to extend Article 50 to July or beyond does appear to be a material positive to lowering the odds of no deal at all. Anyway more in Oli’s note from yesterday here .

Ahead of vote today on PM May’s deal, the Commons Speaker, John Bercow will select amendments from those suggested by MPs. The amendments to be considered range from Labour’s, which rejects the current deal while also repudiating a no-deal Brexit and calling for the Government to examine all available options, to the Lib-Dem’s, which calls for a second referendum. A vast majority of others are related to the Northern Ireland backstop arrangement with the Conservative MP Andrew Murrison calling for an amendment that would put a time limit on the Northern Ireland backstop, aimed at reducing the scale of the expected government defeat. Meanwhile, Labour MP Hilary Benn is withdrawing his amendment, which had cross-party support and rejected both the current deal and a no-deal outcome (similar to Labour’s proposal). Mrs May is reportedly considering amendments which would put time limits on the Northern Ireland backstop, in an effort to regain support from the DUP. Such a framework has already been rejected by the EU, so it’s not clear how useful a winning vote on this would be. Sterling is up +0.26% in early trade this morning ahead of today’s vote.

Onto markets and for only the third time this year US equities closed lower across the board yesterday as that soft trade data out of China in the morning, in addition to a bit of general fatigue for risk assets following the recent strong run, appeared to be enough of an excuse for investors to pull back a little. The S&P 500, NASADQ and DOW closed -0.53%, -0.94% and -0.36% respectively although at one stage it looked like it might have been worse firstly with PG&E (-53.36%) taking the wider utilities sector (-2.23%) down after announcing plans to file for Chapter 11 and then Citigroup reporting lower than expected Q4 revenues. However, the latter never really fed its way through to the wider banks sector with Citi’s shares, actually closing up +3.95% after the CEO said that conditions have improved so far in January. Plus, digging into the results, credit quality improved for both corporate and consumer loans, and expenses declined. The wider S&P Banks sector ending +1.36% in what was a rare bright spot for the broader index. JP Morgan and Wells Fargo, two of the three largest US banks by market cap, are due to report earnings later today.

Meanwhile, US HY cash spreads edged +4bps wider, while 10-year Treasury yields traded flat. Two-year yields rallied -0.6bps, helping the 2s10s curve to steepen slightly at 16.5bps and more or less in the middle of the range since the start of December. The USD was a touch weaker, as Fed Vice Chair Clarida reiterated his recent guidance in an interview. He said the Fed can afford to be patient and assess policy "meeting by meeting", so continuing to signal no immediate urgency to raise rates. WTI oil ticked down -1.61% to mark the first two-day decline for oil this year.

A quick refresh of our screens this morning indicates that risk-on is back in Asia with the Nikkei (+0.80%), Hang Seng (+1.54%), Shanghai Comp (+0.96%) and Kospi (+1.31%) all up as China indicated that it will cut taxes “on a larger scale” to help support its slowing economy, according to agreements reached by top leadership at the economic work conference last month. China’s onshore yuan is up +0.23% alongside most Asian currencies. Elsewhere, futures on the S&P 500 are up +0.58% while crude oil prices (WTI +1.15% and Brent +1.12%) are also trading higher.

Aside from the China data yesterday, the only other major release of note came in Europe with the November industrial production reading for the Euro Area. The data was worse than feared at -1.7% mom (vs. -1.5% expected) and means the year-on-year reading is now down to -3.3% and the lowest since 2012. In Germany, wholesale prices fell -1.2% mom, the sharpest drop since 2014 and the second sharpest since 2009. There is increasing chatter about a technical recession being possible in Germany for Q4 and Q1 so data like this isn’t helping rule that out.

To the day ahead now, where the early data releases in Europe this morning include the final December CPI revisions in France and the final 2018 GDP reading for Germany. For the latter the consensus is expecting a 1.5% increase in real GDP after 2.2% in 2017 (our economists forecast 1.6%). Also out this morning is the November trade balance for the Euro Area, while this afternoon in the US, we’ve got the January empire manufacturing print and December PPI report. The latter is expected to show a -0.1% mom decline in the headline and +0.2% mom increase for the core. Away from the data, we’re due to hear from ECB President Draghi this afternoon, followed by Fed officials Kashkari, George and Kaplan later on. Needless to say the aforementioned Brexit vote this evening will be a big focus while the key companies reporting earnings include JP Morgan, Wells Fargo, Delta Airlines and UnitedHealth.

Published:1/15/2019 6:02:11 AM
[Markets] The Dow Falls 86 Points on a Chinese Slowdown Worries about a downturn in the Chinese economy dragged stocks lower. The Dow Jones Industrial Average dropped 0.4% to 23,909.84. The S&P 500 fell 0.5% to 2582.61, and the Nasdaq Composite slumped 0.9% to 6905.92. Published:1/14/2019 4:28:46 PM
[Markets] Oil’s Rise Wasn’t the Only Driver of Energy’s Score Last Week Energy's Performance Last Week—and What's on the Agenda This Week (Continued from Prior Part) ## US equity indexes Between January 4 and January 11, US equity indexes rose. The S&P Mid-Cap 400 (IVOO), the S&P 500 Index (SPY), and the Dow Jones Industrial Average (DIA) rose 4.7%, 2.5%, and 2.4%, respectively. Energy stocks make up 5.1%, 5.9%, and 5.2% of these indexes, respectively. ## Oil, the broader market, and energy ETFs Last week, US crude oil February futures rose 7.6%, while the Energy Select Sector SPDR ETF (XLE) rose 3.6%. XLE rose the fourth-most among sector-specific SPDR ETFs. In addition to oil’s rise, broader market indexes may have had a significant role in XLE’s rise. Equity indexes have recovered due to China-US trade talks.  However, the factors we discussed in the previous article could be a concern for these equity indexes. Last week, the Industrial Select Sector SPDR ETF (XLI) rose 4.2%—the most among sector-specific SPDR ETFs. The Consumer Staples Select Sector SPDR ETF (XLP) rose 0.7%—the least among sector-specific SPDR ETFs in the week that ended on January 11. All sector-specific SPDR ETFs rose last week. ## Energy ETFs Last week, major energy subsector ETFs’ performances were as follows: * The VanEck Vectors Oil Services ETF (OIH) rose 7.8%. * The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 6.2%. * The VanEck Vectors Oil Refiners ETF (CRAK) rose 2.1%. * The Alerian MLP ETF (AMLP) rose 1.9%. The broader market’s and oil prices’ rises may also have been behind these energy ETFs’ rises last week. Continue to Next Part Browse this series on Market Realist: * Part 1 - The China Factor Could Drag on Oil This Week * Part 3 - These Upstream and Oilfield Stocks Outperformed Energy Last Week * Part 4 - A Look at the Biggest Falls in Energy Last Week Published:1/14/2019 11:57:19 AM
[Markets] Apple's stock is the sharpest Dow decliner Apple's stock is the sharpest Dow decliner Published:1/14/2019 11:27:31 AM
[Markets] Dow industrials down triple digits amid latest concerns about global economy Dow industrials down triple digits amid latest concerns about global economy Published:1/14/2019 9:27:22 AM
[Markets] PG&E's stock plunge weighs on Dow utilities; 28 of 30 Dow industrial components trade down Shares of PG&E Corp. plunged 49% in morning trade, to a more-than 16-year low, after the electric and natural gas utility announced a plan to file for bankruptcy on Jan. 29. The stock is trading at the lowest level seen since October 2012. The price decline was shaving about 7 points off the Dow Jones Utility Average , which was down 19 points, or 2.6%, with all 15 of its components losing ground. Meanwhile, the Dow Jones Industrial Average slumped 174 points, or 0.7%, with 28 of 30 components declining, and the Dow Jones Transportation Average lost 73 points, or 0.8%, with 16 of 20 components falling. Published:1/14/2019 8:57:30 AM
[Markets] Citigroup Stock Slumps, Delta Drops, and 3 More Monday Morning Movers STOCKSTOWATCHTODAY BLOG Worries about slowing global growth were weighing on stocks to start the week, following downbeat import-export data from China. All three indexes were lower in premarket trading, with Dow Jones Industrial Average futures off 0. Published:1/14/2019 8:26:55 AM
[Markets] PG&E's stock loses half its value after plan to file for bankruptcy Shares of PG&E Corp. plummeted 55% in premarket trade Monday, after the gas and electric company said it plans to file for bankruptcy on or about Jan. 29, given the potential liabilities resulting the 2017 and 2018 Northern California wildfires. The utility said it didn't expect the bankruptcy to affect its electric or natural gas customers, and expects its employees to continue to be paid, as it expects to have $5.5 billion of committed debtor-in-possession financing. "During this process, the Company is also committed to continuing to make investments in system safety as it works with regulators, policymakers and other key stakeholders to consider a range of alternatives to provide for the safe delivery of natural gas and electric service for the long-term in an environment that continues to be challenged by climate change," PG&E said in a statement. The stock, on track to open at the lowest level seen during regular session trading hours since August 2002, has plunged 63% over the past three months through Friday, while the Dow Jones Utility Average has slipped 1.4% and the Dow Jones Industrial Average has lost 5.3%. Published:1/14/2019 5:57:19 AM
[Markets] Futures Tumble Following Dismal Chinese Trade Data

The torrid post-Christmas rally, which fizzled last Friday, appears to be officially dead just as earnings season begins, with futures sliding early in the session only seeing the drop accelerated after dismal trade data out of China reignited concerns about global growth and ahead of a key Brexit vote on Tuesday, leading to a sea of red in global markets with S&P futures down 1% to session lows around 6am ET, alongside sliding stocks in Europe and Asia. Treasury yields fell to 2.66% while the dollar held steady.

Tech stocks were the biggest losers in the Stoxx Europe 600 Index on renewed fears about a China hard-landing; in Asia, losses were most pronounced in Hong Kong after China posted the worst import and export figures since 2016. The index of Europe's leading 300 shares slipped 0.7 percent in early trade to 1,365 points. Germany's DAX and France's CAC fell around 0.6 percent, with shares in European tech and luxury goods companies and the automotive sector suffering some of the biggest declines.

“We believe trade growth next year will slow significantly on huge uncertainty and high base,” Citi analysts wrote in a note, predicting China’s exports and imports to fall 5.1 percent and 6.8 percent respectively this year. “Significant uncertainty remains as to whether there could be a ‘deal’ after March 1,” they added.

The falls in Europe followed hefty declines in Asia where MSCI's broadest index of Asia-Pacific ex-Japan shares lost around 1 percent from Friday's 1-1/2 month high - its biggest single-day percentage drop since Jan. 2. Chinese and Hong Kong shares suffered the worst hits.

Early on Monday, China reported dismal trade data with exports unexpectedly falling the most since 2016 in December, while imports also contracted, pointing to further weakness in the world’s second-largest economy in 2019 and deteriorating global demand. Specifically, China December exports tumbled Fall -4.4% Y/y in Dollar Termsthe weakest year-on-year reading since January 2017, and down from +3.9% in November; far below the 2.0% consensus increase, while imports plunged -7.6% from +2.9% in Nov, badly missing the 4.5% expected increase, ironically resulting in the biggest trade surplus on record of $57.1BN. In month-on-month terms, the contraction of exports and imports accelerated further in December. In sequential terms, exports contracted 6.2% mom sa non-annualized, down further from a decrease of 3.4% in November

“Today’s data reflect an end to export front-loading and the start of payback effects, while the global slowdown could also weigh on China’s exports,” Nomura economists wrote in a note, referring to a surge in shipments to the U.S. over much of last year as companies rushed to beat further tariffs.

The large contraction in Chinese imports was broadly consistent with a significant decrease of exports in December from Korea and Taiwan to China. Exports growth has been weaker than expected over the past two months, and sequential momentum has slowed significantly to a contraction since November from a strong rebound in September, which has been probably due to the fading impact from front-loading ahead of 10% tariffs levied on $200bn Chinese goods starting in late September (and ahead of the potential—and so far delayed—increase of tariffs on these goods to 25%). According to Goldman, exports growth is likely to remain soft in the near future, given moderation in global growth momentum suggested by GS Leading Current Activity Indicator, even though a faster-than-expected waning of impact from front-loading could potentially pose less downward pressure for exports in the coming months. Adding to policymakers’ worries, data on Monday also showed China posted its biggest trade surplus with the United States on record in 2018, which could prompt President Donald Trump to turn up the heat on Beijing in their bitter trade dispute.

The dismal December trade readings suggest China’s economy may have cooled faster than expected late in the year, despite a slew of growth-boosting measures in recent months ranging from higher infrastructure spending to tax cuts. Some analysts had already speculated that Beijing may have to speed up and intensify its policy easing and stimulus measures this year after factory activity shrank in December.

Elsewhere, ahead of a critical Brexit vote on Tuesday, UK PM May warned that failure to back her Brexit deal risks a no-deal Brexit and is to say she believes parliament will more likely block Brexit than the UK leave without a deal, according to the PM's office. In separate reports, the UK government commented that any defeat by less than 100 votes on Tuesday would be counted as a good result. Furthermore, reports in The Times noted that Brussels expects the UK to ask for an extension to Article 50 to allow Brexit to be delayed if the House of Commons rejects Theresa May’s deal tomorrow, while there were separate reports that Pro-EU MPs are said to publish draft legislation on Monday for a 2nd referendum.

All this adds to tensions as traders watch the record rally of the last two weeks finally collapse and as the banks are set to report earnings. As Bloomberg notes, this month’s buoyancy in global equities, triggered by signs of progress in U.S.-China trade talks and dovish commentary from Federal Reserve officials, faces a test with the Chinese data underscoring the impact of the trade spat. The next hurdles to clear will be a slew of U.S. bank profit reports and earnings season, amid worries global growth is slowing. Also weighing on sentiment is the partial U.S government shutdown that’s entered its fourth week.

In FX, the Bloomberg Dollar Spot Index was little changed while the yen climbed as Chinese trade data and caution ahead of key earnings curbed risk appetite. The euro hit a session low after data showed euro-zone industrial production contracted 3.3% y/y in November, compared to an estimate of a 2.1% decline; Bunds gained, lagging Treasuries, while Italian bonds fell ahead of possible supply. Sweden’s krona recovered from an earlier decline after inflation data beat analyst estimates, while matching the central bank’s forecast. Finally, the Turkish lira slumped after Trump warned Turkey not to attack Kurdish forces in Syria after a planned U.S. pullout, saying it would be economically devastated if it did so.

The prospect of slowing global growth also roiled commodity markets, with oil prices slipping 1% after initially rising, and industrial metals copper and aluminum losing ground in both London and Shanghai.  Meanwhile safe havens trades benefited from the equity pullback with U.S. 10-year Treasury yields falling to as low as 2.6690 percent - their lowest level in a week - while gold prices gained as Newmont announced it would buy Goldcorp to create the world's largest gold miner.

In geopol news, President Trump tweeted that US is starting long overdue pullout from Syria, while he also threatened to devastate Turkey economically if Turkey hits the Kurds and likewise doesn't want the Kurds to provoke Turkey. Iran suggested it could restart its nuclear program as its nuclear program chief stated that they have started preliminary activities for designing a modern process for 20% uranium enrichment for its reactor in Tehran. In separate news, US President Trump’s reportedly instructed the Pentagon last year to provide military options to strike Iran.

In other news, PG&E (PCG) said to be in discussions with banks about multi-billion dollar bankruptcy financing and may inform employees on Monday it is preparing a bankruptcy filing for January 29th.; the Co’s CEO Williams is leaving with general council John Simon to takeover in the interim. Company shares are down 50% pre-market.

For the U.S. trading day ahead, banks will be in sharp focus as they kick off the earnings season. Quarterly results from Citigroup are due on Monday followed by JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley later in the week. Expectations are dour with profits for U.S. companies forecast to rise 6.4 percent, down from an Oct. 1 estimate of 10.2 percent and a big drop from 2018’s tax cut-fueled gain of more than 20 percent. Investor attention was also on the U.S. government shutdown, now in its 24th day, and with no resolution in sight.

Market Snapshot

  • S&P 500 futures down 1% to 2,569.00
  • STOXX Europe 600 down 0.5% to 347.32
  • MXAP down 0.4% to 150.88
  • MXAPJ down 0.9% to 486.56
  • Nikkei up 1% to 20,359.70
  • Topix up 0.5% to 1,529.73
  • Hang Seng Index down 1.4% to 26,298.33
  • Shanghai Composite down 0.7% to 2,535.77
  • Sensex down 0.4% to 35,862.08
  • Australia S&P/ASX 200 down 0.02% to 5,773.37
  • Kospi down 0.5% to 2,064.52
  • German 10Y yield fell 1.9 bps to 0.22%
  • Euro up 0.02% to $1.1471
  • Italian 10Y yield fell 3.5 bps to 2.493%
  • Spanish 10Y yield fell 1.2 bps to 1.433%
  • Brent futures down 1.8% to $59.40/bbl
  • Gold spot up 0.3% to $1,294.05
  • U.S. Dollar Index little changed at 95.67

Top Overnight News from Bloomberg

  • Trump’s refusal to reopen the U.S. government reflects the growing influence of his acting Chief of Staff Mick Mulvaney and senior adviser Stephen Miller, hard-right conservatives who are closer to the president thanks to turnover within the White House
  • With Washington mired in gridlock and markets flashing all sorts of warning signs, the majority of Americans expects 2019 to be a grim one for their finances, according to a new study
  • Industrial output in the euro area fell the most in almost three years in November, raising questions over the economy’s ability to regain momentum after a broad-based slowdown
  • Greek Prime Minister Alexis Tsipras’s political future is on the line this week after a coalition breakdown prompted him to call a confidence vote in parliament set for Wednesday, raising the risk of an early election
  • Italy’s economy is probably in a phase of stagnation not recession, Finance Minister Giovanni Tria said in a newspaper interview, adding that the country’s deficit will be kept under control
  • Germany should try to head off an economic slowdown by easing the tax burden on companies, according to the new chairwoman of Chancellor Angela Merkel’s Christian Democrats

Asian equity markets began the week subdued following the indecisive close on Wall St last Friday as the US government shutdown extended to its longest in history, while disappointing Chinese trade data and the absence of Japanese participants for Coming of Age Day also contributed to the downbeat sentiment. ASX 200 (Unch.) failed to hold on to early gains as strength in Telecoms and its largest weighted Financials sector was eventually overwhelmed by losses in the broader market, while KOSPI (-0.5%) was lacklustre amid softness in the index heavyweights including Samsung Electronics and Hyundai Motor. Hang Seng (-1.4%) and Shanghai Comp. (-0.7%) were also pressured as Chinese Exports and Imports figures took a further hit from the US-China trade dispute, although losses in the mainland were capped after the PBoC injected liquidity to the interbank market in which it utilized 28-day reverse repos for the first time since June last year. PBoC injected CNY 80bln via 7-day and CNY 20bln in 28-day reverse repos for a net daily injection of CNY 20bln. PBoC set CNY mid-point at 6.7560 (Prev. 6.7909).

Top Asian News

  • China Doubles Foreign Investment Limit in Further Opening
  • CapitaLand CEO Puts Stamp on Developer With $4.4 Billion Deal
  • Etihad Agrees to Raise Stake in India’s Jet to 49%, Report Says
  • Jet Airways Jumps on Report Founder Goyal Is Giving Up Control
  • China Is Said to Extend Foreign Bond Quota for 28 More Firms

Major European Indices are in the red [Euro Stoxx 50 -1.0%], with some underperformance seen in the SMI (-1.1%) weighed on by poor performance in luxury names such as Richemont (-2.1%) and Swatch (-1.0%) following poor Chinese trade data. Other luxury names including Pandora (-6.5%), and LVMH (-3.5%) are in the red on the back of this as well; Burberry (+0.3%) is bucking the luxury trend after being upgraded at Bank of America Merrill Lynch. Sectors are similarly in the red with some slight outperformance seen in healthcare. Other notable movers include Next (-2.9%) in the red after being downgraded at Credit Suisse, and Dialog Semiconductor (+4.3%) after reporting a 7% Y/Y increase in full year revenue.

Top European News

  • Orsted Shares Slump Most Since July as Asset Sale Scuppered
  • Telecom Italia Is Said to Bid for BT’s Scandal-Plagued Business
  • Monte Paschi Drops After ECB Says It Has Capital, Profit Issues
  • Euro-Area Production Slump Adds to Gloom for Economic Outlook
  • Continental AG Issues Gloomy Auto Market Forecast for First Half

In FX, it has been a relatively docile session for the USD thus far as the index sits around the middle of tight 95.527-726 range as the US government shutdown extends to the longest in history. Subsequently, the US data originally scheduled for release today (building permits, advanced goods trade balance and durable goods) have been cancelled.

  • AUD/NZD/CNY/JPY – The major G10 movers, all in the aftermath of below-forecast Chinese trade data as exports and imports both declined to a 6-month low in USD terms vs. expected rises. As such trade-proxy AUD/USD fell around 0.4% to test its 100 DMA at around 0.7180 while NZD/USD declined 0.3% to test its 200 DMA at around 0.6797, ahead of its 50 DMA at 0.6789 as the technicals are still poised to form a golden cross. Meanwhile, global-growth fears sparked safe-haven demand into the Yen as USD/JPY tested 108.00 to the downside ahead of a Fib level at 107.91, of note 1.1bln in option expiries sit between 108.00-15. Finally, the Yuan snapped a three-day winning streak but remains sub-6.80 vs. the greenback, though the currency is of course dampened by the disappointing trade figures, USD/CNY is capped by a firmer PBoC CNY fix of 6.7560 (Prev. 6.7909). In terms of techincals, USD/CNH breached its 50 HMA to the upside at 6.7692 with the 100 HMA above the 6.8000 level. It is also worth noting that Goldman Sachs raised their 3, 6, 12 month USD/CNH forecast to 6.80 (Prev. 6.95), 6.80 (Prev. 7.10) and 6.70 (Prev. 6.90) respectively citing an improvement in sentiment around US-Sino trade talks.
  • GBP, EUR – Both little changed on the day, while the latter is largely fluctuating with the dollar and the Pound awaits tomorrows meaningful vote, which was originally scheduled for December 11th last year. The deal is widely expected to be voted down and BBC reports that around 100 Tory and the 10 DUP MPs are expected to join the Labour and the opposition parties in voting against the deal. In terms of where we stand with Brexit, PM May is to deliver a speech at 15:30 GMT where she will warn that Parliament is more likely to block Brexit rather than let Britain leave without a deal. Furthermore, the assurances provided by Brussels are also understood to not be enough to sway MPs towards PM May’s deal scheduled for 19:00GMT tomorrow. Cable was largely unfazed by the release of the EU assurances which offered little in the way of legally-binding material MPs sough for. From a technical standpoint, Cable recently saw a pop higher and rests just below its 100 DMA at 1.2893 with no notable option expiries for the day. Going back to the EUR, the currency was relatively unmoved by below-forecast industrial production figures following Germany’s dismal IP release last week. EUR/USD is currently below its 100 DMA at 1.1476 and in close proximity to the psychological (and 200 HMA) at 1.1450, while there is nothing notable to report regarding option expiries.
  • TRY – The stand-out EM underperformer as USD/TRY reclaimed 5.50 to the upside amid a tweet by US President Trump over the weekend where he threatened to devastate Turkey if Turkey hits the Kurds, subsequently pouring cold water over what seemed like a fruitful relationship between the countries.

In commodities, Brent (-1.4%) and WTI (-1.6%) prices are in the red, just below USD 60.00/bbl and USD 51.00/bbl respectively, as the risk tone stemming from the ongoing US government shutdown and disappointing Chinese trade data weighs on markets. Regarding China, December oil imports of 10.35mln BPD, down from November’s figure but up from the 7.97mln BPD for December 2017. Separately, Saudi Energy Minister Al Falih stated that in his opinion OPEC+ has taken enough action to balance the oil market this year, and that there is no need for an extraordinary OPEC meeting before April. Gold (+0.4%) is in the green, towards the sessions high of USD 1294.57/oz as the aforementioned risk tone weighs on markets. Elsewhere, China’s 2018 iron ore imports fell -1% Y/Y, the first yearly decline since 2010. In contrast China’s 2018 copper imports increased 12.9% to a record high of 5.3mln tonnes.

US Event Calendar

  • Nothing major scheduled

DB's Jim Reid concludes the overnight wrap

For those disappointed with the news on Friday that Mr Trump has cancelled his trip to the World Economic Forum in Davos next week, then fear not. I’ll be making my debut at the event and will be presenting at two Deutsche Bank hosted events. If you or anyone you work with are attending and would like to come along please let me know and I’ll let you know how to register. I’m hoping Bono finds time away from fixing the world’s problems to attend one of my sessions. Failing that I’d be happy to discuss my views on the yield curve with Angelina Jolie.

That’s for next week. For this it’s all about the Brexit vote, what happens next, and the start of US earnings season. Before we preview this, today marks the 24th day of the US government shutdown eclipsing the previous longest ever (21 days) seen in 1995-96. For markets the main inconvenience so far is the delay in some data releases. This Wednesday’s US retail sales release is the highest profile casualty to date data wise. Our economists highlighted that the 2013 shutdown was calculated to have cost about 0.1% of GDP per week lost. However at 850k furloughed workers, the shutdown over 5 years ago led to double the temporary losses of jobs than the current impasse has created. So the overall economic impact should be minimal for now even if it is distressing for those directly impacted. However the longer it goes on the more the lack of visibility on data will be a problem and the more it will start to make a meaningful impact on the immediate economic outlook. We’re not there yet but we’re also not seemingly near a solution.

Outside of US politics the main story this week will be Brexit. The Withdrawal Agreement vote takes place tomorrow evening but The Times on Saturday suggested that if an earlier amendment (the amendments get voted on first) is passed that rejects the deal but also rejects a no-deal then it’s still possible the vote won’t take place and the government will admit defeat but avoid the actual process. Regardless of what happens it seems possible that the deal won’t pass and we could get a constitutional head scratcher of a week. The opposition Labour Party will likely call a no-confidence motion that they have very little chance of winning but more importantly the weekend press (Bloomberg) is increasingly suggesting that Parliament will try to wrestle control of Brexit from Mrs May after Tuesday. Meanwhile, in a last ditch effort PM May is going to make a speech today appealing to members of Parliament to vote for her deal and at the same time warning them that there’s now more chance of them blocking Brexit than of Britain leaving the European Union without a deal.

Overnight the Guardian has reported that the EU27 is considering extending the Article 50 deadline until July should the UK request it assuming Mrs May loses tomorrow. To extend beyond the Euro Parliamentary elections would show the EU are keen to avoid a no-deal. If true one could argue that we’ll now increasingly likely to get a rolling extension until we get a deal, the U.K. decides to stay in, or there is a Parliamentary majority for a no-deal exit (highly unlikely). This news if verified would ultimately reduce the pathways to a hard, cliff edge Brexit.

As it stands Mrs May needs to come back by next Monday with a plan B if she loses tomorrow (thanks to a constitutionally questionable amendment last week that shortened the required response time from 21 to 3 days). However it appears that procedure in the U.K. Parliament is highly unpredictable at the moment and it wouldn't be a surprise to see more constitutional deviations to standard procedure. . Anyone who says they know exactly how this all ends is either lying or a time traveller. If they are the latter can you ask them whether Liverpool win the league as I wouldn’t mind knowing so as to cut down the tension and stress I’m feeling at the moment. However if the answer is that after waiting 29 years there’s another 29 years further to wait then maybe I’ll be better off blissfully unaware.

On a serious note the direction of travel seems likely to be a pivot towards a softer Brexit or a delay to Brexit if the main motion is defeated tomorrow night. However many bumps are likely on the way.

Meanwhile, earnings season is back in the US with 35 S&P 500 companies set to report this week. The highlights will likely be the banks with Citigroup reporting today, Wells Fargo and JP Morgan tomorrow, Goldman Sachs and Bank of America on Wednesday, and Morgan Stanley on Thursday. UnitedHealth and Delta Airlines are also due to report on Tuesday, Netflix on Wednesday, and Schlumberger and American Express on Thursday. For Q4, earnings growth for the S&P 500 is expected to be 11.4% which compares to around 25% growth reported in each of the previous three quarters. Still, if Q4 comes in in-line this would be the fifth straight quarter of double digits earnings growth. It's worth noting also that over the past five years on average, actual earnings have exceeded estimated earnings by nearly 5% according to Factset. In terms of data we show the full week ahead at the end.

This morning in Asia markets are heading lower with the Hang Seng (-1.43%), Shanghai Comp (-0.56%) and Kospi (-0.66%) all down weighed by the disappointing December trade data from China with both exports (at -4.4% yoy vs. +2.0% yoy expected) and imports (at -7.6% yoy vs. +4.5% yoy expected) declining at a faster pace and at the worst levels since 2016, thereby raising concerns of a slowdown in global growth. The Australian dollar (-0.44%) also came under pressure following China's disappointing trade data even as China's onshore yuan is eking out a small gain (+0.06%). Japan's markets are closed for a holiday. Elsewhere, futures on the S&P 500 are also down -0.73%.

Turning to a recap of last week, Friday turned out to be quite a calm trading session, especially relative to the rest of the week. The highlight was the US’s December CPI data, which printed exactly in-line with consensus expectations. Core prices rose +0.2% mom and +2.2% yoy. Headline inflation moderated a touch, to -0.1% mom and +1.9% yoy, though it was driven by transitory energy dynamics.

On the week, the S&P 500 ended +2.54% higher (-0.01% on Friday), while small caps outperformed with the Russell 2000 up +4.83% (+0.14% Friday). Other major indexes also advanced, with the DOW and NASDAQ gaining +2.40% and +2.78%, respectively (-0.02% and -0.30% Friday). In Europe, the STOXX 600 rose +1.69% on the week (+0.09% Friday) while Italy’s FTSEMIB outperformed, up +2.43% (-0.06% Friday). Asian equities advanced as well, with the Nikkei and Hang Seng indexes up +4.08% and +4.06% (+0.97% and +0.55% Friday) respectively. The main drivers of this broad risk-on sentiment were: positive progress on US-China trade talks, Fed Chair Powell and other Fed officials signaling a pause in the rate hike cycle, and low valuations after December’s steep selloff.

In fixed income, US HY credit stole the show with a -44.5bps rally on the week, its strongest week since March 2016 (+2bps Friday) and 84bps tighter than its recent wides on January 3rd. European HY also gained -28bps (-4bps Friday). Sovereign bond yields rose slightly, with Treasuries and Bunds ending the week +3.0 and +3.1 bps higher at 2.70% and 0.24% (-4.5bps and -1.6bps on Friday). The dollar retreated -0.53% while EM currencies gained +0.36%, though the moves moderated on Friday (dollar +0.14% and EMs -0.14%). The euro ended the week +0.59% stronger at 1.146 (-0.33% Friday). Finally, oil continued its strong rally as well, gaining +6.15% on the week (-1.80% Friday) to close above $60. The two week gain for Brent was 16.05%, the best performance in over two years.

It should be a quiet start to the week on Monday with the only data due out being the Euro Area November industrial production report and China's December trade balance. Meanwhile earnings season gets underway with Citigroup reporting.

Published:1/14/2019 5:57:19 AM
[Markets] "The Big Test" Looms - Bear Market Bounce Or Beginning Abother Bull?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Bull Rallies & Market Tops

Last week, we discussed the fulfillment of our expectations for a bull rally. While the rally was attributed to the rather “dovish” stance taken by Jerome Powell and commentary from the White House on potential progress on resolving the “trade war” with China. The reality is it had little to do with those headlines but was simply a reversal of the previous “exhaustion extreme” of sellers during November and December. 

The rally, as we laid out two weeks ago, continues to work within the expected range back to 2650-2700. 

Importantly, the previous deep “oversold” condition which was supportive of the rally following Christmas Eve has now been fully reversed back into extreme “overbought” territory. While this doesn’t mean the current rally will immediately reverse, it does suggest that upside from current levels is likely limited. 

Nonetheless, the rally from the December lows has been impressive. However, I want to caution investors from extrapolating a deeply oversold bounce into something more than it is.

Beware The Headlines

“The stock market just got off to its best start in 13 years. The 7-session start to the year is the best for the Dow, S&P 500 and Nasdaq since 2006.” – Mark DeCambre via MarketWatch

While headlines like this will certainly get “clicks” and “likes,” it is important to keep things is perspective. Despite the rally over the last several sessions, the markets are still roughly 3% lower than where we started 2018, much less the 11% from previous all-time highs.

Importantly, there has been a tremendous amount of “technical damage” done to the market in recent months which will take some time to repair. Important trend lines have been broken, major sell-signals are in place, and major moving averages have crossed each other signaling downward pressure for stocks. 

While the chart is a bit noisy, just note the vertical red lines. There have only been a total of 6-periods in the last 25-years where all the criteria for a deeper correction have been met. While the 2011 and 2015 markets did NOT fall into more protracted corrections due to massive interventions by Central Banks, the current decline has no such support currently. 

So, while there are many headlines circulating the “interweb” currently suggesting the “Great Bear Market Of 2018”is officially over, I would caution you against getting overly bullish too quickly. 

Tops Are A Process

 As my friend and colleague Doug Kass wrote previously:

“Tops are a process and bottoms are an event, at least most of the time in the stock market. If you looked at an ice cream cone’s profile, the top is generally rounded and the bottom V-shaped. That is how tops and bottoms often look in the stock market, and I believe that the market is forming such a top now.”

He is correct.  

There have been several suggestions as of late that last years slide from October into December was simply a correction. Here is Mark Hulbert’s take:

“The stock market’s recent correction has been more abrupt than you’d expect if the market were in the early stages of a major decline.

I say that because one of the hallmarks of a major market top is that the bear market than ensues is relatively mild at the beginning, only building up a head of steam over several months. Corrections, in contrast, tend to be far sharper and more precipitous.”

However, I disagree.

I think Mark’s mistake is in simply looking at the plunge from the mid-year highs rather than the entire topping process which started in November of 2017. 

After a record breaking number of positive months in 2017 with extremely low volatility; 2018 was a year where volatility returned as prices consolidated in a very broad range. Notice there was important price support being built by the markets by repeatedly testing price levels over time before giving way. 

“So…is the bear market over OR is it just starting?”

The honest answer is “I don’t know.”

But, anything is certainly possible. 

However, a look back through history at previous “bear market beginnings” can certainly give us some things to consider.

1974 

After two previous bear market declines, as I discussed just recently with respect to “Secular Bear Markets,” the S&P 500 broke out to all-time highs convincing the “bulls” the worse was over. 

It wasn’t.

Over the next several months the markets continued in volatile trade,  retesting support several times before breaking down. 

But, at this point, it was still believed just to be a correction.

The change occurred when the market rallied, and failed, at the previously broken support line.

That “failure point” marked the beginning of the “1974 Bear Market.”

1999

After the “Long-Term Capital Management” and the “Asian Contagion,” the market regained its footing and began a rampant run to all-time highs in 1999. The bulls were clearly in charge, and despite concerns of “Y2K,” stocks continued to press new highs. 

While Jim Cramer was busy publishing his list of the “Top 10 Stocks For The Next Decade,” the market begin to struggle to make new highs as volatility rose.

The early decline from “all-time highs” was only considered a correction as the demand by the bulls to “buy the dip”rang out loudly. 

“I think you’ll see healthier and broader advances in the market. Now is the time for optimism,” said Bill Meehan, chief market analyst with Cantor Fitzgerald (4/14/2000)

It wasn’t.

In early 2001, the market broke the support line that had contained the market over the last 24-months. 

Not to worry, it was simply just part of the “correction process” and many commentators on CNBC at the time were suggesting it was a “buying opportunity.” 

It wasn’t. 

The market rallied back, and failed, at the previously broken support line. 

That point marked the end of the topping process and the beginning of the “Dot.com Crash.” 

2007

In 2006, the market was rallying as “real estate” was going wild across the country. Firms were hocking every type of exotic mortgage derivative they could find, leverage being laid on without concern, and pension funds were being pitched “high yield” opportunities. 

As the market broke out to new highs, there was little concern as there was “no recession in sight,” “subprime mortgages were contained,” and it was a “Goldilocks economy.”

Over the next year the market repeatedly hit new highs. Each new high was followed by a decline which tested broadening support giving the bulls repeated opportunities to call for “dip buying.” 

It was believed the year-long consolidation process was simply the “set up” for the continuation of the bull market. 

In early 2008, the running support line was broken as “Bear Stearns” failed sending off alarm bells to which few listened. The market rallied backed, and failed, at the previously broken support line. 

That point marked the end of the topping process and the real beginning of the “Financial Crisis.” 

By now, you should realize the similarities between all of these previous market tops and what is happening currently. However, it wasn’t just price movements that each of these previous bear markets had in common with the market today. 

Fundamental similarities existed also:

  • Valuations were high

  • Dividend yields were low

  • Federal Reserve was hiking interest rates

  • Economy was believed to be strong

  • Earnings were expected to continue to grow

  • Corporate balance sheets were believed to be strong

  • Yield curve was flattening

  • “There was no recession in sight.” 

The Big Test

 Over the next couple of weeks, the market is going to face the “test” that has defined the “bear markets” of the past.

With the markets already back to very overbought conditions, multiple moving averages just overhead, and previously broken support; the market is going to have its work cut out for it. 

However, if the bulls can regain control and push prices back above the November highs, then the “bear market correction of 2018” will officially be dead. 

But such is only one possibility out of many others which pose a far greater risk to capital currently. 

With the Fed continuing to extract liquidity, economic data slowing, and earnings likely to be weaker than expected, the current bounce is likely to be just that. 

As we have continuously repeated, if you didn’t like the November-December decline, it is simply a function that you have built up more uncontrolled risk in your portfolio than you previously realized. 

Use this rally to rebalance risk, sell losers and laggards, and add to fixed income and cash. 

Conclusion

We noted previously that we remain long many of our core holdings and in November and late December added positions in companies which had been discounted due to the market’s downdraft.

This past week, we did reduce our equity exposure by 6% to remove some positions which have not been performing as well as expected. 

The risk to the market remains high, but that doesn’t mean we can’t make money along the way.

Until the bullish trend is returned, we will continue to run our portfolios with a bit higher level of cash, fixed income, and tighter stops on our current long-equity exposure. 

We are excited about the opportunity to finally be able to add a “short book” to our portfolios for the first time since 2008. It is too early in the market transition process to implement such a strategy, but the opportunity is clearly forming. 

Published:1/13/2019 12:23:58 PM
[Markets] As stocks rally, most important skill traders need isn’t when to buy—it’s when (and what) to sell MARKET SNAPSHOT Active money managers have gotten their fair share of bad press in recent years, and for a good reason. Swaths of actively managed equity funds fail to outperform their benchmarks over five, 10, and 15-year times frames, according to S&P Dow Jones Indices. Published:1/12/2019 7:16:12 AM
[Markets] The Crash Of The "Everything Bubble" Started In 2018 - Here's What Comes Next In 2019

Authored by Brandon Smith via Alt-Market.com,

In 2018, a very significant economic change occurred which sealed the fate of the U.S. economy as well as numerous other economies around the globe. This change was the reversal of central bank policy. The era of stimulus and artificial support of various markets, including stocks, is beginning to fade away as the Federal Reserve pursues policy tightening, including higher interest rates and larger cuts to its balance sheet.

I warned of this change under new Chairman Jerome Powell at the beginning of 2018 in my article ‘New Fed Chairman Will Trigger Stock Market Crash In 2018’. The crash had a false start in February/March, as stocks were saved by massive corporate buybacks through the 2nd and 3rd quarters. However, as interest rates edged higher and Trump’s tax cut cash ran thin, corporate stock buybacks began to dwindle in the final quarter of the year.

As I predicted in September in my article ‘The Everything Bubble: When Will It Finally Crash?’, the crash accelerated in December, as the Fed raised interest rates to their neutral rate of inflation and increased balance sheet cuts to $50 billion per month.  In 2019, this crash will continue as the fed resumes cuts once again in mid-January.

It is important to note that when we speak of a crash in alternative economic circles, we are not only talking about stock markets. Mainstream economists often claim that stocks are a predictive indicator for the future health of the wider economy. This is incorrect. Stocks are actually a trailing indicator; they tend to crash well after all other fundamentals have started to decline.

Housing markets have been plunging in terms of sales as well as value. The Fed’s interest rate hikes are translating to much higher mortgage rates in the wake of overly inflated prices and weaker consumer wages. Corporate buyers in real estate, which have been propping up the housing market for years, are now unable to continue life support. Corporate debt across the board is at all-time highs not seen since the crash of 2008, and with higher interest rates, borrowing cheap capital is no longer an option.

In November 2018, home sales posted the steepest decline in over 7 years.

Auto markets, another major indicator of economic stability, have been plunging in extreme fashion. Autos saw steep declines throughout the last half of 2018, once again as higher Fed interest rates killed easy credit ARM-style car loans.

U.S. credit is also drying up as investors pull capital from volatile markets and interest rates rise. Liquidity is disappearing, which means debt is becoming more expensive, or inaccessible to most people and businesses.

A false narrative is being presented in the mainstream on these circumstances – by both the media and central bankers. There has been a considerable amount of “jawboning” by economic authorities and mainstream analysts in an attempt to keep the public distracted from the economic crisis as well as keep the investment world engaged in trading with blinders on. With the propaganda going into overdrive, we must cut through the fog and mirrors, gauging the most important threats within the system and determining when they might escalate.

Make no mistake, as erratic and unstable as 2018 was, 2019 will be far worse.

The Federal Reserve Will Continue Tightening

There is a lie circulating in the media that Jerome Powell and the Fed are “heroic” for “going against” past central bank regimes and removing easy money policies. This is the exact opposite motive behind what is happening. We have to remember that it was the Fed and other central banks that created the initial crash in 2008 through easy money policies. They then deliberately created an even bigger bubble (the “everything bubble”) through more monetary stimulus; a bubble so large that it would collapse the entire U.S. economy including bond markets and the dollar if it ever burst.

This circular process of crisis-stimulus-crisis is one that that the central bank has used for over a century. Former Fed officials like Ben Bernanke and Alan Greenspan have openly admitted to central bank culpability for the Great Depression as well as the crash of 2008. Though, as they do this they also assert that they were “not aware at the time” of the greater danger. I don’t buy that for a second.

In almost every instance during which the Fed created a crash environment, banking institutions were able to use the opportunity to snatch up hard assets for pennies on the dollar, as well as steal more political and social power. During the Great Depression, major banks absorbed thousands of smaller local banks as well as all the assets those banks held. In 2008, banks and corporations enjoyed a deluge of easy money paid for by American taxpayers for generations to come, while also vacuuming up hard assets like distressed home mortgages.

An even greater prize for banking elites is global centralization of economic authority, which is what I believe their goal is as the next engineered crash runs its course. As crisis leads to catastrophe, it will be institutions driven by globalism like the International Monetary Fund (IMF) and Bank for International Settlements (BIS) that step in to “save the day”.

As I have noted time and time again, Jerome Powell is well aware of what will happen as the Fed tightens. He is recorded in the Fed minutes of October 2012 discussing the consequences, including his hint of an impending crash if the Fed shut down stimulus measures, raised interest rates and cut the balance sheet.

Yet, Powell continues tightening all the same, indicating that Fed actions and the results are quite deliberate. Recent statements by Powell have been wrongly interpreted by the mainstream to indicate that the Fed might back off of tightening policies. I predict that this will not happen, at least not until the crash has already run its course.

I expect Powell to continue balance sheet cuts at around $50 billion per month through until perhaps the end of 2019. I also hold to my original prediction last year that the Fed will hike interest rates in 2019, at least two more times, with a hike in March.  The Fed has continued to show a propensity for double talk on "accommodation", and there is a good reason for this...

Stock Markets Will Continue to Plunge

Many alternative economists have been pointing out over the years the direct correlation between the Fed balance sheet and stock market prices. As the Fed bought up assets, the stock market rose exactly in tandem. As the Fed dumps assets, stocks fall with increasing speed and volatility.

If you want a perfect example of this, simply examine the central bank's FRED balance sheet totals and compare them with a year long graph of the S&P500. Do not only look at the stock plunges, but also the stock rallies.   Dramatic cuts in December facilitated the start of the crash; the recent bounce occurred in part due to end of the year investment by corporate pension funds, searching desperately for yield in an environment where bonds are no longer viable or safe.  However, take note that the first week of January also saw Fed cuts flatline.

What does this mean?  Without a massive alternative capital source like stock buybacks in play, every new large Fed asset cut will result in a steep decline around the middle of each month.  Every pause in cuts will result in a bounce, but to lower highs.  The ceiling for rallies and the expectations of investors will gradually dwindle until the reality that the party is over finally hits them.

The Fed’s recent "dovish" comments, in my view, are completely fraudulent and highly calculated. Because the central bank has cut stimulus and raised interest rates to the point that corporations can no longer afford massive buyback binges, there is nothing left to support stocks except disinformation, blind faith, and a 1-2 week pause in balance sheet cuts.

This is a controlled demolition of the economy and markets. The Fed will jawbone as much as possible to keep the system from imploding too fast, because jawboning is the only tool that is left. In the meantime, Powell will keep cutting assets and raising interest rates on schedule. This will inevitably translate into lower prices in equities as the system is “steam valved” down. Blind faith by investors will only go so far. They will be left holding the bag, right along with pensions.

I expect stocks will resume their steep decline through 2019, and will fall well below support levels seen in 2017. If December’s decline was any indication, as long as the Fed continues its current path of balance sheet cuts, I see the Dow in the 17,000 to 18,000 point range in March-April.

Trump Will Get The Blame For The Crash

Trump’s incessant propensity for taking credit for the bull rally in stocks makes him a perfect scapegoat for the ongoing crash. The acceleration in 2019 will be followed by numerous distractions. While Trump has blamed the Federal Reserve for recent stock instability, he has at the same time blamed his own trade war. Trump has attached the success of his presidency to the success of a stock market that he used to call a “big bubble” created by the Fed.

Trump’s trade war along with the government shutdown are just two factors that are already being targeted by the mainstream media and globalist commentators as the causes of the December plunge in equities.

The shutdown might not continue through January if Trump declares a state of emergency and begins the southern border wall, making the budget debate rather moot. That said, I suspect it may continue anyway; this time does feel different.  Consider that if the shutdown enters into February there is the threat that welfare programs like EBT will be delayed, which opens the door to a whole new kind of insanity.  I don't necessarily have anything against the average person seeking welfare in times of personal crisis.  That said, there are millions of Americans who have made a career out of collecting government aid, and their attitude is often one of entitlement.  If and when their revenue and food source is cut off, their reaction may be violent.

The timing of the current shutdown makes it such a useful distraction away from central bank actions that I would be surprised if it was ended in the near term.  The threat of delays on EBT and government welfare would be a very juicy crisis that could be exploited by central banks and globalists

I predict the trade war will continue through 2019, as it has for the past year. Trump will announce “huge” progress on negotiations with China at times in order to jawbone stocks up, but days or weeks later this progress will once again come into question. I realize this is an easy prediction. The trade war farce has followed a rather predictable pattern lately.

Trump has been extraordinarily helpful to the banking elites in this regard. In fact, the Trump Administration seems to add a new escalation in the trade war a week after every major Fed balance sheet cut or rate hike; just in time for stocks to drop violently due to the Fed dump.

Other Predictions For 2019

A "Hard Brexit": Look for the Brexit to enter a possible no-deal scenario with the EU followed by an aggressive economic downturn beyond what is already occurring in Europe.  While this outcome appears to be a longshot right now, it makes sense according to the false narrative globalists are building - the narrative that "populists" are a reckless and destructive influence that is leading to economic disaster.

Turkey Leaving NATO: This seems like a done deal already.  Turkey is positioning to couple to Eastern powers like China and Russia through various trade agreements and strategic deals, and abandoning ties to the West.  While this has the potential to drag on for a few more years, I believe it will happen quickly - by the end of 2019.

Martial Law Conditions In France: The "yellow vest" protests are going to continue through 2019, and will probably become more volatile as Emmanuel Macron attempts to tighten control.  Look for protests to grow in spring and summer as the weather warms up.  Macron has not been shy about using his totalitarian toolbox.  I expect him to declare a condition of national emergency with martial law-like powers in place as soon as the end of this year.  Whether or not this was an intended outcome by the globalists Macron so closely associates with, I do not yet know.  We have not heard much in terms of specific demands or ideological views from the Yellow Vests.  Understanding the goals and motives of both sides will determine if there is a false paradigm in play or if the Yellow Vests are a true grassroots movement.

Summary

To summarize, the crash of the “everything bubble” has been deliberately initiated by central bankers. The worst is yet to come in 2019.

Trump has made himself a sacrificial goat for the banking elites, and his administration will be taking the blame by the end of this year regardless of the facts surrounding the Federal Reserve’s program of controlled demolition.  The year of 2018 was the beginning of the next phase of engineered crisis, 2019 will see the crash hit the mainstream consciousness not to mention the doorsteps and wallets of the general public.

*  *  *

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Published:1/11/2019 3:40:12 PM
[Markets] Stocks snap 5-day winning streak but log strong weekly gains U.S. stocks close lower Thursday, snapping a five-day streak that helped to drive the Dow and the S&P 500 out of correction territory. But major indexes posted robust gains for a third week in a row. Published:1/11/2019 3:40:12 PM
[Markets] Market Snapshot: Stocks snap 5-day winning streak but log strong weekly gains U.S. stocks close lower Thursday, snapping a five-day streak that helped to drive the Dow and the S&P 500 out of correction territory. But major indexes posted robust gains for a third week in a row.
Published:1/11/2019 3:40:12 PM
[Markets] Dow Falls as Stocks Trade Lower Following Five-Day Rally The Dow Jones Industrial Average was trading to the downside Friday, putting in jeopardy the blue chip index's five-day winning streak. rose 4% to $337.60 on Friday after an analyst at UBS raised his rating on the streaming giant to buy from neutral and lifted his price target to $410. Stocks were lower on Friday, Jan. 11, as the equity rally to begin the new year looked as if it would fail to materialize for a sixth day despite a dovish message from the chairman of the Federal Reserve and amid renewed hopes that trade talks between the U.S. and China will deliver a near-term deal. Published:1/11/2019 12:42:37 PM
[Markets] President Trump Might End Oil’s Gain What's Impacting Your Energy Portfolio Gain? ## Oil prices On January 10, US crude oil February futures rose 0.4% and settled at $52.59 per barrel. The US-China trade talks this week might have supported oil prices. In the trailing week, US crude oil prices rose 11.7% with a fall in the implied volatility, which we’ll discuss in Part 4 of this series. However, the Energy Select Sector SPDR ETF (XLE) rose 0.3% on January 10. The S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 0.5%. In Part 3 of this series, we’ll analyze US crude oil’s relationship with these equity indexes. Integrated energy stocks like ExxonMobil (XOM) and Chevron (CVX) are also sensitive to oil prices. ## US government shutdown At 6:50 AM EST, US crude oil prices rose by 32 cents. However, if the US government shutdown continues, it might wash away the gain in oil prices from the trade talks. President Trump might consider declaring an emergency if the shutdown doesn’t end. Declaring an emergency might spook equity markets and oil’s gains. US crude oil prices are near the price forecast for 2019. ## Demand concerns Concerns about the demand side could be another problem for oil prices. On January 10, the US Ten-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity yield spread was 11 basis points above its multiyear low of 14 basis points on January 3—a concern for oil prices going forward. If the spread enters the negative territory, the economy might enter a recession in the next year. Next, we’ll discuss the key drivers for energy ETFs. Continue to Next Part Browse this series on Market Realist: * Part 2 - Wall Street’s Sentiments Boosted Energy ETFs * Part 3 - Broader Market Might Have Pushed Oil Higher * Part 4 - Where US Crude Oil Might Head Next Week Published:1/11/2019 12:11:31 PM
[Markets] NewsWatch: The stock market just got off to its best start in 13 years The Dow Jones Industrial Average, S&P 500 index and Nasdaq Composite Index are off to their best starts to a year since 2006 after a powerful series of gains.
Published:1/11/2019 11:09:30 AM
[Markets] The stock market just got off to its best start in 13 years The Dow Jones Industrial Average, S&P 500 index and Nasdaq Composite Index are off to their best starts to a year since 2006 after a powerful series of gains. Published:1/11/2019 9:08:30 AM
[Markets] The stock market just got off to its best start in 13 years The Dow Jones Industrial Average, S&P 500 index and Nasdaq Composite Index are off to their best starts to a year since 2006 after a powerful series of gains.
Published:1/11/2019 9:08:30 AM
[Markets] Stocks poised to halt 5-day rally after inflation report Stock benchmarks are set to retreat on Friday investors, threatening to snap a five-day streak that helped to drive the Dow and the S&P 500 out of correction territory, at least by one measure. Published:1/11/2019 8:08:03 AM
[Markets] Netflix's stock surges as analysts upgrade ahead of earnings report Shares of Netflix Inc. ran up 2.5% in premarket trade Friday, putting them on track to open at a 3-month high, after no less than two analysts upgraded the video streaming service a week before it's scheduled to report fiscal fourth-quarter results. Raymond James analyst Justin Patterson raised his rating to strong buy, after being at outperform for at least the past three years. He boosted his stock price target to $450, which represents a 39% premium to Thursday's closing price of $324.66, from $435. Late Thursday, UBS analyst Eric Sheridan raised his rating to buy from neutral and lifted his price target to $410 from $400. Raymond James's Patterson said he believes Netflix's content investments and film strategy are "paving the way to material profitability." Netflix is scheduled to report fourth-quarter results on Jan. 17. After tumbling 44% from its July 9 record close of $418.97 to an 11-month low of $233.88 on Dec. 24, the stock has soared 39% through Thursday. In comparison, the Nasdaq Composite has climbed 13% since Dec. 24 and the Dow Jones Industrial Average has advanced 10%. Published:1/11/2019 7:08:19 AM
[Markets] Australian stocks rise as investors await retail sales numbers Stocks in Australia rose in early trade. Investors will be watching out for the release of Australian retail sales figures for the month of November, set to be released at 8:30 a.m. HK/SIN. Overnight on Wall Street, the Dow Jones Industrial Average and S&P 500 notched a five-day winning streak. Published:1/10/2019 6:04:52 PM
[Markets] NewsWatch: Dow and S&P escape correction territory after 5-day stock-market surge A new year, a new market. The Dow Jones Industrial Average and the S&P 500 exited correction after a multiday rally that has helped to mend at least some of the scars of 2018.
Published:1/10/2019 4:04:30 PM
[Markets] These 5 factors could stop the stock market’s rally cold The stock market’s snap-back so far this year — which I suggested might play out here — has been nice to say the least, especially if you are in small caps. The Russell 2000 (RUT)  has advanced 6.7% this year through Wednesday compared to 3.1% for the S&P 500 (SPX)  and 2.4% for the Dow Jones Industrial Average (DJIA) . In fact, for the stocks to continue higher, we need five developments to play out — and some of them very soon. Published:1/10/2019 3:04:43 PM
[Markets] [video]Dow Turns Positive as Stocks Shake Off Retail Woes The Dow trades higher as Wall Street turns its attention to earnings and weak forecasts and sales from retailers. Published:1/10/2019 11:06:19 AM
[Markets] Stocks Fall for First Time in Five Days as Wall Street Turns Focus to Earnings The Dow Jones Industrial Average was falling Thursday for the first time in five trading sessions. was falling sharply after the retailer revised its fiscal 2018 sales and earnings guidance down from guidance it provided in November. Stocks fell for the first time in five trading sessions Thursday, Jan. 10, as investors looked past progress in U.S.-China trade talks and shifted their focus to the corporate earnings season and the prospect of weakening profit guidance for the coming year. Published:1/10/2019 9:04:08 AM
[Markets] Costco Slips, KB Home Jumps, and 3 More Thursday Morning Movers STOCKSTOWATCHTODAY BLOG With futures off 41 points, the Dow Jones Industrial Average looks set for a lower open, though not as low as it had earlier this morning. Weak data out of China and the end of trade talks are getting the blame, though we suspect that some of it has to do with the fact that the market has come pretty far, pretty fast. Published:1/10/2019 8:15:12 AM
[Markets] Here's Where The Next Crisis Starts

Authored by James Rickards via The Daily Reckoning,

The case for a pending financial collapse is well grounded. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007-08. That averages out to about once every five years for the past thirty years. There has not been a financial crisis for ten years so the world is overdue. It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

This means a market panic far larger than the Panic of 2008.

Today, systemic risk is more dangerous than ever because the entire system is larger than before. Due to central bank intervention, total global debt has increased by about $150 trillion over the past 15 years. Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Each credit and liquidity crisis starts out differently and ends up the same. Each crisis begins with distress in a particular overborrowed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!”

First, one asset class has a surprise drop. The leveraged investors sell the sinking asset, but soon the asset is unwanted by anyone. Margin calls roll in. Investors then sell good assets to raise cash to meet the margin calls. This spreads the panic to banks and dealers who were not originally involved with the weak asset.

Soon the contagion spreads to all banks and assets, as everyone wants their money back all at once. Banks begin to fail, panic spreads and finally central banks step in to separate winners and losers and re-liquefy the system for the benefit of the winners.

Typically, small investors (and some bankrupt banks) get hurt the worst while the big banks get bailed out and live to fight another day.

That much panics have in common. What varies in financial panics is not how they end but how they begin. The 1987 crash started with computerized trading. The 1994 panic began in Mexico. The 1997–98 panic started in Asian emerging markets but soon spread to Russia and the big banks. The 2000 crash began with dot-coms. The 2008 panic was triggered by defaults in subprime mortgages.

The problem is that regulators are like generals fighting the last war. In 2008, the global financial crisis started in the U.S. mortgage market and spread quickly to the overleveraged banking sector.

Since then, mortgage lending standards have been tightened considerably and bank capital requirements have been raised steeply. Banks and mortgage lenders may be safer today, but the system is not. Risk has simply shifted.

What will trigger the next panic?

Prominent economist Carmen Reinhart says the place to watch is U.S. high-yield debt, aka “junk bonds.”

I’ve also raised the same argument. We’re facing a devastating wave of junk bond defaults. The next financial collapse will quite possibly come from junk bonds.

Let’s unpack this…

Since the great financial crisis, extremely low interest rates allowed the total number of highly speculative corporate bonds, or “junk bonds,” to rise about 60% — a record high. Many businesses became extremely leveraged as a result. Estimates put the total amount of junk bonds outstanding at about $3.7 trillion.

The danger is that when the next downturn comes, many corporations will be unable to service their debt. Defaults will spread throughout the system like a deadly contagion, and the damage will be enormous.

This is from a report by Mariarosa Verde, Moody’s senior credit officer:

This extended period of benign credit conditions has helped many weak, highly leveraged companies to avoid default… A number of very weak issuers are living on borrowed time while benign conditions last… These companies are poised to default when credit conditions eventually become more difficult… The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives.

If default rates are only 10% — a conservative assumption — this corporate debt fiasco will be at least six times larger than the subprime losses in 2007-08.

Many investors will be caught completely unprepared. Once the tsunami hits, no one will be spared. The stock market is going to collapse in the face of rising credit losses and tightening credit conditions.

But corporate debt is not the only dagger hanging over the economy. Credit conditions have already begun to affect the real economy. Student loan losses are also skyrocketing. Losses are also soaring on subprime auto loans, which has put a lid on new car sales. As these losses ripple through the economy, mortgages and credit cards will be the next to feel the pinch.

Have we already seen the beginning of the next crisis? No one knows for sure, but the time to prepare is now. Once the market falls apart, it’ll be too late to act.

That’s why the time to buy gold is now, while it’s cheap. When you need it most, once the crisis hits, it’ll cost a fortune.

Both the panics of 1998 and 2008 began over a year before they reached the level of an acute global liquidity crisis.

Investors has ample time to reduce risky positions, increase cash and gold allocations and move to the sidelines until the crisis abated. At that point there were bargains galore for those with cash.

An investor with cash in 2008 could have preserved wealth during the crisis and nearly quadrupled his money since then by buying the Dow Jones index at 6,550 (even with the recent turmoil, today it’s still around 23,600).

Relatively few investors did this. Instead they suffered from “fear of missing out” as markets rose until the panic began. They persisted in the mistaken belief that they could “get out in time” if markets reversed, not realizing that reversals happen much faster than rallies. They held onto losing positions hoping they would “come back” (they did after 10 years) and so on.

Simple behavioral biases stand in the way of doing the right thing almost every time.

For now, it’s not clear which way things will break next. Volatility is back and markets are still in a precarious position. Fed chairman Jay Powell threw markets a bone last Friday when he basically said all rate hikes are off until further notice and that he’s willing to scale back QT “if needed.” Markets have naturally rallied since Powell’s remarks.

If you still need proof that today’s rigged markets still require support from the Fed, here it is. But it’s far from clear the next crisis can be avoided at this point.

You don’t want to be heavily exposed to these markets. It’s far better to get out too early than too late. You should not be the last to be get ready. Start now to decrease equity allocations and increase your allocations to cash and gold so you can weather the coming storm.

Preparation means 10% percent of your investible assets in gold or silver and another 30% in cash. That allocation will preserve wealth and provide dry powder for bottom-fishing in the crisis to come.

Published:1/10/2019 8:15:12 AM
[Markets] Macy's stock plunges after profit and sales outlook slashed Shares of Macy's Inc. plunged 17% in premarket trade Thursday, after the department store chain slashed its outlook for profit, sales and gross margin, citing a weakening in sales in late-December. The company reported holiday-period same-store sales growth of 0.7%, compared with 1.0% growth in the same period a year ago. Macy's cut its fiscal 2018 same-store sales growth outlook to approximately 2.0% from 2.3% to 2.55; its net sales outlook to approximately flat from up 0.3% to up 0.7%; its gross margin rate guidance to "down slightly" from "up slightly"; its inventory position to "no change" from "down;" and its adjusted earnings-per-share projection to $3.95 to $4.00 from $4.10 to $4.30, compared with the FactSet consensus of $4.23. "The holiday season began strong - particularly during Black Friday and the following Cyber Week, but weakened in the mid-December period and did not return to expected patterns until the week of Christmas," said Chief Executive Jeff Gennette. He said underperformance in women's sportswear, seasonal sleepwear, fashion jewlery and watches and cosmetics offset strength in fine jewelry, women's shoes, fragrance, dresses, outerwear, active and home. The stock has lost 3.2% over the past three months through Wednesday, while the SPDR S&P Retail ETF has declined 6.1% and the Dow Jones Industrial Average has shed 6.7%. Published:1/10/2019 7:35:35 AM
[Markets] Stock Rally In Peril As Markets Slide On Lack Of Trade Deal, Dismal Data

The sharpest stock market rally in the past decade, which started with the Steve Mnuchin call to the Plunge Protection Team on Christmas Eve and resulted in a 10% gain in two weeks, is in danger of falling apart this morning as a result of disappointment from the failure of the latest round of US-China trade talks to reach any tangible agreement coupled with dismal Chinese inflation numbers released overnight.

With S&P futures sliding 0.5%, and European and Asian markets sliding, it is a day of reversals in global markets as the new-year rally has stalled, while the dollar rebounded and oil dropping for the first time in two weeks.

Today's decline follows four consecutive daily gains for the S&P 500 which is something the index hasn’t seen since September, and the rally of +5.60% over that stretch is the best such four-day performance since August 2015. Buying continued to be broad based, with 68% of S&P 500 companies advancing, though equities did fade off their intraday highs as acrimony between President Trump and Congressional Democrats intensified. In a highly-anticipated meeting between the two sides, President Trump walked out of the meeting, calling it “a total waste of time.” So the federal shutdown is set to continue.

Following a vague statement from the USTR after the conclusion of trade talks in Beijing, China said the three days of talks in Beijing had established a “foundation” to resolve the two country’s differences, but gave virtually nothing in the way of details on key issues at stake.  The "nothingburger" was confirmed when China's Mofcom issued a statement on trade talks in which it stated that China and US agree to continue close communication on trade and that sides had "broad, deep and detailed" communication. Furthermore, Mofcom said that talks promoted mutual understanding and established a foundation for resolution of each other’s concerns, while both sides agreed to maintain close contact.

Additionally, a slew of weak data also dampened the mood when China reported the lowest wholesale inflation in more than two years, the 6th consecutive month of declines...

... while worse-than-expected industrial figures in France provided more proof that Europe is spluttering again.

After last Friday's surprisingly dovish Powell statement, the Fed Chair takes to the podium for the second time in a week when he addresses the Economic Club of Washington later today; separately, Richmond Fed President Thomas Barkin (non-voter, moderate hawk), St. Louis Fed President James Bullard (voter, dove), Chicago Fed President Charles Evans (voter, moderate dove) and Minneapolis Fed President Neel Kashkari (alternate voter, dove) speak.

Meanwhile, concern surrounding the partial government shutdown in America continues to weigh on sentiment ahead of earnings season: Trump stormed out a meeting with top Democrats on Wednesday, confirming that the current government shutdown episode is set to at least tie the longest on record when it hits 21 days tomorrow.

As Bloomberg notes, investors may well be catching their breath after recent rapid gains, while the lack of any concrete details from trade discussions between China and the U.S. meant there was no fresh catalyst to sustain momentum. Futures for the S&P 500, Dow Jones and Nasdaq all slumped after the four straight gains.

Stoxx Europe 600 Index erased most of Wednesday’s advance, and dropped 0.7%, led lower by carmakers as Germany’s trade-sensitive DAX dropped 0.8% and Britain’s FTSE 100 fell 0.5% on persistent Brexit concerns.

"I am beginning to get a little concerned about the path of the European industrial data,” State Street Global Markets’ head of strategy, Michael Metcalfe, said. “It is raising the possibility of a technical recession in Europe. One of the big challenges is that if this is replicated in Italy’s data tomorrow, that potentially brings the budget questions back into the market’s thoughts.”

Earlier, Asian shares had edged up overnight on the weaker dollar and hopes of more economic stimulus in China following its latest data disappointment. But many stocks seesawed, and Tokyo and Shanghai both closed lower as markets finally grasped that the trade talks were a dud. Japanese stocks paced declines across much of Asia dragged lower by a sharp slide in the USDJPY, though the MSCI Asia Pacific Index was down only marginally.

The soured sentiment saw the normal move into safe-haven government bonds with yields on German and French and government bonds dropping again toward recent two-year lows.  U.S. Treasury yields last stood at 2.657 percent, down from 2.710 percent on Wednesday when Fed minutes showed policymakers were becoming more cautious about future rate hikes.

The dollar rebounded after hitting its lowest level since mid-October. The greenback was flat against the euro at $1.1525. The single currency gained 0.9 percent against the dollar during the previous session, its biggest one-day gain since late June. The pound weakened as British Prime Minister Theresa May mulled options for a Brexit “Plan B.” Gold fluctuated and emerging-market shares climbed.

China’s yuan also muscled higher, breaching the 6.8 per dollar level for the first time since August in both onshore and offshore trade in Asia. “This drop in the dollar is an overdue correction following a surprisingly robust few weeks despite the massive collapse in U.S. rate expectations,” said Ulrich Leuchtmann, currency strategist at Commerzbank.

After entering a bull market following a furious post-Christmas rally, crude fell back $1 having jumped overnight on signs of OPEC-led crude output cuts. Brent crude was last trading 1.4 percent lower at $60.58 a barrel and U.S. WTI was down 1.5 percent at $51.57 cents.

In US political news, the US House voted to approved bill to reopen Treasury Department and several other agencies without border wall money, although the White House had previously threatened to veto the bill. Elsewhere, there were reports that US Republican Senators are said to be planning on courting Democrat senators to reach a deal on border wall.

In the latest Brexit news, UK PM May was said to be mulling supporting an amendment that would keep EU regulations regarding pay and conditions, health and safety as well as environmental standards in an effort to garner support for her Brexit deal. A spokesperson for May later stated that the PM is attempting get further assurances from the EU on her Brexit deal before the conclusion of the debate in Parliament. Spokesperson added that PM is to consider backing Labour MP’s Brexit worker-rights plan. Meanwhile, the Times reported that May’s Brexit approach is seen as being in tatters after Conservative Rebels opened discussions with Labour regarding an alternative to her deal. Finally, UK Labour Leader Corbyn states that a general election should be the priority before a 2nd Brexit referendum and added "Labour will table a motion of no confidence in the government at the moment we judge it to have the best chance of success".

In geopolitical news, South Korean President Moon said he expects a 2nd Trump-Kim summit soon, However, there were also comments from the South Korea Ambassador to US that US-North Korea nuclear talks have slowed and that it could take years to realize goals in North Korea.

Expected data include jobless claims, while the publication of wholesale inventories is being delayed by the government shutdown. Cogeco Communications and Synnex are reporting earnings

Market Snapshot

  • S&P 500 futures down 0.4% to 2,571.50
  • MXAP down 0.1% to 150.98
  • MXAPJ up 0.3% to 489.22
  • Nikkei down 1.3% to 20,163.80
  • Topix down 0.9% to 1,522.01
  • Hang Seng Index up 0.2% to 26,521.43
  • Shanghai Composite down 0.4% to 2,535.10
  • Sensex down 0.2% to 36,126.07
  • Australia S&P/ASX 200 up 0.3% to 5,795.27
  • Kospi down 0.07% to 2,063.28
  • STOXX Europe 600 down 0.5% to 346.04
  • German 10Y yield fell 1.7 bps to 0.262%
  • Euro down 0.2% to $1.1526
  • Italian 10Y yield fell 7.4 bps to 2.518%
  • Spanish 10Y yield fell 4.5 bps to 1.447%
  • Brent futures down 0.8% to $60.97/bbl
  • Gold spot little changed to $1,292.97
  • U.S. Dollar Index up 0.1% to 95.33

Top Overnight News

  • The Trump administration is pushing for a way to make sure China delivers on its commitments in any deal the two nations reach to defuse a trade war that has roiled financial markets and dimmed the outlook for global growth. China says Beijing talks lay foundation for trade resolution
  • The pound fell against all of its Group-of-10 peers as U.K. Parliamentary debate on May’s deal continues, with Labour leader Jeremy Corbyn due to call for an election if it fails in Jan. 15 vote; gilts rose as disappointing retail sales added to economic slowdown concerns
  • Theresa May is openly contemplating a Brexit "Plan B" amid growing signs the British Parliament will reject the deal she’s reached with the European Union and try to take charge of what happens next
  • U.S. central bankers could place interest rates on hold through March or longer as they wait for clarity on risks to global growth that could affect the U.S. economy. That’s the signal from recent comments by Fed officials, reinforced by minutes of their Dec. 18-19 meeting on Wednesday
  • Chinese policy makers are continuing their piecemeal approach to arresting the slowdown in the world’s second-largest economy, as further details emerged of measures to ensure credit to small businesses and ease their tax burden. China factory prices rise at slowest pace in more than two years
  • Oil stormed back into bull market territory, as investors who’d abandoned crude just a month ago were lured back by an OPEC-led campaign to bring runaway supplies in check
  • The woes for U.K. retailers are mounting as new report suggests that 2018 was their worst Christmas since the financial crisis. Shops saw no growth in sales in December vs year earlier, the worst performance in a decade
  • Norway’s krone advanced after faster-than-forecast inflation data
  • The yen lost some steam in the European session after earlier getting support from a slowdown in Chinese factory prices
  • Australia’s dollar gained for a second day after industry data showed iron ore exports improved last month; the Aussie earlier fell following the China data

Asian stocks were mixed as the equity rally somewhat stalled overnight which momentarily saw all regional bourses in negative territory, despite the gains in US where a dovish tone from the FOMC Minutes and several Fed speakers underpinned the US majors to their longest winning streak since September. ASX 200 (+0.3%) and Nikkei 225 (-1.3%) were subdued after sentiment in the region soured with BHP shares hit in Australia as it traded ex-dividend, while the Japanese benchmark underperformed as exporters took the brunt of detrimental currency moves. Hang Seng (+0.2%) and Shanghai Comp. (-0.4%) initially weakened as trade-related momentum began to wane, with sentiment also dampened after the PBoC drained another CNY 70bln from the interbank market and after soft Chinese inflation data added to the despondent tone. However, Chinese stocks then staged a gradual recovery throughout the session, while in terms of trade news, both US and China have issued separate statements in the aftermath of the trade discussions, although the sides refrained from a joint statement and there was also no mention of a timeline moving forward. Finally, 10yr JGBs were underpinned by the initial safe-haven demand which coincided with gains in T-notes in the wake of the Fed dovishness, although prices are off best levels as risk sentiment in the region began to recover, while mixed results at today’s 30yr JGB auction proved to be inconclusive for prices.

Top Asian News

  • China’s Rekindled Deflation Fears Add to Global Growth Concerns
  • Further Rally Seen for China’s Yuan as It Breaks Key Level
  • SBI Is Said to Select Arrangers for Institutional Share Sale
  • Time for ‘Reality Check’ on Trade as Asian Stock Rally Fades
  • Citic Securities Surges on $2 Billion Purchase of Rival

Major European equities are in the red [Euro Stoxx 50 -0.4%] following on from the mixed performance seen in Asia on the lack of US-China trade clarity. Some underperformance is seen in the CAC (-0.8%), weighed on by Safran (-3.6%) who were downgraded at JP Morgan Chase, and Airbus (-1.7%) in the red after posting fewer net orders than Boeing for the first time in 5 years. Sectors are similarly in the red, with slight outperformance seen in utility names. Other notable movers include Sodexo (+1.8%) who are up after posting an increase in Q1 revenue. Separately, Tesco (+1.0%) are positive after the Co say that they remain on track to deliver their FY outlook, similarly Marks and Spencer (+1.5%) are in the green after the Co saying their FY guidance remains unchanged; despite UK BRC retail sales for December missing with -0.7% vs. Exp. -0.3%.

Top European News

  • Tesco Bucks U.K. Holiday Retail Gloom as Small Chains Suffer
  • With Brexit Vote Approaching, Companies Make Plea to Cut a Deal
  • Ericsson Takes $687 Million Charge to Fix Digital Services Unit
  • Past Sins Forgiven at a Price as Saudi Arabia, Turkey Sell Bonds
  • Carige Leaders Resist Italy Populist Nationalization Push

In FX, the DXY is on a firmer footing in early EU trade despite yesterday’s dovish Fed speakers and FOMC Minutes which stated that many policymakers said the Fed could be patient about further tightening amid muted inflationary pressures. Additionally, policymakers stated that it was appropriate to hike rates in Dec 2018, though some members favoured no change. Furthermore, due to the recent stock rout, volatility in markets and global growth concerns, the extent and time of future policy tightening is “less clean than earlier.” As such the DXY tested 95.000 to the downside during Asia-Pac hours in a continuation of USD weakness from Wall St., though the index rebounded off the psychological level and marches closer towards 95.500 (intra-day high of 95.381) ahead of a plethora of Fed speakers including Chair Powell, Vice Chair Clarida and 2019 voters Bullard and Evans. It is also worth bearing in mind that US President Trump is to participate in a roundtable meeting on border security around 18:00 GMT as the government shutdown reaches its 20th day.

  • AUD – The G10 outperformer, albeit marginally after the Aussie was dented by the release of disappointing Chinese December inflation figures which briefly pressured the currency during the Asia-Pac session. An overnight rebound in copper prices however underpinned AUD/USD north of 0.7150, just below its 50 DMA at 0.7190 with options scattered around 0.7190-0.7220 (1.1bln).
  • NOK, CAD – Firmer than expected Norwegian CPI gave the Crown impetus to extend gains below 9.80 vs. the EUR, thought EUR/NOK saw volatile trade shortly post-release amid negative price action in the oil complex. Ultimately, the NOK regained composure as EUR/NOK sits below its 50 HMA at 9.7750 ahead of its 50 DMA at 9.7290. Meanwhile the Loonie bears the brunt of declining oil as USD/CAD trades just below its 50 HMA at 1.3250.
  • EUR,GBP – Both victimised by the firmer greenback, though the single currency was unfazed by dismal French industrial production numbers ahead of the ECB Minutes later today (full preview available on the Research Suite). EUR/USD is subsequently only marginally above 1.1500 with the next level to the downside at its 50 HMA (1.1490) ahead of its 100 DMA (1.1478). Large option expiries may cap upside in the pair with 1bln on the money at 1.1515-25 and 1.3bln around the psychological 1.1500. Moving on, Sterling suffers a similar fate as the strengthening buck sent cable further below 1.2800 to breach 1.2750 and test 1.2730. In terms of the latest, Opposition leader Corbyn is again call for a general election today amid the Brexit deadlock, if PM May’s deal does not pass the meaningful vote on January 15th. In light of this, the Premier is reportedly considering supporting an amendment in an attempt to court some Labour MPs into supporting her deal. Cable sits around the middle of a 1.2750-2800 range with its 100 DMA at 1.2746.
  • JPY – Marginally softer following overnight upside from the dovish Fed and FOMC minutes as the buck eased and the Yen appreciated on safe-haven demand. As the greenback gained traction in EU trade, USD/JPY reclaimed the 108.00 handle to the upside with the pair’s 100 and 50 DMA at 108.46 and 108.50 respectively with 800mln in option expiries around 108-40-50.

In commodities, Brent (-0.7%) and WTI (-0.7%) are in the red, though the benchmarks reclaimed USD 61/bbl and USD 52/bbl respectively in EU trade with no attributed fundamentals to the recent price action. Previous sessions EIA showed a smaller than expected draw in crude oil inventories of -1.68mln vs. Exp. -2.7mln. Elsewhere, Saudi Energy Minister Al Falih comments that he would not rule out additional OPEC+ action at some point in the future. Gold (Unch) was initial buoyed by the dovish FOMC minutes, although the yellow metal is now trading towards the bottom of today’s USD 6/oz range as the dollar modestly firms. Elsewhere, according to reports US Treasury Secretary Mnuchin is to meet Democrats today to discuss plans to end sanctions against Rusal; of note Democrats have asked for the removal of these sanctions to be delayed. In a vote on January 16th, EU countries are expected to approve a scheme limiting imports of steel into the bloc; placing a cap on steel imports for 3 years.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 226,000, prior 231,000; Continuing Claims, est. 1.74m, prior 1.74m
  • 9:45am: Bloomberg Consumer Comfort, prior 59.6
  • 10am: Wholesale inventories/sales data postponed by govt shutdown
  • 8:35am: Fed’s Barkin Speaks on Ensuring Long-Term Growth
  • 12pm: Fed’s Powell to Speak to The Economic Club of Washington
  • 12:40pm: Fed’s Bullard Speaks on Economy and Monetary Policy
  • 1pm: Fed’s Evans speaks at Economic Forecast Event
  • 1:20pm: Fed’s Kashkari Speaks on Immigration and Growth
  • 5:30pm: Fed’s Clarida Speaks to Money Marketeers in New York

DB's Jim Reid concludes the overnight wrap

The opening para today is a little niche but if you like both music and comedy then I’m about to change your life forever. The highlight of my Xmas TV viewing was a documentary charting the recent comeback gigs of 1980s UK boyband “Bros”. For a brief period of time they were (for some reason) one of the biggest acts in the world. I’d not thought a lot about them since but this documentary is dynamite. For those familiar it is like Spinal Tap meets David Brent (The Office) but rather than fiction it is pure real life. It’s on the BBC iPlayer but also on YouTube for those outside the U.K. Its called “After the screaming stops”. Please, please hunt it down. You won’t regret it. Worryingly Bros consist of identical twins and I’m hoping mine end up with a more functional relationship in the years ahead.

When will I, will I be bearish? The answer is probably before mid-year again but we’d continue to ride the rally for now as things to us don’t look nearly as bad in the near-term as they were made out to be just before Xmas. Yesterday was another day of gains for risk with the VIX trading below 20 again (close 19.8) for the first time since 3 December. In Q4 2018 it traded above 20 for 58.7% of the time after not spending a singleday there between 4 November 2016 and 2 February 2018. How things can change. When the dust settled, the S&P 500, DOW and NASDAQ posted more modest gains yesterday than of late but climbed +0.41%, +0.39% and +0.87% respectively. Still, that is four consecutive daily gains for the S&P 500 which is something the index hasn’t seen since September, and the rally of +5.60% over that stretch is the best such four-day performance since August 2015. Buying continued to be broad based, with 68% of S&P 500 companies advancing, though equities did fade off their intraday highs as acrimony between President Trump and Congressional Democrats intensified. In a highly-anticipated meeting between the two sides, President Trump apparently walked out of the meeting, calling it “a total waste of time.” So the federal shutdown is set to continue.

Prior to this, the STOXX 600 had closed +0.53% in Europe while in credit HY spreads in the US and Europe finished -9bps and -11bps tighter respectively. That’s -85bps of tightening for US HY since last Thursday. One factor supporting US HY credit has been the move in the oil prices, which are up every day this year. In fact, WTI has risen for the last 8 sessions (for a cumulative gain of +17.15%) including a +4.98% move yesterday to take it over $52/bbl. That run is the longest winning streak since June-July 2017. You have to go back to December 2009-January 2010 to find the last time that we were up 9 days in a row. We’re also back in bull market territory as Oil is up over +20% from the lows. The continued slide in the dollar (-0.81%, more color below) certainly helped, while news from Saudi Arabia also buoyed prices. Energy Minister al-Falih told reporters that “we have to remain vigilant and agile and respond, so I would not rule out calling for further action of some kind.” These comments reiterating the Saudi’s commitment to cap production come as the kingdom plans to export 7.2m barrels per day this month, down from 7.7m in November and in-line with the 2018 average in an effort to support prices.

There was a steady drip of newsflow feeding the broader risk on moves yesterday. Initially there were some positive soundbites coming out of the US-China trade meetings after talks had wrapped up although later in the day the USTR published an official statement. At 192 words though it was lacking slightly in substance with the text confirming that talks “focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the US”. It also stated that “officials conveyed President Trump’s commitment to addressing our persistent trade deficit and to resolving structural issues in order to improve trade between our countries”. So not particularly ground-breaking, although the mention that any deal should include “ongoing verification and effective enforcement” was perhaps a reason for risk stalling a bit post the statement being released, as the likelihood of such a comprehensive agreement being reached in the next 50 days seems challenging. China for its part said that the meetings were “extensive, in-depth and detailed,” and laid the foundation for a resolution of the conflict.

Elsewhere we got a warning out of rating agency Fitch that the US could potentially lose its AAA credit rating later this year should the government shutdown continue to March and the issue of the debt ceiling is not resolved. Markets didn’t appear particularly bothered by that though, and the spotlight quickly jumped to the various Fedspeakers thereafter. The most interesting comments came from Boston Fed President Rosengren, Chicago President Evans, and Atlanta President Bostic.

Rosengren is slightly more hawkish than the committee’s median, and our economists had penciled him in as a supporter for three hikes this year. However, he cited “recent data from China, the potential for increased trade tensions, and heightened volatility” as an argument for policy to remain “flexible and patient.” He said that “there should be no particular bias toward raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth.” So perhaps evidence that he wants to see more data before supporting another policy change, but he nevertheless remained confident overall, saying “the economic outlook is actually brighter than the outlook one might infer from recent financial-market movements.”

The second most interesting Fed official was Evans, whose views are roughly in-line with the center of the committee. He said that “developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions” and hinted at a six-month type of pace for rate hikes going forward. He mentioned tepid inflation data, which could be the key factor for him; recall that he dissented against the rate hike in December 2017, the last time he was a voting member of the committee. However he also flagged that “if the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral level”.

The Atlanta Fed’s Bostic largely reiterated his Monday comments, though he indicated that he may view the hiking cycle as already over, depending on how data develops. He said “we are not locked into a particular trajectory for policy,” and answered “yes” when asked if the next move could be either a hike or a cut. So he’s taking data-dependency to a new level, prompting another leg lower in the dollar yesterday and drop in fed fund future-implied rates, which now see around an 20% chance of a hike by the June FOMC meeting.

Finally, St. Louis Fed President Bullard, a well-known uber-dove, said that the Fed is “bordering on going too far and possibly tipping the economy into recession” and that bond markets are “signalling that there might be some recession risk ahead”.

Capping yesterday’s busy session of Fedspeak, we also got the minutes of the December FOMC meeting. They mostly ratified what we already knew, saying “many participants” want “to be patient about further policy firming” and that “a number of participants” favour assessing “the risks that had become more pronounced in recent months.”

There wasn’t a huge reaction in bond markets to any of those communications. Benchmark 10y Treasuries traded in an intraday range of just over 4bps and eventually settled -1.8bps lower at 2.710%. Two-year yields fell -3.3bps, consistent with the move in fed funds futures, and the 2s10s curve steepened 1.5 bps to 15.3bps. As mentioned, the dollar slid another -0.81% and is now at the lowest since 16 October. The euro ended up +0.97% while for completeness bond markets in Europe yesterday were broadly unchanged with the exception of BTPs which rallied -7.6bps following recent underperformance.

Those comments out of the Fed will be followed by a heavy schedule of Fedspeak today. Indeed we count no fewer than six separate scheduled speakers. In order we’ve got Barkin (1.35pm GMT), Powell (5.00pm GMT), Bullard (5.40pm GMT), Evans (6.00pm GMT), Kashkari (6.20pm GMT) and Clarida (10.30pm GMT). Given that we’ve just heard from Evans, and it would be a surprise if Powell said anything different to his comments on Friday, the most interesting should be Vice-Chair Clarida. Seen as relatively dovish, the market should be on the lookout as to whether or not Clarida takes the opportunity to amplify the message sent by Powell last week. It’s worth noting that Clarida is expected to have prepared remarks while Powell is not expected to release a formal speech. Both are expected to feature Q&A.

This morning in Asia markets are trading mixed with the Nikkei (-1.30%) down while, the Hang Seng (+0.16%), Shanghai Comp (+0.23%) and Kospi (+0.14%) all up. China’s announcement of a package of tax cuts for small and micro-sized businesses worth CNY 200 bn ($29 billion) per year over the next three years is aiding sentiment even as China’s December CPI ( at 1.9% yoy vs. 2.1% yoy expected) and PPI (at +0.9% yoy vs. +1.6% yoy expected) data disappointed with the later continuing the slowdown for a sixth straight month to the weakest level since September 2016. Meanwhile, China’s onshore yuan is up +0.33% to 6.7937 - the highest since August 2018 on positive sound bites from the concluded US-China trade negotiations. Elsewhere, futures on the S&P 500 are down -0.34% while oil prices (WTI -0.95% and Brent -0.76%) are also trading lower this morning after the stunning run discussed earlier.

Moving on. The latest Brexit development was the confirmation yesterday that PM May had effectively lost control of the timetable for what happens should Parliament vote against her Brexit deal next week as expected. Downing Street will now be compelled to report to Parliament and hold a vote on how to proceed within three days of losing a vote on the Withdrawal Agreement. The government will also accept a Tory amendment to limit the backstop to one year, though it’s not clear if that will be acceptable from the EU’s perspective. Separately, Labour’s shadow Brexit minister said that extending Article 50 “may well be inevitable now.” Nevertheless, this chaos was outweighed by the dollar’s broad weakness, leaving cable +0.66% stronger versus the greenback, though the pound did slide -0.31% versus the euro. Elsewhere, Bloomberg reported that the Labour party leader, Jeremy Corbyn, is set to deliver a major speech on Brexit today, in which he’ll call for a general election if May loses next week’s vote. According to released extracts of his speech Corbyn will say, "a government that cannot get its business through the House of Commons is no government at all. So I say to Theresa May: if you are so confident in your deal, call that election, and let the people decide."

Turning quickly to yesterday’s data, Germany’s November trade balance printed at $20.5bn as imports declined more than exports. So another signal of soft demand in Europe’s largest economy. French consumer confidence fell to 87 from 92, its lowest level since 2014. In the US, mortgage applications rose 23.5% last week, the fastest pace since October 2015, though the series is notoriously noisy.

To the day ahead now, where the aforementioned speeches by the Fed’s Powell and Clarida this evening are likely to be the main focus, alongside the raft of other Fedspeak. As for the data that is due out, this morning we’ll get the November industrial production report in France shortly, before we then get initial jobless claims and November wholesale inventories data in the US. Away from all that we’ll also get the ECB minutes of the December 12-13 meeting where the market will be on the lookout for any hints on the timing for the first rate hike, before the ECB’s Villeroy speaks this evening.

Published:1/10/2019 6:34:15 AM
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[Markets] Market Extra: Dow and S&P 500 are on the brink of exiting correction territory A new year, a new market. The Dow Jones Industrial Average and the S&P 500 appear in position to exit correction territory if a multiday rally on risk assets continues apace.
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[Markets] US Futures Extend Longest Gain Since November As Trade Talks Conclude

Global stocks rose, and US equity futures extended their longest winning streak since November, rising for a 4th day as the US and China concluded three days of trade talks on what Bloomberg reported was an "optimistic note".

World stocks extended gains to hit a near-four week high, WTI crude oil rose above $50 and most industrial metals advanced on Wednesday on optimism that the United States and China may be inching toward a trade deal, soothing fears an all-out trade war could hit a slowing global economy, while China stepped up measures to spur consumption. Reuters reported that a senior Chinese official said Beijing plans to introduce policies to boost domestic spending on items such as autos and home appliances this year.

“The positive news around the trade talks is giving a boost to risk assets – it’s what the global economy needs to see,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. “There are also reports of new initiatives by China to boost spending and that’s desirable from the perspective of Chinese and global growth.”

As reported earlier, delegations from China and the U.S. ended talks that had lasted longer than expected in Beijing on Wednesday amid signs of progress on issues including purchases of U.S. farm and energy commodities and increased access to China’s markets. Officials said details will be released soon with Global Times editor Hu Xijin tweeting that "the trade talks, though arduous, were conducted in a pleasant and candid atmosphere. Neither side has made the briefing, because the US delegation is on the plane now. The two sides will release message at the same time on Thursday morning Beijing time."

Trade developments between the U.S. and China have remained a focal point for traders after a report that Trump was eager to strike a deal to help revive the flagging stock rally he was happy to take credit for. While concerns linger about the impact of protectionist tensions on global growth, a favorable outcome would set up a potential Goldilocks scenario for markets after Fed Chair Powell’s apparent dovish shift last week eased fears about tightening financial conditions.

As a result of growing trade optimism, MSCI's all-country index rose another 0.4% in a fourth straight day of gains. Asian bourses saw a strong finish with Japan's Nikkei and China's blue-chip CSI 300 closing up 1% while the tech-heavy South Korean KOSPI jumped nearly 2%.

European bourses then picked up the Asian baton, with the pan-European STOXX 600 rising more than 1% with German and French benchmarks leading the way.

U.S. equity futures also rose, set for another strong day on Wall Street after the S&P 500 gained nearly 1 percent on Tuesday; US futures are now higher for 4 consecutive days - the longest stretch since November.

Not everyone was optimistic however: Kate Moore, chief equity strategist at BlackRock told Bloomberg that "we could get some more stabilization and a floor in the market if we make strides towards an agreement” on trade, but "this is going to be an issue overhanging markets I believe for multiple years.”

Meanwhile, stocks got another boost overnight after Trump demanded in his televised address that Congress provide billions for a border wall with Mexico, but stopped short of declaring a national emergency or making any other dramatic announcements. In Trump's first-ever prime-time address, he said there is an increasing security crisis at the US southern border and that Americans are hurt by uncontrolled, illegal migration, while he also said they requested USD 5.7bln for a border wall which will be a steel barrier. Following the speech, US House Speaker Pelosi responded that President Trump is rejecting bipartisan deal to reopen government and has chosen fear over shutdown impasse, while Senate minority leader Schumer called for the government to reopen while debate over border continues. At the same time, the government shutdown continues, now in its 19th day, thanks to the impasse over funding.

Curiously, and in another sign of subsiding worries about the U.S. economic outlook, Fed funds rate futures show traders are now pricing in a small chance of a rate hike in 2019, a change from late last week when futures markets had priced in a cut by the end of the year. “Slowly but surely, the numerous headwinds that contributed to the market sell-off in the final quarter of 2018 are becoming less gale force and more strong breeze,” Craig Erlam at OANDA wrote in a note. “There is a clear risk that conditions could deteriorate quickly but at the moment, the storm is passing and investors are seeing opportunities in the wreckage.”

In currency markets, the dollar consolidated recent losses before a series of Fed speakers and the minutes of FOMC’s latest decision, while Treasuries were little changed. Commodity currencies and stocks traded in the green on renewed trade hopes, with emerging-market currencies edging north.  The dollar index eased 0.2% to 95.69 against a basket of currencies, hovering close to a 2-1/2 month low hit on Monday. The euro traded at $1.1464 while the dollar stood at 108.90 yen. Theresa May’s Brexit deal returns to Parliament while one-week volatility in the pound rallied on the Jan. 15 vote risk.

In Asia, the yuan led gains, rising in offshore trading by 0.4% to its strongest level in five weeks. Asian currencies as rising on optimism the U.S. and China will be able to defuse their trade war outweighed a worsening global growth outlook. “With little by way of domestic economic data to provide any guidance for Asian currencies, the focus remains on the ongoing U.S.-China trade talks,” says Khoon Goh, head of Asia research at ANZ in Singapore. Expectations some sort of deal could be reached have buoyed regional assets, but foreign investor equity flows into the region remain muted, suggesting there’s still some caution, he said. EM Asian currency prospects have improved owing to factors including the better-than-expected China services PMI and U.S. jobs data, says Christopher Wong, a senior FX strategist at Maybank in Singapore. Still, risks remain as growth momentum is easing and there’s concern over the corporate earnings outlook, Wong said.

Elsewhere, oil prices extended their gains, rising nearly 1% with U.S. WTI crude oil futures rose above $50 per barrel overnight for the first time in 2019, after 9 consecutive days of gains.

U.S. bond yields also climbed, with the benchmark 10-year Treasuries yield rising as high as 2.7404%, compared with its one-year low of 2.543% hit just before Friday’s strong payrolls data.

Looking ahead to today, the FOMC minutes this evening will likely be the highlight and with the Brexit debate resuming in parliament any headlines there will also be closely watched. The minutes will provide more color on the Committee’s thinking around several key issues for market participants—namely, their views about headwinds from slowing global growth, progress on the Fed's balance sheet strategy, and the debate around the neutral policy rate. After Powell’s early-year semi U-turn, the minutes could be slightly dated though. Other expected data include mortgage applications, while the Fed is scheduled to release FOMC meeting minutes, ahead of Powell's speech at to the Economic Club of Washington D.C. on Thursday. Constellation Brands and Lennar are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.2% to 2,577.75
  • STOXX Europe 600 up 1% to 349.14
  • MXAP up 1.4% to 150.53
  • MXAPJ up 1.6% to 486.48
  • Nikkei up 1.1% to 20,427.06
  • Topix up 1.1% to 1,535.11
  • Hang Seng Index up 2.3% to 26,462.32
  • Shanghai Composite up 0.7% to 2,544.34
  • Sensex up 0.5% to 36,158.62
  • Australia S&P/ASX 200 up 1% to 5,778.29
  • Kospi up 2% to 2,064.71
  • German 10Y yield rose 7.7 bps to 0.303%
  • Euro up 0.2% to $1.1469
  • Italian 10Y yield rose 5.4 bps to 2.592%
  • Spanish 10Y yield rose 0.4 bps to 1.517%
  • Brent futures up 1.7% to $59.73/bbl
  • Gold spot down 0.3% to $1,281.08
  • U.S. Dollar Index down 0.1% to 95.85

Top Overnight News from Bloomberg

  • President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war, according to people familiar with internal White House deliberations
  • The two countries wrapped up three days of trade talks, with people familiar saying their positions were closer on areas including energy and agriculture but further apart on harder issues. The one-day extension of the talks shows both sides are serious about negotiations, Chinese foreign ministry spokesman Lu Kang says
  • A rare flurry of schedule changes by regional legislatures across China suggests that President Xi Jinping may be clearing the calendar for a long-awaited Communist Party gathering later this month
  • China’s Finance Ministry is set to propose a small increase in the targeted budget deficit for this year as officials seek to balance support for the economy with the need to keep control of debt levels
  • The yen’s spectacular start to 2019 has been a case of too much, too soon for two influential investment firms that between them manage about $1 trillion in assets. AllianceBernstein Ltd. sold the currency as it surged 4 percent last week amid the dollar’s flash crash. Manulife Asset Management cut its holdings of the yen against the Australian dollar that day

Asian equity markets were higher across the board as sentiment remained underpinned by trade hopes after US-China discussions were extended into a 3rd day and with progress said to have been made on issues including purchases of US goods, while US President Trump also provided encouragement as he stated that talks were going well. As such, ASX 200 (+1.0%) and Nikkei 225 (+1.1%) were positive as they benefitted from the trade-related optimism which had inspired a 3rd consecutive gain amongst the US majors, with notable strength also seen in Australia’s energy names after WTI reclaimed the USD 50/bbl level to the upside. Hang Seng (+2.3%) and Shanghai Comp. (+0.7%) were also in the green as focus centred on trade while reports suggested that US President Trump wants a China trade deal soon to boost markets. Finally, 10yr JGBs tracked the downside in T-notes as the broad gains in stocks sapped safe-haven demand, while the BoJ’s Rinban announcement was also somewhat trivial with the central bank only in the market for around JPY 450bln concentrated in the belly.

Top Asian News

  • Philippine Bulls on a Roll as Overseas Stocks Funds Trickle Back
  • China Is Said to Propose Wider 2019 Fiscal Deficit Amid Slowdown
  • BlackRock Sees Rally in Asia Credit After Losses Last Year
  • Rare China Schedule Changes Suggest Major Policy Meeting Is Near

Major European indices are in the green [Euro Stoxx 50 +0.8%] as market sentiment remains fixated around the recently concluded US-China trade talks, with China’s foreign ministry indicating that they are taking the talks very seriously. Germany’s DAX (+0.9%) is outperforming its peers, with auto names such as Volkswagen (+2.9%) and BMW (+1.5%) in the green on the aforementioned trade talk sentiment; Daimler (+3.7%) lead the German auto’s with Mercedes-Benz selling 2.31mln cars in 2018 likely to make them that year’s best-selling premium auto. Sectors are broadly in the green, with consumer discretionary the outperforming sector with luxury names such as Kering (+3.8%) and Burberry (+2.8%) up as US-China talks conclude. Other notable movers include Ted Baker (+11.3%) after announcing a 12% increase in retail sales for the 5 weeks to January 5th. Elsewhere, Taylor Wimpey (+6.9%) after Co report good trading performance, with 2018 total home completions +3%. At the bottom of the Stoxx 600 are ADP (-4.7%) after reports that the French government are considering delaying privatisation until 2020.

Top European News

  • Deutsche Bank Drops as UBS Sees a Challenging Fourth Quarter
  • Autos Lead Gains in Europe on Trade Optimism, China Stimulus
  • Future Daimler CEO Sees Record Year Despite Global Auto Slowdown
  • Sainsbury’s Holiday Sales Fall as Cautious Consumers Hold Back

In FX, the dollar eases further below 96.000 following a rangebound Asia-Pac session amid trade optimism with the third day of trade talks giving off somewhat of an upbeat vibe. China’s Foreign Ministry stated that the longer talks signified the country’s seriousness, while the China Global Times Editor also took note of the positive sentiment surrounding the dialogue. As such the DXY remains closer to the bottom of a 95.925-660 range ahead of the FOMC Minutes later today (full preview available on the Research Suite).

  • GBP, EUR – The Pound extended on gains before paring a bulk of the move with fears of a no-deal Brexit receding as the UK Government seems to be losing more power in Parliament. To recap recent events, the Government was defeated in a vote regarding the Finance Bill which limits the scope for tax changes in the event of a no-deal. Additionally, if Labour and Tory rebels vote down the business motion (due at around 1300GMT), then Parliament will take control of the timing of the meaningful vote debate from the Government, i.e. PM May will not have room to further delay it. Furthermore, Business Insider also reported that UK businesses will make urgent public interventions about the perils of a no-deal Brexit should MPs vote down the deal on the 15th. Subsequently, Cable retreated to near the bottom of a 1.2712-77 range with resistance seen at 1.2790 (yesterday’s high) and support at 1.2712 (7th Jan low). Meanwhile, the EUR is marginally firmer, mostly on the back of a softer USD as an EZ upbeat unemployment rate and wider-than-expected German trade surplus did little to budge the single currency as exports fell more-than-expected.
  • SEK,NOK – The Scandi Crowns are mixed with the SEK marginally softer following the release of the Riksbank Minutes from the December meeting which initially saw a firmer Crown as several Board Members noted that even though the inflation forecast for the next few years has also been revised downwards slightly, the conditions are still good for inflation to remain close to the 2% inflation target. Nordea notes that the release was marginally dovish given the risks surrounding the repo path downgrade. As Such EUR/SEK pared back the initial move lower to test 10.2400 to the upside (vs. low of 10.1967) ahead of its 200 HMA at 10.2428.
  • AUD, NZD, CAD – The non-US dollars are on the front foot amid commodity price action with the Kiwi leading the gains. AUD was briefly hampered by the release of disappointing Australian building approvals overnight while AMP Capital’s Chief Economist said he sees the RBA cutting rates to 1.00% this year (currently 1.50%) due to a fall in building approvals and negative wealth effects from declining house prices dragging on economic growth. In terms of technical, AUD/USD sees clean air to the downside until the psychological level at 0.7000, while NZD/USD is capped at its 50 DMA 0.6782 and trading just above its 20 DMA 0.6744. Meanwhile USD/CAD sits near the bottom of a 1.3223-79 range with the rise in oil supporting the Loonie ahead of the BoC interest rate decision (full preview available on the Research Suite), looking at technicals, the pair’s 50 HMA (to the upside) sits at 1.3284 with clean air seen to the downside until 1.3200 the figure.
  • JPY – The marked G10 underperformer as the safe-haven currency unwinds risks premium given the positivity around US-Sino trade talks with USD/JPY residing just below 109.00, having already tested the psychological level. On a technical front, past the 109.00 psychological level, 109.16 is a reported Fib level ahead of resistance at 109.73 (2nd Jan high).

In commodities, Brent (+1.7%) and WTI (+1.9%) prices are higher, with WTI breaching the USD 50/bbl level to the upside, and approaching USD 51/bbl, on hopes that a resolution can be achieved between the US and China. Alongside Brent testing, and briefly crossing, USD 60.00/bbl. Prices garnered further support from yesterday’s API crude inventories, which showed a larger than expected draw of -6.127mln vs. Exp. -2.7mln. Markets will be looking ahead to EIA data later on in the session, where expectations for weekly crude stocks are for a -3.3mln draw. UAE Energy Minister Mazrouei stated that the volatility in oil prices last year was counterproductive, and OPEC have stopped chasing an illogical or impractical price. Elsewhere, Berenberg have cut their 2019 Brent price forecast from USD 82.5/bbl to USD 65/bbl; and Morgan Stanley have updated their Brent forecast to USD 61.00/bbl vs. Prev. USD 69.00/bbl. Gold (-0.3%) prices have remained subdued by the positive risk sentiment from the US-China trade progress. Elsewhere, US plans to remove sanctions on Rusal, the Russian aluminium Co, are suggested to be of limited benefit to US consumers as aluminium import tariffs mean produces would require significantly greater prices in order to incentivise shipments.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -8.5%
  • 2pm: FOMC Meeting Minutes
  • 8:20am: Fed’s Bostic Speaks in Chattanooga on Economic Outlook
  • 9am: Fed’s Evans Speaks on Economy and Monetary Policy
  • 11:30am: Fed’s Rosengren Speaks on the Economic Outlook
  • 2pm: FOMC Meeting Minutes

DB's Jim Reid concludes the overnight wrap

May I be the 150th person to wish you a Happy New Year. It’s my first day back at work today and I’m writing this en route to Switzerland. Over the last two weeks in the Alps I’ve had numerous hot chocolates, bottles of red, tartiflettes, pizzas, burgers, portions of chips, hot marshmallows, ice creams and fondues. To balance this I’ve skinned up the mountain 12 times, done 20-odd snowy and hilly dog walks and looked after three excitable children. On balance there has still been more input than output though and am therefore relieved to be back at work so my body can have a rest from all angles. We nervously put 3 year old Maisie into ski school and thankfully she seemed to enjoy it. If you want to see what a three year old skiing with irresponsible parents looks like (post ski school) click on my Bloomberg header this morning to see.

If the end of 2018 was all uphill for risk, 2019 has so far seen the market wax up its skis, sharpen its edges and point them downhill. A reminder that our forecasts for 2018 and 2019 were both bearish based on the withdrawal of central bank liquidity and the lagged impact on global volatility and risk of the Fed tightening cycle. However we turned tactically bullish for Q1 2019 in the latter half of November which in timing terms proved to be too early (or wrong depending on where we end up!). We would stand by this prediction and think the early months of this year will be the best as the risks of a near-term recession and worse case trade scenarios are eventually seen to be overdone. However after that we will still live in a world of less central bank liquidity after years of excess and a period where the lagged impact of the prior Fed hikes will resonate. We still think the US yield curve (2s10s) will be the best indicator of the probability of a recession in 2020 (see our Yield Curve 101 note here from late last year for more). For us it needs to invert to suggest one is coming over the following 12-18 months. In turn, whether it inverts depends on the interplay between the Fed and the market. The worst case scenario is a Fed that ploughs through and continues to hike when the market disagrees with them (rightly or wrongly, and 10-year yields fall) or the data doesn’t justify it. A Fed at odds with the market is still very possible, especially after last Friday’s strong payroll and earnings data. However Powell’s speech last week indicated a more dovish approach than his pre-Xmas musings which is largely why 2019 has started well. So overall, all to play for, but the Fed and market interplay is likely to be the key battleground this year. Today’s Fed minutes (possibly a bit dated since Powell has already spoken since the meeting), multiple Fedspeak today (Evans, Bostic, and Rosengren) and tomorrow (Powell, Clarida, Bullard, Evans, Barkin, and Kashkari) and Friday’s US CPI will be the next major landmarks on this.

So momentum continues to favour those who point the skis straight down the mountain even if US markets did experience some intraday volatility, opening up +1% before fading back into the red around lunchtime, and ultimately rallying back to end the session near the highs. The S&P 500, DOW and NASDAQ each notched up a third day of consecutive gains. That means that if we exclude the impact of the Boxing Day surge then this three-day run (+5.17%) for the S&P is the strongest since August 2015 and sits in the top 3 since the start of 2010. The 4 out of 5 ‘up’ days to start the year is something that’s happened 11 times out of 92 including this year. We’ve had a perfect start (5 out of 5) 6 times.

On a sector basis, the gains were somewhat mixed. There was no clear outperformance by either cyclicals or defensives, as buying was broad-based. 81% of S&P 500 companies advanced, the third consecutive session with over 77% of stocks in the index gaining. That’s the best such streak since July. One soft spot was semiconductors, which fell -0.48% as Samsung announced soft demand for its chips business and missed consensus fourth quarter earnings expectations.

Credit continues to make headway with US HY spreads another 16bps tighter yesterday (and 76bps tighter over the last 3 sessions). Euro HY also started to catch up with spreads 9bps tighter while the STOXX 600 notched up a +0.87% gain. Autos were up +1.41% and +1.23% in Europe and the US, respectively, seemingly on the news that China was looking to boost auto purchases this year. Oil also played a part in yesterday’s risk on moves with WTI Oil up +2.47%, placing it up +9.49% YTD already. EM equities gained +0.33% while currencies fell -0.12%. Oil importers were pressured, with the Indian rupee and South African rand down -0.74% and -0.65%, though Turkey underperformed heavily (-1.75%) as President Erodogan escalated his rhetorical battle with US National Security Advisor Bolton, saying "Bolton made a serious mistake (…) we will not compromise."

There was also a bit of a lift in sentiment from President Trump’s comments on the US-China trade negotiations, specifically saying that “talks with China are going very well”. On the other hand, he also tweeted a quote from a steel union official supporting his tariffs, so it’s not clear what the takeaway message should be. Dow Jones also reported later that trade progress was being made although the two sides were (unsurprisingly) not ready to conclude a deal. It now confirmed that the US delegation is to remain in Beijing for a third day of talks today and China has confirmed that they will release a post-meeting statement once talks are concluded although it’s not entirely clear if the US delegation will release a statement themselves. The more important talks are likely to come later this month in any case. Elsewhere, Bloomberg reported (citing sources) that President Trump is increasingly keen to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war. In the meantime, the White House has crafted a bill which seeks to give the president broad authority to increase US tariffs if he considers other countries’ tariff and non-tariff measures to be too restrictive and President Trump is expected to urge Congress in his State of the Union address later this month to pass the new legislation.

Moving onto Trump’s first televised national address overnight. It was fairly low on substance for markets as he said more of same while discussing the ongoing US government shutdown and immigration policy. He reiterated that he considers the situation on the US's southern border to be a crisis and called on Congress to authorize $5 bn for increased border security and a wall. Congressional Democrats subsequently gave no indication that they will meet his demands. So for now, the shutdown is set to continue and around 800,000 federal employees will miss their pay checks on Friday. Nevertheless, S&P 500 futures rallied into and during the address and are trading +0.47% higher this morning. President Trump is set to meet with the congress leaders today at 3pm (New York time) to further discuss the issue.

This morning in Asia risk has continued to rally hard with the Nikkei (+1.43%), Hang Seng (+2.46%), Shanghai Comp (+1.59%) and Kospi (+1.88%) all up. Besides the positivity around the ongoing US-China trade negotiations, sentiment is also getting aided by the overnight news (per Bloomberg) that China’s Finance Ministry is set to propose an annual fiscal deficit target of 2.8% of GDP for 2019, marking a small budget expansion from the deficit target of 2.6% in 2018. The target isn’t final though and is subject to approval at a meeting of the National People’s Congress, China’s legislature, in March. Meanwhile, Japan’s November real cash earnings data also came in strong at +1.1% yoy (vs. +0.4% yoy expected). Elsewhere, crude oil prices (WTI +1.59% and Brent +1.35%) are continuing their upward move this morning.

In other news, former Fed economist Nellie Liang withdrew her nomination for a seat on the Fed’s board of governors possibly giving an opportunity to President Trump to nominate someone whose views on interest rates are more streamlined with his own. Elsewhere, the World Bank lowered its growth projections in 2019 for the global economy by 0.1pp to 2.9% largely by shaving off 0.5pp growth for emerging markets to 4.2% while also downgrading its growth forecast for the Euro area slightly and keeping the growth forecast for the US at 2.5%.

As for Brexit, the parliament vote appears to now be confirmed for January 15th. Much of the newsflow ahead of the debate yesterday centred around PM May seeking EU assurances on the backstop provision however there didn’t appear to be any meaningful progress. Indeed, France’s Europe Minister said “there is nothing more we can do” to adjust the deal. A spokesman for PM May also denied that UK officials were talking to the EU about an Article 50 extension. Elsewhere the government lost a vote on funding a no-deal Brexit last night which complicates things a little for them as Parliament tries to stop a no-deal Brexit. Sterling faded in the afternoon yesterday to close down -0.46% while Gilts were a touch weaker (+2.0bps).

That wasn’t out of line with other bond markets however with Treasuries +3.2bps higher at 2.728% and the 2s10s curve at 14.0bps (-1.1bps), while in Europe Bunds nudged up to 0.226% (+0.5bps). BTPs (+5.5bps) stood out after coming within a couple of basis points of 3% again (closed 2.954%) after the recent (post-budget drama) 6 month low of 2.67% on January 2nd. Supply appeared to weigh with Bloomberg reporting that Italy’s Treasury was preparing a 15y bond deal, while yesterday we also had deal announcements from Ireland and Portugal, likely to price today.

The headline grabber data release in Europe yesterday came in the form of another soft print out of Germany, this time with the November industrial production report. Production was reported as falling -1.9% yoy compared to expectations for +0.3% mom, resulting in the annual figure dropping to -4.7% yoy and the lowest since 2009. Issues related to the auto sector, the timing of public holidays and, believe it or not, low water levels on the river Rhine (my favourite excuse ever) were all highlighted as negatively impacting the data. That appeared to filter through to weaker confidence readings for the broader Euro Area yesterday with the December releases out while in the US there wasn’t much excitement from yesterday’s releases. The December NFIB small business optimism reading fell 0.4pts in December to 104.4 but was well ahead of expectations while the November JOLTS report showed a steady quits rate at 2.3% and a modest tick lower in the hiring rate to 3.8% from 4.0%. These point to continued improvement in the wage outlook.

Looking ahead to today, the FOMC minutes this evening will likely be the highlight and with the Brexit debate resuming in parliament any headlines there will also be closely watched. Our team expect that the minutes will provide more colour on the Committee’s thinking around several key issues for market participants—namely, their views about headwinds from slowing global growth, progress on the Fed's balance sheet strategy, and the debate around the neutral policy rate. After Powell’s early-year semi U-turn, the minutes could be slightly dated though.

As for other data that’s due out, we’ll get November trade stats out of Germany this morning followed by Q3 unit labour costs data for the UK and the November unemployment rate for the Euro Area. In the US we’ll also get the latest MBA mortgage applications data. There should be plenty of eyes on today’s Fedspeak also in light of Powell’s comments last week with Bostic (1.20pm GMT), Evans (2pm GMT) and Rosengren (4.30pm GMT) all on the cards. The BoE’s Carney is also due to participate in an online Q&A this afternoon. Finally it’s worth noting that US Trade Representative Lighthizer is due to meet EU Trade Commissioner Malmstrom today to discuss bilateral trade liberalization. It’s expected that both will also meet Japan’s trade and industry minister Seko to discuss China’s trade practices.

 

 

Published:1/9/2019 6:26:30 AM
[Markets] Stocks Shrug as President Trump Makes Case for Border Wall President Donald Trump made his case for a border wall—and the Dow Jones Industrial Average didn’t seem to mind what it heard. S&P 500 futures have advanced 0.4%, while Dow futures have risen 98 points, or 0.4%, and Nasdaq Composite futures have gained 0.5%. In a calm, measured tone, Trump made the case for a border wall, one that he called necessary for the nations’s safety. Published:1/8/2019 8:53:50 PM
[Markets] Apple CEO Tim Cook makes 283 times the typical employee Apple Inc. Chief Executive Tim Cook has a total compensation that is 283 times the median Apple worker's compensation of $55,426, according to a document filed with the Securities and Exchange Commission late Tuesday. Cook's 2018 annual compensation package was $15.7 million, which includes $3 million in cash and $12 million in cash incentives, among other things. Apple also spent $294,082 on private jets for Cook's personal travel; for security reasons the company requires Cook to use a private jet for all business and personal travel. Companies are reporting their CEO pay in comparison to the median worker for the first time because of a 2015 rule mandated by the Dodd-Frank act. Apple stock was down less than 0.1% in after-hours trading and gained 1.9% to $150.72 during regular trading. The S&P 500 index gained 1% Tuesday and the Dow Jones Industrial Average , of which Apple is a component, rose 1.1%. Published:1/8/2019 4:54:11 PM
[Markets] Dow Charges Higher as Optimism Grows for U.S.-China Trade Deal The Dow Jones Industrial Average was rising for a third straight day amid cautious optimism over the prospects for a trade deal between the U.S. and China. jumped 8.4% after the railway operator said industry veteran Jim Vena would join the company as chief operating officer later this month. Published:1/8/2019 10:23:08 AM
[Markets] Wall Street gains for third day on signs of trade talk progress U.S. President Donald Trump earlier tweeted that the talks were going "very well". Trade-sensitive stocks such as Boeing Co and Caterpillar Inc rose more than 2 percent, boosting the Dow Jones Industrial Average. Amazon.com Inc rose 2 percent, adding to Monday's gains that helped the market power higher and the online retailer overtake Microsoft Corp to become Wall Street's most valuable company. Published:1/8/2019 9:51:04 AM
[Markets] PG&E's stock tumbles toward 16-year low, after retirement of officer of electric operations adds to bankruptcy worries Shares of PG&E Corp. tumbled 12% in morning trade, extended the recent plunge toward 16-year lows, as the sudden retirement of an executive officer of the utility added to growing fears of a potential bankruptcy. The company disclosed in a filing with the Securities and Exchange Commission that Patrick Hogan, senior vice president of electric operations at Pacific Gas and Electric Co., will retire effective Jan. 28. The company said Michael Lewis will take over Hogan's role, effective Jan. 8. Hogan joined PG&E in 2013, while Lewis joined PG&E as vice president of electric distribution operations in August 2018. The stock, which was on track for its lowest close since May 2003, has plummeted 65% over the past three months, amid concerns the California utility might be forced to seek bankruptcy protection because of billions in liabilities tied to the state's recent wildfires. In comparison, the Dow Jones Utility Average has declined 4.9% over the past three months and the Dow Jones Industrial Average has shed 10.6%. Published:1/8/2019 9:27:04 AM
[Markets] Dow jumps by more than 300 points amid reports that U.S.-China 'narrow differences on trade' The Dow Jones Industrial Average rose sharply on Tuesday on hope of hope for progress in two-day talks between the the U.S. and China. The Dow advanced 310 points, or 1.3%, at 23,841, the S&P 500 index climbed 1.1% at 2,577, while the Nasdaq Composite Index rose by 1.2% at 6,901. The Wall Street Journal reported, citing sources, that China and the U.S. had narrowed differences in their negotiations on trad, and were establishing a cabinet-level follow-up in talks for some time in January. Investors have been watching for signs of softening in the tensions from trade talks between Beijing and Washington, where have been key drivers for markets. The unexpected appearance of Chinese Vice Premier Liu on the first day of negotiations was praised by the U.S. delegation as a signal of the seriousness of the summit. On Tuesday, reports from WSJ indicated that progress had been made on purchases of U.S. goods and services but didn't offer precise details. In corporate news, shares of Sears Holdings Corp. tanked after reports indicated that the retailer would seek liquidation proceedings in bankruptcy. Shares of Tesla Inc. also were in focus after Oracle Corp. CEO Larry Ellison took a stake worth about $1 billion in the electric-car maker run by Elon Musk. Ellison was recently announced as a new Tesla board member. Published:1/8/2019 8:59:18 AM
[Markets] There’s No Method to the Stock Market’s Madness As stock investors look to the new year, their perceptions are being clouded by the U.S. market’s terrible performance last Christmas Eve. Compounding their error, investors made far too big a deal of the stock market’s extraordinary day-after-Christmas rally—the best in the history of the Dow. Students of the market are aware of the stock market’s randomness’ outsized role in the stock market’s behavior. Published:1/8/2019 7:53:17 AM
[Markets] US Futures, European Stocks Jump On Trade Optimism

S&P futures, European equities and Asian stocks all jumped as investors awaited a positive outcome from trade talks between the US and China economies, ahead of a televised address by President Donald Trump in which he is expected to use emergency powers to announce the construction of a border wall, while the US government shutdown enters its 18th day.

Chinese authorities plan to give a statement following the latest round of U.S. trade talks which ends today in Beijing, after both sides signaled progress toward resolving a conflict that has roiled markets, Bloomberg reported. "The talks are still underway and I believe we will release a detailed readout after they are concluded,” Chinese foreign ministry spokesman Lu Kang told reporters at a regular briefing Tuesday in Beijing.

While no timing was given and it wasn’t immediately clear if the U.S. would release a statement, on Monday Commerce Secretary Wilbur Ross expressed optimism, telling CNBC that “there’s a very good chance that we’ll get a reasonable settlement.” This took place after China's Vice Premier Liu He made an unexpected appearance at the talks on Monday in a sign the Chinese were also pushing for a positive outcome.

This was enough to push futures on the Dow, Nasdaq and S&P 500 to session highs, with the Dow pointing to a 200 point gain with the S&P over 20 points higher, and nearly 11% higher from the Christmas Eve plunge when Steven Mnuchin activated the Plunge Protection Team.

China’s Foreign Ministry said Beijing had the “good faith” to work with the United States to resolve trade frictions, but many analysts doubt the two sides can reach a comprehensive agreement on all of the issues before a March deadline. “Various concerns markets had earlier are receding for now. Still, there’s no denying that U.S. (company) earnings momentum is slowing,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “Ultimately we need to see whether upcoming earnings reports can dispel market concerns.”

European stocks also stormed higher, led by retailers and real estate companies, with the Stoxx Europe 600 Index over 1.1% higher...

... after shrugging off a shockingly weak German industrial production drop, the biggest since the financial crisis, and worsening euro-area consumer confidence to advance.

“I think the market has been quite extreme in pricing recession risks, so I think we have value now in both the equity and bond markets,” SEB investment management’s global head of asset allocation Hans Peterson said. “The discussions between the U.S and China will take some time but I think the markets are prepared to move in the right direction on positive signals.”

Earlier, MSCI’s broadest index of Asia-Pacific shares ex-Japan reversed early gains however to end down 0.2%. It was dragged lower by falls in South Korea due to Samsung and in China where government bond yields also saw their biggest daily gain in 9 months.  Japanese shares and Hong Kong stocks closed higher, though equities slid in South Korea while China's Shanghai Composite closed closed down after flirting with gains and losses despite renewed promises of more easing by Beijing.

Korean stocks were impacted after Samsung Electronics surprised the market on Tuesday with a 29% drop in quarterly profit, blaming weak chip demand in a rare commentary issued to “ease confusion” among investors already fretting about a global tech slowdown. The South Korean firm also said profit would remain subdued in the first quarter due to difficult conditions in memory chips, but that the market is likely to improve in the second half of the year as customers release new smartphones. Weaker earnings at the world’s biggest maker of smartphones and semiconductors adds to worries for investors already on edge after Apple last week took the rare move of cutting its quarterly sales forecast, citing poor iPhone sales in China.

Dollar bulls got a breather as Treasuries steadied before a televised address by President Donald Trump, while the dollar gained for the first time in four days as investors dialed back some of the bets taken over the past week; rising stocks damped demand for the yen and short-covering in USD/JPY also bolstered the greenback. The euro retreated after touching 1.1485 as an unexpected fall in German industrial output for the third straight month helped to weaken the euro zone currency. The pound retreated after earlier touching a one-week high against the dollar amid supportive cross flows as traders assessed chances that the European Union will offer fresh assurances to U.K. PM Theresa May on the Irish border. Elsewhere, the Canadian dollar hit one-month highs, having gained 2.7 percent in the past five days on gains in oil prices and on speculation the Bank of Canada will raise interest rates again this week. It last stood at 1.3272 per U.S. dollar. Emerging-market currencies lost steam while oil extended its advance. 

Treasuries held steady and European bonds fell. Large short positions in bunds were covered through option trades amid another set of soft data out of the euro area that kept the euro offered. Stocks traded globally in the green, while euro-area bonds drifted lower.

In the latest Brexit news, UK and EU leaders are reportedly in talks regarding possibly extending Article 50 past March 29th amid fears that a Brexit agreement will not be struck in time, according to the Telegraph. However, a UK Downing Street spokeswoman later stated that UK PM May has always said we would leave the EU on March 29th and that we would not extend Article 50. Instead, UK PM May is said to be pinning her hopes on a last-minute offer from Brussels to avoid her Brexit deal suffering a defeat at the House of Commons on the 15th January. Furthermore, UK PM will today be urged ‘play hardball’ with the EU by offering UK lawmakers a vote on her deal with the condition that they would be able to decide at a later date whether or not to enter the Irish backstop.

In the latest geopolitical developments, we reported earlier that Turkish President Erdogan said that he cannot accept US National Security Advisor Bolton's comments on Syria, and that he has made a serious mistake, adding that he has agreement with US President Trump, but the administration are stating different things.

Oil traded near $49 a barrel in New York, with Brent (+1.6%) and WTI (+1.5%) in the green, trading within a range of around USD 1.0/bbl as there have been no new major catalysts. Positive risk sentiment is predominantly fuelled on trade talk optimism between the US and China. The Iranian Deputy Foreign Minister says he hopes India will seek another US waiver on Iranian sanctions. Separately, the Arab Petroleum Corp expects oil prices to trade between USD 60-70/bbl by the middle of the year.

Gold (-0.4%) is down as the dollar recovered lost ground overnight, alongside an improvement in risk sentiment as markets are optimistic that a deal can be reached between US and China. Separately, China have restarted their gold purchases following a two-year break; with 0.32M/oz of the yellow metal added to their reserves in December 2018. Canadian sources state that the US and Canada are not currently, or scheduled to begin, negotiating to lift metal tariffs; despite reports that discussions had been held on steel tariffs.

Expected data include NFIB Small Business Optimism Index, while the publication of trade-balance figures has been postponed by government shutdown. Helen of Troy is among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.5% to 2,562.50
  • STOXX Europe 600 up 0.7% to 345.23
  • MXAP down 0.04% to 148.36
  • MXAPJ down 0.1% to 478.51
  • Nikkei up 0.8% to 20,204.04
  • Topix up 0.4% to 1,518.43
  • Hang Seng Index up 0.2% to 25,875.45
  • Shanghai Composite down 0.3% to 2,526.46
  • Sensex up 0.4% to 35,990.11
  • Australia S&P/ASX 200 up 0.7% to 5,722.44
  • Kospi down 0.6% to 2,025.27
  • German 10Y yield rose 1.8 bps to 0.239%
  • Euro down 0.1% to $1.1459
  • Italian 10Y yield unchanged at 2.538%
  • Spanish 10Y yield rose 3.0 bps to 1.53%
  • Brent futures up 1.3% to $58.09/bbl
  • Gold spot down 0.5% to $1,283.19
  • U.S. Dollar Index up 0.2% to 95.87

Top Overnight News from Bloomberg

  • The Trump administration expressed optimism it can reach a “reasonable” trade deal with China as President Xi Jinping dispatched a top aide to the negotiations. China is said to buy more U.S. soyPrime Minister Theresa May is considering a move that could water down her threat to crash Britain out of the European Union without a deal, according to a person familiar with her thinking
  • President Donald Trump plans to deliver a prime-time televised address on Tuesday before he travels to the U.S.-Mexico border later in the week as he battles Democrats over his proposed border wall
  • A dramatic plunge in German industrial activity late last year raised the risk that Europe’s largest economy will slip into recession. Production fell for a third month in November and posted its worst year-on-year drop since the end of the financial crisis
  • Donald Trump’s national security adviser will tell Turkish leaders on Tuesday that the planned withdrawal of U.S. forces from Syria has morphed into a slower and more complicated exit with the prospect of an indefinite American footprint in the war-torn country
  • Kim Jong Un is making his fourth visit to China, in a sign that the North Korean leader is seeking Chinese President Xi Jinping’s counsel ahead of a possible second summit with Donald Trump
  • Declines in euro-yen hedging costs and Japan’s yields mean that investors from the Asian nation could pick up at least 10 basis points when buying currency-hedged 10-year French bonds instead of 30-year JGBs, a benchmark comparison. As recently as November, they would suffer a loss
  • Former Federal Reserve economist Nellie Liang withdrew from consideration for a seat on the central bank’s board of governors, the White House said. Liang dropped out of her own accord and wasn’t pressured, said a person familiar with the matter
  • Italy’s populist government has flagged its readiness to help cash-strapped Banca Carige SpA, approving state guarantees on any future bond issues and signaling its support for a possible precautionary recapitalization.
  • Oil notched its longest stretch of daily gains in more than 17 months
  • Samsung Electronics Co.’s quarterly profit and sales missed estimates on sputtering demand for memory chips during the last three months of 2018

Asian equity markets traded mixed as the region failed to take full advantage from the performance on Wall St where US-China trade hopes saw all US majors extend on recent gains. ASX 200 (+0.7%) and Nikkei 225 (+0.8%) got a tailwind from their counterparts stateside where focus centred on the resumption of trade talks between the world’s 2 largest economies which was surprisingly attended by Chinese Vice Premier Liu He who is a top economic adviser to President Xi, while recent currency flows were also favourable for Japanese stocks. Conversely, KOSPI (-0.6%) lagged following disappointing preliminary Q4 results from index giant and tech heavyweight Samsung Electronics, while Shanghai Comp. (-0.3%) and Hang Seng (+0.2%) were indecisive after another liquidity drain by the PBoC and with weakness seen in auto names led by Geely following a near-40% decline in December sales. Finally, 10yr JGBs were subdued amid gains in Japanese stocks although strong results at the 10yr auction, later provided a floor for prices

Top Asian News

  • North Korea’s Kim Visits China Ahead of Possible Trump Summit
  • SoftBank Is Said to Plan Smaller $2 Billion Investment in WeWork
  • Bayer Gets Rare Monsanto Reprieve With India Cotton Seed Ruling
  • Nomura to Switch to Merit-Based Pay for Japan-Based Brokers

Major European indices are in the green [Euro Stoxx 50 +0.9%] with gains generally broad-based. The FTSE 100 (+0.9%) is in the green with Ashtead Group (+3.7%) in the green after being upgraded at UBS and Tesco (+3.2%) in the green as their sales in the 12 weeks to December 30th increased +0.6% vs. Prev. -0.1% according to the Kantar update. Sectors are also in the green with some underperformance in energy and material names. Other notable movers include Morrisons (-3.4%) who are towards the bottom of the Stoxx 600 after Kantar data showed lower sales in the 12 weeks to December 30th of +0.1% vs. Prev. +0.5%; with the Co also reaffirming their 2018/19 targets. Unilever (-0.2%) are in the red after being downgraded at UBS.

Top European News

  • Bang & Olufsen Shares Gain as Luxury Hi-Fi Maker Calls Bottom
  • Brexit- Wary U.K. Shoppers Keep Lid on Holiday Grocery Spending
  • ‘Beast From the East’ Chill May Boost Energy Demand in Europe
  • Goldman Sees Three Routes to Europe Capital-Goods Outperformance

In FX, it was a choppy day for the dollar as the index recovered lost ground overnight and tested 96.000 (vs. intraday low 95.620) to the upside before pulling back to around 95.750 as markets await further details on US-Sino trade-related dialogue and US CPI later in the week. The dollar has re-gained traction in EU trade to retest the big figure ahead of US President Trump’s speech on the Southern border at 2100EST/0200GMT.

  • GBP – A volatile day for the Pound as vague and contradicting Brexit reports emerge with initial upside in Sterling seen following comments from Irish PM Varadkar, who stated that the EU are willing to offer fresh written assurances on the backstop, ahead of House of Commons meaningful vote next week. Subsequently, Cable rose to levels just shy of 1.2800 shortly before retreating to around 1.2750 amid lack of clarity on the so-called assurances alongside the EU repeatedly stating that Brexit negotiations are not to be reopened and Brexiteers desiring an overhauled deal. GBP has been relatively indecisive overnight as Telegraph reports that UK and EU leaders are said to be in talks over extending Article 50 were shortly shot down by a Downing St. spokesman. Brexit Minister Barclay emerged during early EU trade to also deny the aforementioned Telegraph reports, whilst also adding that the process of the A50 extension is too complex. From a technical perspective, Cable resides just below its 50 DMA (1.2773) while options see 353mln expiring at 1.2770 at today’s NY cut.
  • EUR – On the backfoot following a dollar-dominated Asia-Pac session as the single currency was slightly dented by the release of disappointing German industrial output which ING and Lloyds highlight increases the risk of a German recession. This saw EUR fall from levels just shy of 1.1450 to a low print of 1.1433. In terms of technicals, the pair’s 100 DMA lies at 1.1477 while a large 1bln in option expiries rests between 1.1425-35, potentially diluting some upside.
  • AUD, NZD –The antipodeans are the marked G10 underperformers, also falling victim to the greenback, with the Aussie initially pressured upon the release of a narrower than expected trade surplus overnight. As EU trade went underway, the NZD and AUD lost more ground to the buck with the former retreating further below 0.7150 to lows in close proximity of its 50 HMA around 0.7120. Meanwhile the latter sits nearer to the bottom of a 0.6730-60 range with its 100 DMA around 0.6680.
  • TRY- The Lira weakens for a second consecutive day amid comments from Turkish President Erdogan who rejected US National Security Advisor Bolton’s statement that the withdrawal of US troops from Syria depend on certain conditions, including Turkish assurances that the Kurds in Northern Syria would be safe. Given the possible repercussions on the relationship between Turkey and the States, USD/TRY rose past 5.4000 to a high print of 5.4767 (vs. low of 5.3800) ahead of the next psychological level at 5.5000.

In commodities, Brent (+1.6%) and WTI (+1.5%) in the green, trading within a range of around USD 1.0/bbl as there have been no new major catalysts. Positive risk sentiment is predominantly fuelled on trade talk optimism between the US and China; where Chinese Vice Premier Liu He unexpectedly attending the talks, which were scheduled to be held at a vice-ministerial level. Elsewhere, the Iranian Deputy Foreign Minister says he hopes India will seek another US waiver on Iranian sanctions. Separately, the Arab Petroleum Corp expects oil prices to trade between USD 60-70/bbl by the middle of the year. Gold (-0.4%) is down as the dollar recovered lost ground overnight, alongside an improvement in risk sentiment as markets are optimistic that a deal can be reached between US and China. Separately, China have restarted their gold purchases following a two-year break; with 0.32M/oz of the yellow metal added to their reserves in December 2018. Canadian sources state that the US and Canada are not currently, or scheduled to begin, negotiating to lift metal tariffs; despite reports that discussions had been held on steel tariffs.

Looking at the day ahead, we’ve got the November trade balance, JOLTS job openings and consumer credit prints. Away from all that US-China trade talks are expected to continue while the World Bank should release its latest global growth forecasts at some stage today.

US Event Calendar

  • 6am: NFIB small business optimism, est. 103, prior 104.8
  • 8:30am: Trade balance data postponed by government shutdown
  • 10am: JOLTS job openings, est. 7,050, prior 7,079
  • 3pm: Consumer credit, est. $17.5b, prior $25.4b

DB's Jim Reid concludes the overnight wrap

Compared to the relentless barrage of headlines in the last few sessions, the past 24 hours has either been dull or a welcome breather depending on your position. The good news though is that US equities made further headway on Friday’s employment report and Powell inspired gains yesterday. The S&P 500 closed up +0.70% last night, DOW +0.42% and NASDAQ an even more impressive +1.26%. To put a bit of context around the last couple of sessions, this has been the biggest two-day percentage jump for the S&P, excluding the outsized Boxing Day rally session, since August 2015.US HY spreads also rallied another 20bps in cash terms which puts the two-day move at an impressive -60bps, the best two-day stretch since June 2009. Amazingly the range for US HY spreads in the whole of H1 2018 was just 51bps. So we’ve easily eclipsed that in just a few sessions already. Treasury yields had actually nudged lower during the European session as risk stuttered a bit (eventually culminating with the STOXX 600 down -0.15%) however then weakened as the US walked in with 10y yields back up to 2.697% (+2.7bps on the day) and 2s10s curve slightly flatter at 15.1bps. WTI Oil climbed another +1.17% which certainly helped risk while the USD index (-0.53%) hit its lowest since last October.

In all honesty, there wasn’t a huge amount to report. The US-China trade talks haven’t brought about any headlines of particular substance however are still ongoing so it’s worth seeing if anything comes out. Yesterday, US Commerce Secretary Ross said that there is a “very good chance” that a “reasonable” agreement would be reached but “the real issue is what are the enforcement mechanisms, what are the punishments if people don’t do what they were supposed to do?” On the talks, it didn’t go unnoticed that Chinese Vice Premier Liu He unexpectedly attended the discussions yesterday. It was previously expected that only mid-ranking officials would attend, so the inclusion of the top economic adviser to President Xi Jinping is significant insofar as China is attaching importance to the talks. Bloomberg reported yesterday that Liu is expected to meet with US Trade Representative Lighthizer later this month.

Relatedly, our US economists cited trade as the number one uncertainty to the US economy and Fed outlook, which they updated yesterday (link here ). They modestly lowered their 2019 growth forecast by -0.1pp to 2.3%, though they maintain their existing inflation and unemployment projections. They now see a base case for two Fed hikes this year, as the Fed responds to tighter financial conditions with a slower hiking pace. If the US-China trade dispute resolves positively, they see scope for a third hike this year. If tariffs escalate further, they think a recession and rate cuts are possible.

Continuing the Powell-induced trend toward a so-called “relent” and alongside our economists’ new projections, Atlanta Fed President Bostic talked down his rate expectations yesterday. He said that “right now, I’m at one move for 2019,” though he highlighted the possibility that he could support more or fewer hikes, depending on how trade policy develops and how the economy responds. Bostic is not a voter this year, but we’ll hear from voters Evans and Rosengren tomorrow and Bullard, Clarida, and Powell on Thursday. Perhaps equally important for risk sentiment will be President Trump’s planned address to the nation at 9pm ET tonight, where he will comment on the ongoing government shutdown. Midnight tonight is the unofficial deadline for a deal which would still enable furloughed federal employees to receive pay checks this Friday. So, barring a surprise breakthrough, the pain of the shutdown will begin to be felt soon.

Meanwhile, and just in case you’d been missing them, Brexit headlines were back yesterday. However it wasn’t particularly exciting. Speaking to the British press, PM May mostly reiterated the points made over the weekend, specifically that before the debate begins again tomorrow, government will set out further assurances from the EU on the backstop and specific measures for Northern Ireland to alleviate the need for a backstop, as well as seek a greater role for parliament in negotiations on the future relationship. A vote next Tuesday is looking likely now. Yesterday DB’s Oliver Harvey published his latest update in which he reiterated his base case that May fails to secure ratification for the agreement in parliament next week. He attaches a 60% probability to May continuing with the current agreement and losing the vote (or delaying the vote again in the face of defeat) and a 40% chance of May pivoting to a softer Brexit stance and therefore gaining parliamentary support. He sees a 35% chance that article 50 is extended to accommodate more negotiations, new elections, or a second referendum, and a 10% chance of a “crash Brexit.” See this link for the full set of Oli’s further probabilities in the face of losing the vote next week.

It’s been a busy day couple of days for DB research with our European equity strategist Sebastian Raedler arguing that current market conditions resemble the growth scare in late 2015 / early 2016. On both occasions, the rate of change in global PMIs turned sharply negative and markets priced significant further growth weakness on the back of China macro concerns and US recession worries. Back then, the worries were misplaced: PMIs rebounded, leading equities to rally by 20%+ and cyclical sectors to outperform sharply. He thinks the episode offers a good playbook for the current situation. His macro projections are consistent with 10% upside for European equities and 15% upside for cyclical versus defensives over the coming six months. See the link to the report here .

To markets in Asia now where sentiment is more mixed with the Nikkei (+1.49%) and Hang Seng (+0.35%) up fairly comfortably while the Shanghai Comp (-0.23%) and Kospi (-0.10%) are currently in the red. The declines in China and Korea appear to be partly impacted by a much weaker than expected earnings release from Samsung, which follows the latest downgraded guidance from Apple following weak demand in China. Elsewhere, futures on S&P 500 are up +0.47% in early trade today and most Asian currencies are trading weaker against the greenback this morning.

In other news, yesterday’s data wasn’t much of a market mover. The non-manufacturing ISM for December in the US mirrored the manufacturing print in coming below expectations at 57.6 (vs. 58.5 expected and 60.7 previously). However, as it came out after Friday’s employment report it lost some of its usual impact especially with the most significant employment component reading coming in just over 2pts lower at 56.3 (which ironically would have likely heightened concerns ahead of payrolls). The associated text included the usual concern about tariffs that has become more commonplace, however the overall tone indicated further cyclical strength albeit there were some building concerns over labour shortages.

Prior to this, in Europe the highlight of a quiet European calendar had been a softer than expected November factory orders report out of Germany. Orders came in at -1.0% mom (vs. -0.1% expected), albeit distorted by aircraft orders. Still, the year-on-year figure dipped to its lowest level since 2012 at -4.3%. Later in the morning we learned that investor confidence in the Euro Area wasn’t quite as bad as feared with the Sentix reading dropping to -1.5 in January from -0.3, compared to expectations for a drop to -2.0. Note also that DB’s Mark Wall lowered his 2019 euro area GDP forecast -0.2pp to 1.2% on the softer outlook for external demand. Full note available here .

As for the day ahead, early this morning in Europe the focus should be on the November industrial production report in Germany. Not long after that we get the November trade balance for France before we then get December house prices data in the UK and the final December consumer confidence revision for the Euro Area. In the US we’ve got the December NFIB small business optimism reading to look forward to along with November trade balance, JOLTS job openings and consumer credit prints. Away from all that US-China trade talks are expected to continue while the World Bank should release its latest global growth forecasts at some stage today

Published:1/8/2019 6:53:24 AM
[Markets] Buying into the market’s ‘First Five Days of January’ indicator is a mistake Should you care if the Dow Jones Industrial Average on Tuesday, Jan. 8 closes above where it ended 2018 — at 23,327.46? According to this indicator, the U.S. stock market’s 2019 result will follow its direction over these first five trading sessions. With four of the five trading sessions already complete, the Indicator is leaning bullish: The Dow (DJIA) after those four days is ahead 204 points, or 0.9%. Published:1/8/2019 4:49:33 AM
[Markets] Dow futures move slightly higher amid US-China trade talks At around 03:35 a.m. ET, Dow Jones Industrial Average futures rose 97 points, indicating a positive open of more than 99 points. Futures on the S&P 500 and Nasdaq Composite were also relatively upbeat. The moves in pre-market trade come as dozens of officials from the world's two largest economies continue talks to resolve their ongoing trade dispute. Published:1/8/2019 2:50:17 AM
[Markets] Are We In A Secular Bull Market?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Just recently, Jeff Saut from Raymond James made a very interesting statement with respect to the recent market decline.

“Speaking to last week’s Dow Theory sell signal, we really cannot decide to ignore it, as we did with two previous false sell signals, or honor it because we continue to believe this is a secular bull market.”

It is an interesting point and one that has been prognosticated by several Wall Street analysts and bloggers in recent months like Josh Brown who recently penned:

“If Ari is correct, then we are currently enduring a cyclical bear market but the secular bull market that began in 2013 with fresh S&P 500 record highs is still intact.”

Here is the problem with the analysis.

Secular markets, bull or bear, are not defined by price movements.

For example, if the market is down 20%, the technical definition of a “bear market”, then any rallies and subsequent declines that set new lows, are not defined as a “secular bear market.” It is just a “bear market” where prices are “trending” lower rather than “higher.”

What defines secular, or very long-term, markets are valuations. 

The chart below shows the history of secular bull market periods going back to 1871 using data from Dr. Robert Shiller. One thing you will notice is that secular bull markets tend to begin with valuations around 10x earnings and end at 23-25x earnings or greater. (Over the long-term valuations do matter.)

But, here is the other problem I have with both Josh and Jeff’s thesis of a price based breakout defining a new secular “bull” market.

The chart below compares the last secular “bear” market that ran from 1963 to 1982 as compared the current cycle. Notice the chart for this previous period stops in 1973. I will show you the rest of this period in a moment. Also, importantly, note the level of valuations.

What is important, besides the very similar pattern between the two periods, is the breakout in 1969 did not start a new “secular” bull market. Rather, it was a setup for the next major decline.

“Okay, but the breakout in 1972 was surely the beginning of the new secular bull market – right?”

Not so fast.

The second breakout in 1972, like the previous, was the setup for the final market dive that reset valuation levels back to historic secular bear market lows. That crash also created the necessary extreme negative in investor psychology. The 1974 bear market low was also known as a “black bear market” as investors were so brutally ravaged they did not return to the markets in earnest until nearly two decades later. 

As noted above, it is not just price action that denotes secular bull and bear market periods.

It is valuations.

What drives long-term secular “bull” markets is “valuation expansion.” In order to have the magnitude of “valuation expansion” needed to support a secular “bull” market, you must both start at “under-valued” levels and have the economic factors and investor enthusiasm to support a return to “over-valued” levels.

The ability to have a “1982-2000 affair” is highly improbable. The 1982-2000 secular bull market cycle was driven primarily by a multiple expansion process which began with valuation levels of 5-7x earnings and a dividend yield of 5%. Interest rates and inflation were at extremely high levels and were at the beginning of a 40-year decline which would increase profitability as production and borrowing costs fell.

The first chart shows the secular bear market of the ’60s and ’70s with an overlay of valuations, dividends, interest rates and inflation.

You will notice that at the beginning of the bear market in the 60’s valuations were high while everything else was low. By the end of the secular period, these factors were reversed.

Now, let’s juxtapose that previous period with the much beloved, and hoped for, secular bull market of the 1980s and ’90s.

There were several contributing factors that drove that particular secular bull market:

  1. Inflation and interest rates were high and falling which boosted corporate profitability and reduced discounting factors making the value future earnings higher.

  2. The extreme negative sentiment of the late ’70s was finally undone by the early ’90s. (At the turn of the century roughly 80% of all individual investors in the market began investing after 1990. 80% of that total started after 1995 due to the investing innovations created by the Internet. The majority of these were “boomers.”)

  3. Large foreign net inflows to chase the “tech boom” drove prices to extreme levels.

  4. The mirage of consumer wealth, driven by declining inflation and interest rates and easy access to credit, inflated consumption, corporate profits, and economic growth.

  5. Corporate profits were boosted by the deregulation of industries, wage suppression, outsourcing, and productivity increases. 

  6. Pension funding requirements and accounting standards were eased which increased corporate profits. 

  7. Stock-based executive compensation was grossly expanded which led to more “accounting gimmickry” to sustain stock price levels.

The dual panel chart below shows the economic fundamentals versus the S&P 500 and the change that occurred beginning in 1983. (Red dividing line)

We can simplify this by overlaying debt versus the underlying economic variables.

Currently, there is simply an inability to create the kind of debt-driven consumption growth seen during the ’80-’90s.

Despite much hope that the current breakout of the markets is the beginning of a new secular “bull” market – the economic and fundamental variables suggest otherwise. Valuations remain at very elevated levels which are the opposite of what has been seen previously. Interest rates, inflation, wages, and savings rates are all at historically low levels which are normally seen at the end of secular bull market periods, not the beginning of one.

The table below shows the difference between 1980 and today.

Lastly, the consumer, the main driver of the economy, will not be able to again become a significantly larger chunk of the economy. With savings low, income growth weak and debt back at record levels, the fundamental capacity to re-leverage to similar extremes is no longer available.

Let’s also not forget the singular most important fact.

The breakout of the markets in 2013 was not one based on organic economic fundamentals but rather through massive monetary interventions by Central Banks globally. The previous secular bull markets in our history we ones which were derived from extreme undervaluations, washed out financial markets, and extreme negative sentiment.

Such is clearly not the case today.

While stock prices can certainly be lofted higher by further monetary tinkering, the larger problem remains the inability for the economic variables to “replay the tape” of the ’80s and ’90s. At some point, the markets and the economy will have to process a “reset” to rebalance the financial equation.

However, it is precisely that reversion which will create the “set up” necessary to start the next great secular bull market. Unfortunately, as was seen at the bottom of the market in 1974, there will be few individual investors left to enjoy the beginning of that ride.

Published:1/7/2019 4:19:08 PM
[Markets] Dow Pares Gains Into Close as Wall Street Monitors U.S.-China Trade Talks The Dow Jones Industrial Average was higher Monday amid improved prospects for a trade agreement between the U.S. and China. could be preparing a $40 billion bid for the company's airplane leasing division. reached an agreement to buy biopharmaceutical company Loxo Oncology Inc. Published:1/7/2019 3:18:01 PM
[Markets] There’s no method to the stock market’s madness As stock investors look to the new year, their perceptions are being clouded by the U.S. market’s terrible performance last Christmas Eve. Compounding their error, investors made far too big a deal of the stock market’s extraordinary day-after-Christmas rally—the best in the history of the Dow. Students of the market are aware of the stock market’s randomness’ outsized role in the stock market’s behavior. Published:1/7/2019 2:20:09 PM
[Markets] S&P Takes Out Overnight Highs, Dow Diverges

The S&P ramped past overnight future highs and extended gains back to mid-December...

but Dow futures remain unable to break out...

10Y Bond yields and stocks are tracking tick for tick (but we note that 30Y yields are actually lower on the day)...

And the USD index continues to slide...

Simply put, it appears bad news is good news for stocks once again (gold and bonds lower since the dismal ISM Services print, USD flat, and Stocks surging)...

Published:1/7/2019 11:16:24 AM
[Markets] Dow Rises as Wall Street Monitors U.S.-China Trade Talks The Dow Jones Industrial Average turned higher Monday after the blue-chip index surged Friday following stronger-than-expected jobs data and dovish comments from Federal Reserve Chairman Jerome Powell. reached an agreement to buy biopharmaceutical company Loxo Oncology Inc. Stocks were rising on Monday, Jan. 7, following Friday's rally that was fueled by much stronger-than-expected U.S. jobs data and dovish messages from the Federal Reserve. Published:1/7/2019 10:46:37 AM
[Markets] Apple is biggest loser as Dow declines 25 points early Monday Apple is biggest loser as Dow declines 25 points early Monday Published:1/7/2019 9:18:43 AM
[Markets] Dow Wavers as Wall Street Monitors U.S.-China Trade Talks The Dow Jones Industrial Average fell slightly after the blue-chip index surged Friday following stronger-than-expected jobs data and dovish comments from Federal Reserve Chairman Jerome Powell. could be preparing a $40 billion bid for the company's airplane leasing division. reached an agreement to buy biopharmaceutical company Loxo Oncology Inc. Published:1/7/2019 9:18:42 AM
[Markets] US STOCKS SNAPSHOT-S&P 500 opens flat after strongest surge in 2019 The S&P 500 opened little changed on Monday after its biggest one-day surge in the new year, as investors turned wary of the latest round of U.S.-China trade talks and a prolonged government shutdown. The Dow Jones Industrial Average rose 28.01 points, or 0.12 percent, at the open to 23,461.17. Published:1/7/2019 8:45:13 AM
[Markets] Celgene provides 2019 profit and sales outlooks above expectations Celgene Corp. , the biopharmaceutical company that agreed last week to be acquired by Bristol-Myers Squibb Co. in a mega-deal valued at $74 billion, provided 2019 profit and sales outlooks that were above expectations. The company said it expects adjusted earnings per share, which excludes non-recurring items, of $10.60 to $10.80, above the the FactSet consensus of $10.31. Revenue is expected to be $17.0 billion to $17.2 billion, Celgene said, while the FactSet consensus is for $16.95 billion. The company expects 2019 sales of its blockbuster drug Revlimid to rise 11% to about $10.8 billion, compared with the FactSet consensus of $10.85 billion. "Multiple clinical and regulatory milestones are expected in 2019 to advance our late-stage portfolio and accelerate our early-stage pipeline," Chief Executive Mark Alles said. The stock slipped 0.5% in premarket trade, while Bristol-Myers shares edged up 0.2%. Despite a 21% surge last Thursday after the Bristol-Myers deal was announced, Celgene shares have still lost 19.1% over the past 12 months through Friday, while the Dow Jones Industrial Average has lost 7.4%. Published:1/7/2019 7:14:48 AM
[Markets] Futures Slide, Global Rally Fizzles As Trade Talks Begin

U.S. stock futures slumped more than 25 points from overnight highs and European equities dropped and Friday's "jumbo" 747 point surge in the Dow lost momentum as trade talks began in Beijing between the U.S. and China, with both sides pressured by concerns over the economy and market jitters. Chinese Vice Premier Liu He unexpectedly attended the first day of talks, Bloomberg reported, to discuss topics including IP, agriculture and industrial purchases in the first formal meeting between the two sides since Donald Trump and Xi Jinping agreed to a 90-day truce on Dec. 1. The dollar fell to the lowest in more than two months against peers.

S&P futures slumped back to red, after gaining as much as 0.8% shortly after the session open, as European equities drop shortly after the open, its third drop in four sessions, and reversing a broad rally in Asia, led by Japanese shares.

European shares slumped right off the start after a stellar opening for Asian bourses helped by the weaker dollar, pushing MSCI’s world equity index, which tracks shares in 47 countries, to its highest level in 2-1/2 weeks, and 6% higher than its December trough. The Stoxx 600 drops 0.4%, dragged by food and beverage sector after beer producers downgrades by Goldman Sachs. Additionally, German factory orders fell more than expected in November. Orders slid 1% from October, and posted a year-on-year decline of 4.3%, the biggest in more than six years

After gains of more than 2% in Shanghai and HK on Friday before the U.S. jobs data and Powell’s comments, both markets added to gains on Monday, with the Shanghai Comp. (+0.7%) and Hang Seng (+0.8%) confirming to the positive tone following the RRR cut announcement and with mid-level trade discussions set to resume between US and China today, although the mainland lagged its regional peers following a CNY 170bln liquidity drain by the PBoC. Japan’s Nikkei reversed Friday’s plunge to gain 2.4%.

“It is a reminder that central banks still have some firepower to deal with lower growth prospects, and perhaps what we are also getting some return of liquidity as investors return from the holidays and the ability to think things through,” said Investec economist Philip Shaw. He warned, however, that there is continued uncertainty about global growth, trade talks between the United States and China and U.S. monetary policy. “There are a number of questions that remain unanswered,” Shaw said.

Elsewhere, emerging-market shares jumped, and the Korean won, Malaysian ringgit and the Indonesian rupiah led gains in major currencies.

Treasury yields fell following Friday's biggest one-day percentage surge in two years amid a broad-based rotation out of bonds and into stocks.

The Bloomberg Dollar Spot Index stayed on the back foot on soft Fed rate-outlook pricing and slid to its lowest level since Oct. 18 as Treasuries gained.Tthe pound slipped against the euro as U.K. lawmakers sought to avoid a no-deal Brexit. The euro currency remained solidly up even as data showed German factory orders fell more than expected in November.

West Texas Intermediate crude extended a recent rebound to trade above $49 a barrel. Gold climbed after China reported increased holdings.

US President Trump and Chinese President Xi Jinping are reportedly mulling a potential summit in H1 2019 if progress is made in trade talks which begin today in Beijing according to sources. Elsewhere, US President Trump renewed his threat to invoke a national emergency as a way to circumvent Congress and build a wall on the southern US border in which he warned he may declare a national emergency dependent on what happens over the next few days.

In the latest Brexit developments, UK PM May warned that Britain would be in unchartered territory if her Brexit deal is rejected by parliament and said the vote would be held around 15th January as expected. May also left open the possibility of a 2nd referendum but stated that this is not a course of action she wanted to follow. More than 200 UK lawmakers from the Conservative and opposition parties have signed a letter to UK PM May asking her to rule out the option of a No deal Brexit. (Newswires) This also comes in the context of reports stating that Parliament will vote on two amendments to the finance bill on Tuesday that would result in a government shutdown unless UK PM May is able to secure support for her Brexit deal.

In geopolitical news, a US destroyer has sailed near the Parcel Island chain to challenge China's excessive maritime claims. Subsequently, China’s Foreign Ministry say they have sent a vessel to verify this, and warn it off. Adding that US action in the sea has violated law, and China has urged the US to stop these actions.

Expected data include ISM Non-Manufacturing Index, while the publication of factory orders is delayed because of the government shutdown. Commercial Metals is reporting earnings

Market Snapshot

  • S&P 500 futures down 0.1% to 2,528.50
  • STOXX Europe 600 down 0.4% to 342.15
  • MXAP up 1.9% to 148.38
  • MXAPJ up 1.3% to 478.07
  • Nikkei up 2.4% to 20,038.97
  • Topix up 2.8% to 1,512.53
  • Hang Seng Index up 0.8% to 25,835.70
  • Shanghai Composite up 0.7% to 2,533.09
  • Sensex up 0.5% to 35,855.89
  • Australia S&P/ASX 200 up 1.1% to 5,683.19
  • Kospi up 1.3% to 2,037.10
  • German 10Y yield fell 1.3 bps to 0.195%
  • Euro up 0.4% to $1.1443
  • Italian 10Y yield rose 3.8 bps to 2.538%
  • Spanish 10Y yield fell 1.0 bps to 1.464%
  • Brent futures up 3.1% to $58.81/bbl
  • Gold spot up 0.4% to $1,290.84
  • U.S. Dollar Index down 0.3% to 95.88

Top Overnight news from BBG

  • U.S. and Chinese officials are set to begin trade negotiations on Monday in the hope of reaching a deal during a 90-day truce between President Donald Trump and his counterpart Xi Jinping.
  • Chinese Vice Premier Liu He -- top economic adviser to President Xi Jinping -- unexpectedly attended the first day of talks aimed at resolving the trade dispute between the world’s two biggest economies, according to people familiar with the matter and a photo seen by Bloomberg
  • Detailed figures showing how the U.S.-China trade war is affecting imports and exports are among economic releases to be delayed this week as the partial government shutdown drags on
  • Theresa May stepped up her battle to persuade her opponents in Parliament to back her Brexit deal, warning the U.K. will be in “uncharted territory” if they reject her plan in a key vote this month
  • French Finance Minister Bruno Le Maire said the government is sticking to its growth forecast of 1.7% in 2019, even as he warned of risks from the international environment and the Yellow Vests protests in France
  • President Donald Trump said his administration is now planning a steel barrier on the U.S. border with Mexico rather than a concrete wall, even as he renewed a threat to invoke a national emergency as a way to circumvent Congress on border funding
  • German factory orders fell more than expected in November, though the numbers were distorted by airplane orders that masked signs of underlying momentum. Orders slid 1 percent from October, and posted a year-on-year decline of 4.3 percent, the biggest in more than six years

Asian stocks began the week higher across the board as the region took its first opportunity to react to the trifecta of bullish developments from last Friday including the blockbuster NFP jobs data, dovish comments from Fed Chair Powell and the PBoC’s 100bps RRR cut. ASX 200 (+1.1%) and Nikkei 225 (+2.4%) gained from the open with Australia led by strength in tech and miners, while the Japanese benchmark outperformed and initially rose by over 3% as it tracked the rally in its Wall St. counterparts. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (+0.8%) conformed to the positive tone following the RRR cut announcement and with mid-level trade discussions set to resume between US and China today, although the mainland lagged its regional peers following a CNY 170bln liquidity drain by the PBoC. Finally, 10yr JGBs were softer with safe-haven demand dampened amid the rally across stocks, but with downside also stemmed by the BoJ’s presence in the market for JPY 1tln in JGBs with maturities spread across the curve.

Top Asian News

  • Taiwan Arrests Six Accused of Leaking BASF Tech to China
  • Temasek Said to Weigh Options for Stake in Retailer A.S. Watson
  • Indonesia’s Foreign Reserves Said to Jump to Seven-Month High
  • Musk Breaks Ground on Tesla China Plant, First Outside U.S.
  • Macau Gaming Cut to In-Line as MS Sees Revenue Declining in 2019

Major European indices are broadly in the red [Euro Stoxx 50 -0.5%] with underperformance seen in the FTSE 100 (-0.6%) after multiple downgrades within the index such as; Centrica (-4.6%), InterContinental Hotels (-2.1%) and Hargreaves Lansdown (-0.6%). Sectors are firmly in the red with the exception of IT which is the outperforming sector. Other notable stories include Tullow Oil (+1.7%) in the green after being upgraded at RBC. Ryanair (-1.0%) share prices are down as the Co are named the UK’s worst short-haul airline for the 6th consecutive year. In terms of pre-market news flow for the US, General Electric shares are up around 2.8% pre-market following reports that Apollo are considering a bid for the Co’s jet-leasing business. Elsewhere, Apple’s iPhone XR volume outlook for the initial 6-months of production has been approximately halved to 30-40mln units (WSJ). In recent news, Eli Lilly are to purchase Loxo Oncology for USD 8bln.

Top European News

  • German Factory Orders Slip as Euro-Area Demand Deteriorates
  • UBS Is at Early Stage of CEO Succession Planning, Weber Says
  • Danske Starts Investor Talks Amid $12b Debt Issuance Plan
  • BP Is Said to Plan Selling North Sea Shearwater Project Stake

In FX, the USD kicked the week off on the back-foot in a continuation of the sentiment seen on Friday after Fed Chair Powell opted to strike a more flexible approach to monetary policy than the one he was perceived to have had at last month’s press conference. As such, the DXY resides on a 95 handle after breaching 96.00 to the downside during Asia-Pac trade to a session low of 95.85. Subsequently, the greenback’s major counterparts have captured on the relative weakness of the USD to eke out mild gains with USD/JPY a key source of market focus. USD/JPY has drifted lower throughout the Asia-Pac and EU session’s with a low print of 108.04 as the move ran out of steam ahead of the psychological 108.00 level where there were said to be bids, with larger bids noted at 107.50. Of note, from a risk perspective, opening gains in European bourses proved to be relatively short-lived with EU cash bourses mostly residing in modest negative territory.

  • Elsewhere, gains for GBP vs. the USD have been relatively modest as political risk keeps prices anchored. Lawmakers return to Westminster this week and as such, Brexit-related commentary has ramped up significantly over the weekend. In terms of the latest state-of-play, May’s meaningful vote appears to be going ahead on the 15th despite reports last week acknowledging that it is unlikely to pass. As such, the likelihood of alternative scenarios such as a second referendum, no deal Brexit and a confidence vote continue to heighten but with a distinct lack of clarity on what the most like course of action will be. In terms of price action, GBP/USD is currently trading around the mid-point of the session’s 1.2719-55 range with Jan 2nd high of 1.2773 the next source of resistance should the USD concede further ground.
  • EUR has extended its recovery above 1.1400 vs. the USD with the move pausing for breath just under the 1.1450 level. Macro newsflow for the EZ remains light ahead of this week’s ECB minutes release with mixed retail sales and factory orders from Germany unable to sway investor sentiment.  From a technical perspective, Lloyds suggest a clear break above 1.1500 could inspire a gradual recovery towards 1.1600 before an eventual move towards range highs of 1.1750-1.1850.

In commodities, Brent (+2.3%) and WTI (+2.3%) prices are higher with WTI just over the USD 49/bbl level; fuelled by speculation that negotiations which are staring today between China and the US may lead to an easing in tensions between the two economies. Friday’s Baker Hughes showed a decrease in oil rigs by 8 to 877, indicating that production may begin to slowdown although EIA data, also from last Friday, presented an unexpected build in crude inventories. Elsewhere, both Goldman Sachs and Societe Generale have lowered their 2019 average price expectation for Brent from USD 70bbl to USD 62.50 and USD 73/bbl to USD 64/bbl. With their WTI forecasts also lowered from USD 64.5/bbl to USD 55.5/bbl and USD 66/bbl to USD 57/bbl respectively. Gold (+0.5%) is in the green on dollar weakness following Fed Chair Powell’s Dovish comments regarding the future of rate hikes. Elsewhere, Chinese steel and iron ore are benefiting from the aforementioned commencement of US-China trade talks. Goldman Sachs cut 3-month copper price target to USD 6100/ton from USD 6500/ton but maintained 12-month copper forecast at USD 7000/ton, while it reduced base metals targets amid notable China deceleration.

Looking at the day ahead, trade is likely to dominate the early focus next week with a US delegation visiting China for two days of trade talks with officials. Meanwhile, it's a busy start to the week for data on Monday with Japan's December composite and services PMIs out overnight, followed by. Germany's November factory orders, UK December new car registrations and the Euro Area's January Sentix investor confidence and November retail sales data. In the US we'll get final November factory orders, durable and capital goods orders along with the December ISM non-manufacturing index. We will also get China's December foreign reserves data at some point during the day. Away from that, the Fed's Bostic is due to speak in the afternoon, while the ECB's Guindos is also slated to speak.

US Event Calendar

  • 10am: Factory orders/durables data postponed by government shutdown
  • 10am: ISM Non-Manufacturing Index, est. 59, prior 60.7

DB's Jim Reid concludes the overnight wrap

If you’re just getting back into the office this week then you might want to reconsider taking a few more days off as it feels like it’s been a lifetime in markets so far in 2019. We saw soft China data, an unprecedented cut to revenue guidance from the previously biggest company in the world in Apple, and a big drop in the latest ISM manufacturing reading initially lead markets much lower into Thursday night. However, we then did a complete U-turn on Friday when risk assets roared back thanks to a China RRR cut, a blockbuster US employment report which included the second biggest payrolls reading (312k) since August 2016 and joint-second biggest average hourly earnings reading (+0.40% mom) since February 2015, and comments from Fed Chair Powell which signalled a change in the policy reaction function of the Fed to being more nimble and flexible.

When all that was said and done the S&P 500 actually notched up a positive week (+1.86%) for the second week in a row. The VIX also dropped 6.96pts and the most since February last year. Meanwhile the STOXX 600 (+2.13%) had its best week since early November while in credit HY spreads in the US also finished 25bps tighter – thanks to an eye watering 40bps rally on Friday – for the strongest week since the first week of 2018. Brent oil (+9.31%) rose by the most in over two years and EM FX (+1.39%) by the most since February last year. The point-to-point moves for bond markets are a lot less eye catching with 10y Treasury yields for example just 5.1bps lower in yield however that does mask an intraday range during the week of just over 20bps and a low of 2.541% at one stage on Friday morning. Yields on 2y Treasuries were actually up +11.5bps on Friday alone and the most since 2015. No shortage of talking points then.

Risk assets really had Fed Chair Powell to thank for much of the above and the big question now is will this be the start of a positive momentum builder or will we see markets fade the rally once more. The hope that markets took from Powell was his signal of a likely pause in the Fed’s rate hiking cycle, something that wasn’t so apparent at the December FOMC meeting which left the market in a tantrum. He said that the Fed “will be prepared to adjust policy quickly and flexibly” and “will be patient as we watch to see how the economy develops.” Significantly, he also specifically mentioned the fall in equity prices and associated tightening in financial conditions, saying “we’re listening with sensitivity to the message that markets are sending.” Net-net, this suggests the price action over the last month has been enough to convince the Fed to stop and wait for further data before tightening policy further. Fed Funds contracts are still pricing in 8bps of cuts this year, although at one stage last week they were pricing in 18bps of cuts. The 2s10s curve is also still hovering at 17bps and the 2s5s flat however both are off their lows.

Looking ahead there’s unlikely to be much of a breather for markets this week with US and China trade delegates meeting today and tomorrow in Beijing, the UK Parliament resuming debate on the Brexit Withdrawal Bill from Wednesday, FOMC minutes on Wednesday, a US CPI report on Friday and plenty of Fedspeak including Powell once again (on Thursday) to keep us all busy.

Just on the US-China trade meeting, the US delegation will be led by Deputy US Trade Representative Jeffrey Gellish and is likely to involve mid-level officials on both sides. The talks will focus on technical matters, so it remains to be seen how pivotal this meeting will be. However, markets have become super sensitive to trade matters in recent weeks again, so expect there to still be plenty of attention on any news that trickles out. The South China Morning Post is also reporting that President Trump may hold talks with Chinese Vice President Wang Qishan in Davos later this month so there’s likely to be reasonable focus on how talks this week go in anticipation of that.

As for the FOMC minutes this week, our US economists expect the text to provide more colour on the Committee’s thinking about several key issues for market participants – namely their views about headwinds from slowing global growth, progress on the Fed’s balance sheet strategy, and the debate around the neutral rate. As for Powell, it would be a surprise if we got anything new versus what was said on Friday however we are also due to hear from Vice-Chair Clarida on the same day so it’ll be worth seeing if a similar message is repeated. As for US CPI, the consensus is for a +0.2% mom core reading which should be enough to hold the year-over-year rate at +2.2%. Encouragingly for the Fed our US economists also note that shorter term measures, namely 3m and 6m annualized readings, should rise to +2.43% and +2.11% respectively.

All that to look forward to then. In terms of the weekend just gone it’s actually been a (much welcomed) quiet one for headlines. President Trump has again renewed a threat to declare a national emergency on the border wall issue over the next few days however that doesn’t appear to be bothering markets in Asia this morning with the Nikkei (+2.77%), Hang Seng (+0.67%), Shanghai Comp (+0.44%) and Kospi (+1.54%) all benefiting from Friday’s rally on Wall Street and China’s RRR cut. S&P 500 futures are also up +0.32% in early trade this morning while there’s across the board gains for the majority of currencies across Asia. Treasuries have held onto Friday’s move however WTI oil is up another +1.46% in the early going this morning.

Published:1/7/2019 6:14:41 AM
[Markets] General Electric, Tesla, Sears, CES, U.S.-China Trade - 5 Things You Must Know U.S. stock futures pointed to a mixed start for Wall Street on Monday, Jan. 7, following Friday's rally that was fueled by much stronger-than-expected U.S. jobs data and dovish messages from the Federal Reserve. Contracts tied to the Dow Jones Industrial Average rose 12 points, futures for the S&P 500 were down 1.30 points, and Nasdaq futures fell 5.75 points. Stocks surged on Friday after the U.S. added 312,000 jobs to payrolls in December, smashing economists' estimates, and after Fed Chairman Jerome Powell said the central bank would be "patient" when it comes to raising interest rates as it monitors incoming data. Published:1/7/2019 5:14:12 AM
[Markets] US Futures Dip, Europe Slides, as Fed Rally Fades Despite Trade Talk Progress Global stocks trade higher as investors ride Friday's 750-point Dow rally that was built on dovish central bank signals and much stronger-than-expected December job creation data. Japan's Nikkei 225 jumps 2.4%, while Asia stocks rise 1.3% as China vows to add new liquidity into the nation's financial system and U.S. China trade talks kick-off in Beijing. U.S. stocks set to open modestly higher Monday with S&P 500 looking to extend its 7% gain since the Christmas Eve low ahead of ISM service sector data for December at 10:00 am eastern time. Published:1/7/2019 4:14:02 AM
[Markets] Global Stocks Ride Wall Street Rally, US-China Trade Talks, to Solid Early Gains Global stocks trade higher as investors ride Friday's 600-point Dow rally that was built on dovish central bank signals and much stronger-than-expected December job creation data. Japan's Nikkei 225 jumps 2.4%, while Asia stocks rise 1.3% as China vows to add new liquidity into the nation's financial system and U.S. China trade talks kick-off in Beijing. Global stocks traded higher Monday, following on from Friday's spectacular rally on Wall Street, as investors cheered much stronger-than-expected U.S. jobs data paired with twin dovish messages from the Federal Reserve and the People's Bank of China that look to support beaten-down asset prices heading into the fourth quarter earnings season. Published:1/7/2019 3:13:47 AM
[Markets] Dow futures move higher as US-China trade talks resume At around 3:00 a.m. ET, Dow Jones Industrial Average futures rose 93 points, indicating a positive open of more than 81 points. Futures on the S&P and Nasdaq were also relatively upbeat. Market sentiment is largely attuned to trade talks between Chinese officials and their U.S. counterparts early this week. Published:1/7/2019 2:15:02 AM
[Markets] The biggest stock-market winners and losers on the best day for jobs news in 10 months A surprisingly positive employment report set up the second largest gain for the Dow since August 2015. Published:1/5/2019 11:35:20 AM
[Markets] [$$] Strong U.S. Job and Wage Growth Provides Assurance on Economy Stock prices rose on the economic news, with the Dow Jones Industrial Average closing Friday with a 3.3% gain. Nonfarm payrolls rose a seasonally adjusted 312,000 in December, the Labor Department said Friday. Investors have been on edge for weeks about a global economic slowdown and the gathering effects of rate increases by the Federal Reserve. Published:1/4/2019 7:31:02 PM
[Markets] Deep Dive: The biggest stock-market winners and losers on the best day for jobs news in 10 months A surprisingly positive employment report set up the second largest gain for the Dow since August 2015.
Published:1/4/2019 4:00:32 PM
[Markets] Stocks Soar On Powell Promise, Jobs Juice

One day after a broad-based, stomach-churning drop in the market, the result of rising economic fears following Apple's revenue guidance cut and a plunge in the ISM manufacturing index coupled with jitters over the latest FX-market flash crash, stocks staged a powerful comeback, recouping all of their Thursday losses, on the back of renewed optimism over US trade negotiations with China, a Chinese RRR cut and a powerful intervention by Beijing's plunge protection team in Chinese stocks, and a stellar jobs report.

“The strong December jobs report is a net positive for stocks because investors’ biggest concern has been slowing growth,” said FTSE Russell managing director Alec Young. "December’s strong job gains help ease that concern. It’s hard to square recession worries with the strongest job growth we’ve seen in years" Young added after payrolls not only surged by over 300K but average hourly earnings surprised to the upside and rose by the most since 2009, signalling that inflation is anything but dead.

But the biggest catalyst for today's rally was today's statement by Chairman Powell which eased much of the market's fears that the Fed put is dead and buried.

Speaking on a panel with Janet Yellen and Ben Bernanke, Powell said central-bank policy is flexible and officials are “listening carefully” to the financial markets. Critically for traders worried about shrinking liquidity in the economy, Powell also signaled a willingness to consider changes to the Fed’s gradual run-off of its balance-sheet in any policy review.

That was enough to unleash the animal spirits, with stocks surging after Powell's comments which many saw were directed squarely at the market.

“The Powell/Yellen/Bernanke show had a simple purpose: re-assure the market that the Fed is not in disarray and that it will act to protect the market on a further downtick than what we saw in December,” WallachBeth strategist Ilya Feygin told Bloomberg. “The Fed will likely keep rates on hold for a while until it has more confidence in the data.”

And while Powell  wasn't explicitly dovish, the fact that he wasn't hawkish was more than enough to unleash a powerful rally that sent the Dow over 800 points at one time, undoing all of Thursday's losses...

...with the S&P rising over 3% and back above 2,500, the Nasdaq rising almost 5%, and most other sector also solidly in the green on what has nonetheless been a relatively low-volume rally.

While today's rally will be a welcome - if temporary - relief to bulls, and certainly to president Trump who delights in a rising stock market which he sees as a barometer of his performance, the unprecedented volatility in the market now appears to be a constant feature with the the S&P 500 now trading in an intraday range of more than 2% on 15 of the last 21 days, the most since 2011 according to Bloomberg. Whether anyone other than algo traders can "trade" such a rollercoaster market remains to be seen.

The surge in stocks, driven by a dovish take on Powell, also helped push Treasury yields sharply higher...

... with the yield on the 10Y rising the most in percentage terms in two years.

Curiously, even as selling of equity volatility returned with a bang, with the VIX tumbling to the 20 level which has been the average for much of the past three months...

... bond market volatility as measured by the MOVE index has been far stickier, in what may prove to be a bigger headache for the Fed unless it is somehow able to stabilize the jittery nerves of bond traders.

One surprising outlier that was missing from today's euphoria, however, as the dollar continued its recent slide, and after it initially spiked following the strong jobs report, it then tumbled after Powell's dovish comments despite the powerful rally in Treasury yields.

According to some this odd weakness in the dollar was the result of a fund rotation into carry currencies, with the Bloomberg EM Carry Index reaching its strongest level since July, in the process undoing all of the carry trade "flash crash" pain from late on Wednesday.

Another surprising tangent is that even with the dollar plunge, gold tumbled and was down sharply on the day if off the lows, even after gold futures hit $1300 overnight. One explanation is that gold was not responding to the dollar as much as to the unwind of the "flight to safety" trade. However, even with today's drop, gold is back to levels last seen back in June.

And while they did nothing for gold, Powell's dovish reversal and the plunge in the dollar did help boost the commodity sector, and oil especially, which has continued its impressive move higher after a powerful, if unexplained, move on Wednesday sent WTI surging, with the levitation continuing ever since.

Finally, even with Friday’s surge, the market gains did little to dent the recent rout that has hit global equities in the past month, with major indexes off well over 10 percent from previous highs and the S&P on the verge of a bear market as recently as ten days ago. Meanwhile, in a sign that fears about a slowdown persist, treasury yields that topped 3.2% two months ago are now 60 bps lower as investors reassess the prospects for growth in 2019.

Finally, before traders read too much into today's rally, recall what Trump's economic advisor Kevin Hassett warned yesterday, namely that "it’s not going to be just Apple,” adding that "there are a heck of a lot of U.S. companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China."

For now, however, at least until the next major bearish surprise, stocks close out the day and the week with a powerful rally that has, at least for the time being, put concerns about an imminent US recession on mute.

Published:1/4/2019 3:29:06 PM
[Markets] Stocks swing to huge gains after jobs report, trade talks NEW YORK (AP) — Global stocks soared Friday and reversed the big losses they suffered just a day earlier. The Dow Jones Industrial Average rallied 746 points in the latest twist in a wild three months for markets. Published:1/4/2019 3:29:06 PM
[Markets] Apple's market cap rises back above $700 billion, but it's still in 4th place Apple Inc.'s stock jumped 3.9% in afternoon trade Friday, after tumbling 10% in the previous session, enough to take the technology giant's market capitalization back above the $700 billion mark. Apple still sets in fourth place on the list of most valuable U.S. companies with a market cap of $700.9 billion, well behind third-place Alphabet Inc. , which rose 4.9% to $748.0 billion. Meanwhile, Microsoft Corp.'s stock hiked up 4.6% to stay in first place with a market cap of $782.4 billion, ahead of second place Amazon.com Inc. , which climbed 5.1% to $770.6 billion. The rally in the biggest tech names compared with a 4.2% rise in the Nasdaq Composite and the Dow Jones Industrial Average's 751-point, or 3.3% gain. Published:1/4/2019 2:30:50 PM
[Markets] Strategists See 19% For Stocks In '19 But Legendary Investor Scoffs "It Will End Badly"

For all the uncertainty over everything from the U.S. economic outlook to trade tensions, and even the reason behind massive swings in stocks, Bloomberg strategist Michael Regan notes that most market participants were certain of one thing as the calendar turned to the new year:

a 2019 rebound in U.S. equities, after their worst year since the global financial crisis.

The consensus is calling for a stronger stock market, with double-digit percentage gains for the S&P 500 in the coming year.

  • The average estimate from a survey of 170 Markets Live readers is for the S&P 500 to close the year at 2,799, implying a 12% gain, which is in the neighborhood of the Markets Live bloggers’ forecast.

  • Wall Street strategists are more bullish, with a mean estimate of 2,975, or a 19% advance

While Regan warns contrarians to beware (saying that this doesn’t look too far-fetched, considering the history of U.S. equities and back-to-back yearly declines in the S&P 500 are rare, and when the market is down for a single year, the following year often produces out-sized returns).

Hell, why not believe the strategists and analysts, they nailed AAPL right?

But, as we noted previously, BofA's Michael Hartnett has a laconic view on the groupthink that once again appears at the start of the year:

"the horror, the horror" especially since he thinks that there is one key capitulation that has yet to take place: that of the sell-side, as Bloomberg consensus forecasting 10-year Treasury @ 3¼%, S&P500 @ 2975 by end-2019.

And he is not alone, as The New York Times reports  that legendary investor Jim Stack, president of InvestTech Research, believes that the worst isn’t over and that the Dow and S&P 500 will soon be down 20 percent from their peaks, retreating into a bear market. After correctky warning at the start of last year that...

“If there are any certainties, one will be that this party will eventually come to an end...

And when it ends, it will end badly, and with high volatility.”

He is perhaps worth paying attention to again this year as he told NYT that even though valuations have come down and macroeconomic indicators “have remained remarkably strong,” Stack says that he is still defensive and hasn’t changed his bearish allocation, adding that this week's ISM collapse suggests “serious cracks” are starting to appear in the economy.

And that was before a revenue warning from Apple sent markets into another steep fall on Thursday, only to retrace it all in a epic reversal today as Powell shifted into full PPT mode, proclaiming America's economic momentum strong...

Which Stack expected;

“I think the Fed will stand down and put future rate increases on hold,” he said, “which could stabilize the market, at least for the time being.”

However, Stack reminds investors of one key lesson.

“A lesson from history is that the market leads the economy by a lot longer than investors realize."

If the economy is headed toward recession, as the latest stock market declines suggest it may be, “we won’t see the first economic warning signs until the first three to five months” of 2019. Among the leading indicators he’s watching for signs of weakness are consumer confidence, housing starts and unemployment claims.

Of course, the unrelenting cry from the asset-gatherers and commission-takers is how 'cheap' the market has become on a forward-P/E basis:

 

Mr. Stack, however, points out correctly that in the event of an economic downturn - or even a significant slowdown - “those projected earnings will go out the window.”

And the legendary investor concluded by pointing out his surprise at the extremes reached in December, without even “a single hard warning sign of recession on the horizon.”

“Can you imagine,” he asked, “how volatile it will be when we do have those warnings?”

Given today's panic-bid back to Wednesday's highs...

Nothing would surprise us anymore.

Published:1/4/2019 12:59:11 PM
[Markets] Dow up 750 points as panic-style buying in stock market takes hold Dow up 750 points as panic-style buying in stock market takes hold Published:1/4/2019 12:27:39 PM
[Markets] Stocks pull a U-turn and soar after jobs report, trade talks NEW YORK (AP) — Global stocks are soaring Friday and reversing the big losses they suffered just a day earlier. The Dow Jones Industrial Average soared nearly 800 points in the latest twist in a wild three months for markets. Published:1/4/2019 12:27:38 PM
[Markets] Dow Surges as Powell Says Fed to Be 'Patient' on Rate Hikes, Nasdaq Jumps 4% The Dow Jones Industrial Average was rising sharply Friday following a U.S. jobs report that smashed economists' estimates, and after Federal Reserve Chairman Jerome Powell said the central bank would be "patient" when it comes to raising interest rates. The jump in U.S. nonfarm payrolls to 312,000 in December was well above economists' estimates of 180,000 jobs. The unemployment rate rose to 3.9%, climbing from a half-century low of 3.7%, while average hourly wages rose to an annual rate of 3.2%. Published:1/4/2019 12:00:17 PM
[Markets] Panic-like buying in the stock market takes hold as Dow surges nearly 700 points A nearly 700-point gain in the Dow Jones Industrial Average and a surge in the Nasdaq Composite Index midday Friday has resulted in the equity market seeing panic-like buying. The moves come on the back of dovish comments from Federal Reserve Chairman Jerome Powell during a panel discussion with his predecessors in Atlanta. The Arms Index, a volume-weighted measure of breadth, tends to decline below 1.000 on broader-market rallies, as volume in advancing shares tends to increased disproportionately to volume in declining shares. When the Arms falls below 0.500, many consider a sign of panic buying. The Dow was up 660 points at 23,345 in midday trade. The Dow was up by as many as 691 points at its Friday morning peak at 23,377.69. Meanwhile, the S&P 500 index rose 3% at 2,522, while the Nasdaq was climbing 4% at 6,720. Those gains saw the NYSE Arms hit 0.498, while the Nasdaq Arms is at 0.736. The number of advancing stocks outnumbered decliners by a ratio of about 8 or 9 to 1 on the NYSE, with volume in advancing stocks was about 95% of total volume on the NYSE. Fed Chairman Jerome Powell said Friday he's flexible about future monetary policy moves, proving some comfort to investors that have grown anxious about the rate-hike path of the central bank as signs of slack in the global economy appeared to mount. n a moderated discussion at the American Economics Association meeting in Atlanta, Powell said: "We will be patient as we watch to see how the economy evolves." Markets were already on an upswing after an official read of employment showed that a better-than-expected 312,000 jobs were created in December. Published:1/4/2019 11:27:05 AM
[Markets] Dow Surges as Fed's Powell Says Central Bank to Be 'Patient' on Rate Hikes The Dow Jones Industrial Average was rising sharply Friday following a U.S. jobs report that smashed economists' estimates, and after Federal Reserve Chairman Jerome Powell said the central bank would be "patient" when it comes to raising interest rates. The U.S. nonfarm payrolls jump to 312,000 in December was well above economists' estimates of 180,000 jobs. The unemployment rate rose to 3.9%, climbing from a half-century low of 3.7%, while average hourly wages rose to an annual rate of 3.2%. Published:1/4/2019 9:57:06 AM
[Markets] Dow up nearly 500 points early Friday — on heels of Thursday's 660-point skid Dow up nearly 500 points early Friday — on heels of Thursday's 660-point skid Published:1/4/2019 9:28:40 AM
[Markets] Bloodbath: Stocks Crater As Perfect Storm Of Apple And Recession Fear Strikes

If today is any indication of what to expect from the rest of 2019, then hold on to your hats.

Stocks were already on the backfoot after Monday's shocking Apple revenue guidance cut and the overnight volley of currency flash crashes, yet just as they were attempting to stage a modest rebound following news of Bristol-Myers massive $74 billion acquisition of Celgene and the best ADP payrolls report since February 2018, the hammer hit after the ISM reported a plunge in the December manufacturing ISM, which tumbled to 54.1, the lowest print since Nov 2016 and the biggest monthly drop since the financial crisis.

That was enough to crush any fledgling animal spirits and steamroll any BTFDers, and as fears of an imminent economic recession re-emerged, markets tumbled, with the Dow Jones promptly dropping as much as 650 points lower and after a modest attempt to rebound around noon, it resumed its slide to close at session lows, down 662 points, or 2.84%, with the S&P down 2.5%.

It wasn't just Apple, however, as poor guidance from Delta crushed the airlines, and sending the Airline sector on its biggest one day drop since 2016...

... while autos were hit by disappointing December auto sales, with Ford announcing that just like GM it too would stop reporting monthly auto sales suggesting that the worst is yet to come.

And speaking of economic fears, both of Bloomberg's two main Economic surprise indexes turned negative for the first time since Trump was elected, wiping out all economic optimism since the Trump election.

Apple, understandably, did not help, and tumbled 10% its biggest one day drop since 2013, wiping out $75 billion in market cap, roughly equivalent to the market cap of Lockheed Martin's or Caterpillar's market cap.

Apple's plunge was not contained, and went so far as to hit the stock of its 3rd largest shareholder, Berkshire, whose Class A stock tumbled 5%, its 2nd biggest drop since 2011.

While Apple was the biggest hit to the Dow, responsible for 100 points of the drop, it was a bad day overall, with just one Dow company - dividend-paying Verizon - in the green.

Apple's plunge predictably hit the Nasdaq the hardest, which fell 3.1%, even as some other sectors performed relatively well, with the banks, housing and small caps dropping just oveer 1%.

Much of the volatility in today's market could have been avoided if traders had only heeded the signs of the past few months: as Alec Young, managing director at FTSE Russell told Bloomberg, "the market is the wisdom of all investors -- it was discounting this type of news-flow with the sharp and violent sell-off we got in December. When it makes a big move, up or down, it’s telling you positive or negative things about future developments. The extreme move down was telling you we’d get this type of news-flow."

Of course, it's always easier to make such profoundly philosophical observations in retrospect.

But while much of the drama was confined to stocks, the true chaos was in rates, where shorts were crushed (recall "Sorry Jeff: The Treasury Short Squeeze Hasn't Even Begun Yet") and a furious buying spree repriced the entire curve sharply lower...

... and while the 10Y yield plunged from 2.62% as low as 2.54%, closing around 2.56%...

... the real fireworks were in the short end, where the 2-Year, 3-Year, and 5-Year yields all dropped below the effective Fed Funds rate.

Meanwhile, anticipated nothing short of armageddon, the market has now priced out any future rate hikes, and not only sees 7% odds of a March rate cut, but is now pricing in a full rate cut by April 2020, suggesting it is convinced the recession will hit some time in the next 12 months.

In a surprising twist, however, instead of seeing the usual flight to safety into the dollar, the greenback tumbled today sliding to the lowest level since early November.

Meanwhile, with risk assets broadly liquidated, it will come as no surprise that credit was hammered as spreads on both Investment Grade and High Yield continued to blow out wider.

With nothing else working, traders rediscovered a true flight to safety, namely gold and silver, both of which surged to the highest levels since June and gold is now knocking on $1300.

And with another dramatic nightmare session, where scarce liquidity and surging volatility left traders begging for dramamine in the history books, everyone is wondering just what asset class will flash crash in the liquidity vacuum just before 6pm ET....

Published:1/3/2019 3:26:32 PM
[Markets] Dow tumbles 500 points, dragged down by Apple and weak manufacturing data Dow tumbles 500 points, dragged down by Apple and weak manufacturing data Published:1/3/2019 9:51:07 AM
[Markets] Dow plunges nearly 660 points, hits session low after weaker-than-expected manufacturing report U.S. stock indexes, already battered by bearish Apple news, extended Thursday morning declines, and touched session lows after a report on manufacturing came in softer than expected. The Dow Jones Industrial Average was down 652 points, or 2.8%, at 22,695, the S&P 500 index retreated 2.4% at 2,450, while the Nasdaq Composite Index declined 2.8% at 6,480. The further intraday losses came after the ISM manufacturing survey showed a decline to 54.1 in December from 59.3 in the previous month. Consensus estimates were for an ISM reading of 57.9. A reading of 50 or above indicates improving conditions Losses also came amid a market unsettled by a late-Wednesday report from Apple Inc. , which announced a rare cut to its sales forecast, citing weakness in China's economy. Published:1/3/2019 9:51:07 AM
[Markets] "Growth Has Stopped": Manufacturing ISM Crashes Most Since The Financial Crisis

Yesterday, when Markit reported that the US manufacturing PMI tumbled to a 15 month low, we were wondering how much longer the "other" PMI can continue to defy gravity by printing ridiculously high numbers month after month. The answer, it turns out, was about 24 hours, because moments ago the Institute for Supply Management reported that the December ISM plunged from 59.3 to 54.1 - precisely where the PMI print suggested it should - which was the lowest print in the Mfg ISM series since November 2016...

... and the biggest one month drop going back to the financial crisis, when in October 2008 it dropped by 9 points.

Printing just days after both Chinese manufacturing surveys printed in contraction territory, spooking markets, today's ISM report was a disaster with virtually every subindex tumbling:

  • New orders fell to 51.1 vs 62.1
  • Employment fell to 56.2 vs 58.4
  • Supplier deliveries fell to 57.5 vs 62.5
  • Inventories fell to 51.2 vs 52.9
  • Customer inventories rose to 41.7 vs 41.5
  • Prices paid fell to 54.9 vs 60.7
  • Backlog of orders fell to 50.0 vs 56.4
  • New export orders rose to 52.8 vs 52.2
  • Imports fell to 52.7 vs 53.6

And in table format.

That said, in light of the reported plunge in customer inventories, we are very skeptical this report is in any way accurate in light of reports such as this one which we noted over the weekend: "Overflowing With Excess Inventory, US Companies Turn To Truck Trailers"

Fake or not, the respondents were clearly concerned:

  • “Growth appears to have stopped. Resources still focused on re-sourcing for U.S. tariff mitigation out of China.” (Computer & Electronic Products)
  • “Customer demand continues to decrease [due to] concerns about the economy and tariffs.” (Transportation Equipment)
  • “Starting to see more and more inflationary increases for raw materials. Also, suppliers [are] forcing price increases due to tariffs.” (Food, Beverage & Tobacco Products)
  • “The ongoing open issues with tariffs between U.S. and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations. We were anticipating more clarity [regarding] tariffs at the end of 2018.” (Machinery)
  • “Business is steady, but pace of incoming orders are slowing.” (Furniture & Related Products)
  • “Caution seems to be the outlook. Are we in a correction, or is the market getting ready to slow over time?” (Fabricated Metal Products)
  • “No major change in business operations towards the end of 2018; however, we are carefully monitoring oil prices and outside influence from market conditions to better understand our 2019 outlook and capital plans.” (Petroleum & Coal Products)
  • “Customers are hedge buying in December as a result of announced price increases starting in January.” (Textile Mills)

The report, the latest confirmation of US economic slowdown, has started stocks with the Dow now more than 500 points lower.

Published:1/3/2019 9:21:55 AM
[Markets] The Dow Sinks and Apple Is to Blame The Dow Jones Industrial Average was tumbling following the warning from Apple, which is a component of the blue-chip index. reached a deal to buy cancer drug specialist Celgene Corp. Stocks tumbled sharply on Thursday, Jan. 3, after a revenue warning from Apple Inc. Published:1/3/2019 8:51:21 AM
[Markets] Apple's stock is responsible for one-third of 300-point Dow plunge Apple's stock is responsible for one-third of 300-point Dow plunge Published:1/3/2019 8:51:21 AM
[Markets] Apple's market cap set to fall below Google-parent Alphabet's to near 2-year low Apple Inc.'s stock plunge is setting the stage for the technology giant's market capitalization to fall to the lowest level in nearly two years. That would knock Apple's market cap below Google-parent Alphabet Inc.'s into fourth place on the list of most valuable U.S. companies. Apple's stock tumbled 8.9% in premarket trade, after the company cut late-Wednesday its first-quarter revenue outlook, citing weaker-than-expected iPhone sales in China. At current prices, and based on the most recent quarterly filing, Apple's market cap would be about $682.9 billion, the lowest market value seen since it closed at about $678.4 billion on Feb. 3, 2017, according to FactSet. With Alphabet's stock down 0.9% in premarket trade, its market cap is on track to open just above $727 billion. Apple's stock has lost 8.3% over the past 12 months through Wednesday, while the Dow Jones Industrial Average has slipped 6.3%. Published:1/3/2019 8:20:43 AM
[Markets] Oil: Famous Recession Indicator Might Be a Concern On January 2, US crude oil active futures settled at $46.54 per barrel—2.5% higher than the last closing level due to short covering. On the same day, the S&P 500 Index (SPY), the Dow Jones Industrial Average Index (DIA), and the S&P Mid-Cap 400 (IVOO) returned 0.1%, 0.1%, and -0.3%, respectively. The rise in oil prices might be important for these equity indexes. Published:1/3/2019 7:21:18 AM
[Markets] Man who called Dow 20,000 says if ‘we avoid a recession, we’re going to have a really good’ stock market The Wharton professor who forecast that the Dow Jones Industrial Average would soon see 20,000 at the end of 2015, says a combination of a better-than-expected corporate and economic results should embolden bulls in the near term. Published:1/3/2019 6:50:19 AM
[Markets] Dow, S&P 500, Nasdaq stock futures sink after Apple cuts sales forecast Dow, S&P 500, Nasdaq stock futures sink after Apple cuts sales forecast Published:1/2/2019 5:47:32 PM
[Markets] Shattered Trends

Authored by Sven Henrich via NorthmanTrader.com,

2019 is shaping up to be a complex year for financial markets. As I’m preparing my 2019 Market Outlook I’m reviewing the state of various technical drivers before forming conclusions. I’ve started this process with 2018 Market Lessons and Yearly Candles. In this report I’m reviewing the state of larger long term market trends.

While most headlines appear to be focused on percentage point declines in markets the Q4 2018 correction appears to have inflicted massive technical damage to long term trends in many cases shattering them. However there is room for a variant interpretation as well and I’ll highlight these aspects as well.

Let’s start with the big picture and it looks as ugly as ugly can be:

$WLSH vs $BKX:

What we can observe here is a new high on a negative monthly RSI divergence and a subsequent trend line break with a structure overtly similar to the 2007 topping pattern.

As I outlined in Yearly Candles we have the added confluent aspect of an outside yearly reversal candle on $BKX:

This combination simply has to be concerning to everyone. It strongly suggests that the bull market trend is broken and rallies have to be sold.

And these charts don’t exist in isolation. We can observe such trend breaks on numerous charts:

$VTI, the all market ETF:

$NDX:

$RUT:

With $RUT we can also observe the break above its long term trend in its underlying volatility index suggesting a long term change in the volatility structure of markets.

We can observe such trend breaks also in individual stocks, take $GS as an example:

Ugly doesn’t even begin to describe it.

And as history so apply demonstrates, long term trend breaks can be disastrous to markets:

But it’s not only a US phenomenon, these trend breaks apply to global markets as well.

$DAX:

$DJW, the Dow Jone Global Index:

On the latter chart I’ve added some basic fib levels to demonstrate the potential extent of corrective zones if a global bear market were to unfold.

The straightforward conclusion from all this may be that the bull market is over and markets are destined for a global bear market. It’s clearly a possible outcome here and everyone should be aware of this.

However, in the search for relevance and in spirit of keeping an open mind I also want to offer an alternate perspective.

Firstly note the reversal in yields in 2018 was no technical accident. Note how cleanly and precisely $TLT cued off of its support trend line:

This trend chart is not broken and it fits perfectly in concert with the larger picture chart of $TNX versus $SPX I’ve been pointing to for a long time:

Note here as well how $VIX ended the year rejecting again at its upper trend line. This larger $VIX channel also still remains intact.

Bond trends remain unbroken and consistent.

And now for the curveball.

Note all the charts I’ve been showing are log charts and they show a consistent picture with historical bull market breakdowns.

Example $TRAN:

Broken right? Now look at it in linear form:

Cute as in linear form the trend remains unbroken.

And for giggles, here’s the $SPX trend in linear form as well:

Not so broken all of a sudden is it?

So the plot for 2019 thickens and perhaps is not so obvious.

I’ll throw in one more chart for consideration the equal weight $XVG:

It shows a hopelessly broken trend and a break below the 2007 and 2015 highs. Technically speaking that’s a total disaster. Yet it also shows vast oversold readings. Past lows of significance have printed positive divergences, so far we don’t have a positive divergence, but it is vastly oversold at this stage.

Bottomline: Markets are at high technical risk of a devastating global bear market to unfold and bull market trends appear shattered on log charts. However some linear charts leave room open for the possibility that trends are not broken yet. While I’ve not addressed signal charts specifically in this post, $XVG highlights that markets remain oversold at this stage leaving room for significant rallies to emerge.

*  *  *

For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

Published:1/2/2019 1:15:49 PM
[Markets] Bank, energy stocks lift Wall Street higher in choppy session The S&P, Dow Industrials and Nasdaq all fell 1.5 percent or more early in the day, before recovering to flit between gains and losses, ensuring Wall Street started the new year with the same swings with which it closed last year. On the horizon is the closely watched U.S. manufacturing survey on Thursday and payrolls data on Friday. Published:1/2/2019 12:47:45 PM
[Markets] Netflix hires former Activision Blizzard CFO Spencer Neumann to be new chief financial officer Netflix Inc. has hired former Activision Blizzard Inc. CFO Spencer Neumann to be its new chief financial officer, the streaming giant announced Wednesday. He will succeed David Wells, who has served in the position since 2010. The announcement from Netflix comes on the heels of a Monday disclosure by Activision that it was firing Neumann for undisclosed reasons and a Monday Reuters report that Netflix was expected to name Neumann as its new CFO. Activision said in a Monday securities filing that it was planning to terminate Neumann for cause, but did not say what the cause was. The videogame publisher did note that it was "unrelated to the company's financial reporting or disclosure controls and procedures." In 2017, Activision hired Neumann away from the Walt Disney Co. , where he was CFO and an executive vice president. He initially joined Disney in 1992. Shares of Netflix have gained 31% in the past 12 months, while shares of Activision have fallen 26%. The S&P 500 has fallen 7% while the Dow Jones Industrial Average has fallen 6%. Published:1/2/2019 11:49:24 AM
[Markets] Key Words: Man who called Dow 20,000 says if ‘we avoid a recession, we’re going to have a really good’ stock market The Wharton professor who forecast that the Dow Jones Industrial Average would soon see 20,000 at the end of 2015, says a combination of a better-than-expected corporate and economic results should embolden bulls in the near term.
Published:1/2/2019 10:45:28 AM
[Markets] Dow Falls but Comes Off Lows as New Trading Year Begins The Dow Jones Industrial Average was declining sharply on Wednesday, the first trading day of 2019. The Dow ended 2018 with a loss of 5.6%. The Nasdaq has closed higher for four straight days but was trading lower early Wednesday. Published:1/2/2019 10:15:41 AM
[Markets] Dow tumbles 350 points early Wednesday as China slowdown spooks Wall Street Dow tumbles 350 points early Wednesday as China slowdown spooks Wall Street Published:1/2/2019 8:44:56 AM
[Markets] Dow Begins 2019 Sharply Lower as Manufacturing in China Contracts The Dow Jones Industrial Average was declining sharply on Wednesday, the first trading day of 2019. The Dow ended 2018 with a loss of 5.6%. The Nasdaq has closed higher for four straight days but was trading lower early Wednesday. Published:1/2/2019 8:44:56 AM
[Markets] Wall Street set open new year with a tumble on global slowdown jitters Dow e-minis (1YMc1) slid 1.66 percent, indicating the Dow Jones Industrial Average (.DJI) could tumble about 400 points at the open. Twenty-nine of the 30 Dow components were in the red in premarket trading and one flat. China's factory activity contracted for the first time in 19 months in December, hit by the Sino-U.S. trade war, the private Caixin/Markit PMI survey showed, with the weakness spilling over to other Asian economies. Published:1/2/2019 8:15:20 AM
[Markets] Angry Gartman: "We Are Supposed To Believe The Bull Market Is Still Intact? Utter And Complete Nonsense"

"World-renowned" commodity guru Dennis Gartman has published his first Gartman letter note for 2019, and not only is he more bearish than at any time in recent year, he is also angry. Very angry, specifically at the stupidity of "television business channels" which have "all touted the fact that the market’s rally last week came just as stocks here in the US as measured by the S&P had not fallen below the -20% point and thus had “Not yet entered bear market territory.” What sort of nonsense was and is that?"

There is much more in the must-read rant excerpted below:

STOCKS HAVE BEGUN THE YEAR ON A HORRIBLE NOTE, as Asian shares and particularly Chinese shares have fallen sharply on the news that the Chinese purchasing manager’s report has fallen below 50 indicating that the economy in China is in recession already and thus dragging the Australian and New Zealand markets lower. US stock index futures opened sharply higher with the Dow futures having traced 150-200 “points” higher in early trade and with the S&P futures having traded 15-20 “handles” higher earlier today. The Dow futures are now nearly 300 lower than Monday’s close, or nearly 500 below the earlier highs, while the S&P futures are 25 “handles” below Monday’s close or approximately 45 “handles” below their earlier highs.

This is terribly dismaying for the first day or the year and the first day of most months see large inflows of money into the US markets for pension fund and 401k purposes, with the stock index futures rising in anticipation of those inflows.

Since the year has only just begun it is futile… and perhaps utterly stupid… to note the change for the year-to-date; indeed, we’ll not mark that change until this coming Monday when we’ve had three days of market movement to take into consideration. However, marking prices from their highs made in late January, stocks in global terms as measured by our Index are down 2,083 “points” or -16.2%.

As we have explained time and time again over the course of the past several months, we believe that 7% from any interim high is what we have referred to here as the “Maginot Line” between a mere correction and a real bear market, just as a 7% increase from any interim low is the line separating a correction and a new bull market [Ed. Note: For the historically and geographically “challenged” among our readers, the Maginot Line was the fortification line constructed by France in the 30’s, the intent of which was to repel any future German army attack upon France’s eastern borders and/or to force German troops northward first into Luxembourg and Belgium. It was supposed to have been impregnable. However, it proved almost wholly without merit, but we’ve included a map of the Line this page with the “strong” fortifications along the direct French/German border and with the lesser fortifications along the Luxembourg/Belgium/France boundaries.]. Thus, at nearly -16% from the January highs we think it is very clear that bearish forces are in control and if it is not clear it is becoming so after the Year’s turn.

To this end, we have found it almost comical how the television business channels have all touted the fact that the market’s rally last week came just as stocks here in the US as measured by the S&P had not fallen below the -20% point and thus had “Not yet entered bear market territory.” What sort of nonsense was and is that? The S&P had fallen -19.7% and stopped for a day or two or three, and we were then supposed to believe that the bull market was still intact?! Nonsense…utter and complete nonesense.

We were on FOX Business Monday and were asked our opinion if the recent lows were going to hold and if it as permissible to buy stocks for the long term. We answered unequivocally “NO.” We may have hoped for and even expected the bounce to continue for a very short while, but we made it very clear that the bounce was to be ephemeral in nature. Certainly it is proving so now.

Further we note that the CNN Fear & Greed Index rose on Friday, but was unchanged following Monday’s strength, and is at 12.  CNN’s Index had been single digits for more than a month, rivalling that which had happened last spring as stock prices fell from their highs in late January. Because of the severely extended nature of this Index we have not recommend being short of equities for as we’ve said here since late two weeks ago, “A massive, short covering rally of some real consequence can and will develop at the proverbial moment’s notice.” One had but has proven truly ephemeral and hence we are neutral of shares as we hold cash. Eventually… we hope… the CNN Fear & Greed Index will make its way toward 60 or 70 and we’ll become manifestly bearish. We’ll move bearishly… then… and we’ve the very luxury of being patient but in being patient have we missed our opportunity? That is indeed the question?

The news regarding President’s XI and Trump should have been sufficient to keep the bounce in place for a bit longer. The problem was and is that this news should have sent the market on Monday soaring higher… 500-700 Dow points higher perhaps. It did not. The best that happened was the Dow traded 250 points or so higher. This we found lacking; today’s weakness makes that “lacking” lack even worse.

Published:1/2/2019 7:45:35 AM
[Markets] All 30 Dow stocks in the red for first premarket session of 2019 All 30 Dow stocks in the red for first premarket session of 2019 Published:1/2/2019 7:14:44 AM
[Markets] Dow Futures Tumble 322 Points Because Fears of a Global Economic Slowdown Are Growing 6:27 a.m. President Donald Trump may have extended an olive branch in an attempt to end the U.S. government shutdown, but a slowing China is a bigger problem for the Dow Jones Industrial Average. Dow futures have fallen 322 points, or 1.4%, while S&P 500 futures have dropped 1.4%, and Nasdaq Composite futures have slumped 2.1%. The Caixin/Markit Manufacturing Purchasing Managers’ index, a private reading of manufacturing activity in the world’s second largest economy, dropped to 49.7 in December, below economist predictions for 50.1, and, more important, the 50 level that signifies economic expansion. Published:1/2/2019 6:44:21 AM
[Markets] Global Market Bloodbath Returns As Futures Tumble, Asia Suffers Worst Start To Year Since 2016

Any hope for a reversal of the ominous market trends of last year and a positive start to 2019 were quickly dashed overnight when what was originally a gain of as much as 0.6% in S&P futures early in the session was promptly extinguished as futures slumped deep in the red alongside a sea of red in global stocks, after the Caixin China PMI manufacturing survey fell into contraction territory for the first time since May 2017, sending Asian stocks tumbling to the worst start to the year since 2016, while poor PMI reports out of Europe only confirmed that the global economy is slowing.

Weak manufacturing-activity surveys across Asia were followed by disappointing numbers in the euro zone, sending MSCI’s index of world shares 0.4% lower.

"The disappointment that came through in December has transferred into January as well,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte. While there was some small development in uncertain Washington politics, it’s a reminder of the U.S.-China trade tensions and “brings back to the surface worries on growth,” she said.

Initially, S&P500 futures rose 0.6%, after President Trump invited the top congressional leaders from both parties to a White House briefing on border security Wednesday and suggested he wants to “make a deal” to end the government shutdown. However, this initial optimism faded quickly and futures fell as much as 2.3%, down almost 70 points from session highs reaching a low of 2,452 and trading down 1.4% last, after a closely watched index of Chinese manufacturing for small and medium enterprises had its lowest reading since May 2017, confirming a prior contractionary print from the official Chinese PMI which tracks larger companies. Nasdaq 100 Index futures and those on the Dow Jones dropped 2.2 percent and 1.5 percent respectively.

The overnight mood reversal took place after the Caixin China December manufacturing PMI fell to 49.7 from 50.2 in November, below the 50 "contraction" threshold for the first time since May 2017. That followed the official gauge, which unexpectedly fell into the same zone for the first time since July 2016 on Monday.

"The trend remains lower for now,” Kyle Rodda, an analyst at IG Group Holdings Plc, told Bloomberg TV. “We’ve had rate hikes from the Fed effectively priced out, so we are looking at a situation when markets are thinking that we are entering a period of slower growth."

It wasn't just China: Taiwan’s Nikkei and IHS Markit manufacturing purchasing managers’ index fell to 47.7 in December from 48.4 in November, down from 56.6 a year earlier, partly due to a fall in demand for machinery and electronics goods, along with information and communications equipment, amid slowing orders for new smartphones and the simmering trade war. Malaysia’s PMI fell to 46.8 from 48.2, its lowest reading since the series began. New orders were at their weakest since May. South Korea’s PMI remained in contractionary territory for the second consecutive month even as the overall reading nudged higher. Vietnam’s PMI fell to 53.8, while the Philippines PMI fell to 53.2.

"The PMIs are signaling trouble ahead," said Hak Bin Chua, an economist at Maybank Kim Eng Research. "There have been some healthy trade numbers in some countries, but this is probably short-lived."

As a result, the benchmark gauge of Asia-Pacific stocks excluding Japan slumped 1.9 percent as traders returned to work in key regions including Hong Kong, China, Taiwan and Korea. Japan markets are closed and reopen on Jan. 4.  Wednesday’s plunge, which is the worst start to the year since 2016 was largely the result of the abovementioned plunge in the Chinese Caixin PMI.

“Asian markets took a deep dive into negative territory following another disappointing China Caixin manufacturing PMI reading,” said Margaret Yang, market analyst at CMC Markets, in a note to clients. “China manufacturing PMI is falling at a pace faster than economists’ forecast, suggesting global economic slowdown and trade war is hurting the country’s manufacturing activities.”

Chinese H shares lost 2.8% and Shanghai Composite dropped 1.3% after Caixin manufacturing PMI signals contraction for the first time since May 2017. S&P futures reverse early rally to trade 0.8% weaker; MSCI Asia Pacific index falls 0.9% with Japan and New Zealand markets closed for New Year holidays.

Understandably, U.S.-listed China stocks were among the biggest decliners in Wednesday’s pre-market trading as the iShares China Large-Cap ETF fell 2.5% to its lowest since October before paring the decline; the iShares MSCI Emerging Market ETF fell 1.4%. Stocks trading lower included NIO -4.6%, BiliBili -3.4%, Huya -3.1%, Pinduoduo -2.8%, Tencent Music -2.8%, iQIYI -2.2%, Alibaba -1.8%, Qudian -1.6%, Momo -1.3%

Adding to global growth concerns, Singapore’s export-reliant economy grew only 1.6% in the 4th quarter, down sharply from a revised 3.5% previously, and far below the 3.6% expected print.

The Asian gloom continued in Europe, where stocks also dropped with the Stoxx Europe 600 index trading 0.8% lower, dragged by growth sensitive sectors such as basic resources and autos. Banks and insurers were among the laggards after Europe’s PMI readings confirmed the weakness reported earlier in China, with Italy contracting, while France’s survey signaled activity shrank for the first time since late 2016. The euro-zone reading reached its lowest since February 2016. Future output PMIs were at a six-year low.

There were also renewed fears in Europe over the clean-up of Italy’s banks, with trading in shares of Banca Carige suspended. Carige failed last month to win shareholder backing for a share issue that was part of a rescue plan. An index of Italian bank shares fell 2.5 percent.

“It’s a continuation of the worries over growth. You can see them in the Asian numbers, which all confirm that we have passed peak growth levels,” said Tim Graf, chief macro strategist at State Street Global Advisors. The knock-on effects from China’s slowdown and global trade tensions were rippling across Asia and Europe, he said. “I don’t think the trade story goes away, and Europe, being an open economy, is still vulnerable,” Graf said.

The data suggests there will be no respite for equities or commodities after the losses of 2018, with "Doctor" Copper, a key gauge of world growth sentiment, falling to 3 1/2-month lows , while Brent crude futures fell 1 percent after losing 19.5 percent in 2018

Commodity-driven currencies also lost ground, led by the Australian dollar. Often used as a proxy for China sentiment, the Aussie fell as much as 0.7 percent to its lowest since February 2016 at $0.70015.

Meanwhile, the continuation of the stock market rout again drove investors into the safety of bonds. The 10-year German Bund yield slumped to 20-month lows of 0.18 percent, its biggest one-day fall in two years, while the US 10Y yield dropped below 2.65%, the lowest level since January 2018.

2Y TSY yields were 2.49% , just barely above the cash rate, from a peak of 2.977% in November. The spread between two- and 10-year yields has in turn shrunk to the smallest since 2007, a flattening that has been a portent of recessions in the past. The German 2-10 yield curve is the flattest since November 2016.

Gold and the yen were the other beneficiaries, with the Japanese currency - the best performer of 2018 - continuing its outperformance in 2019 - and while gold topped six-month highs, the yen extended its rally against the dollar to seven-month highs around 108.9. It strengthened to a 19-month peak against the euro.

“Traditional safe-haven type flows are going into the yen. As we see increased volatility (on world markets), the Japanese (investors) are probably repatriatriating foreign assets,” said Charles St Arnaud, senior investment strategist at Lombard Odier Investment Managers.

Meanwhile, after some early weakness, the dollar inched up against a basket of currencies with the Bloomberg dollar index rising to session highs, just above 1197. The greenback has come under pressure from a fall in U.S. Treasury yields as investors wager the Federal Reserve will not raise rates again. While the Fed itself still projects at least two more hikes, money markets now imply a quarter-point cut by mid-2020.

Fed Chairman Jerome Powell may comment on the outlook when he takes part in a discussion with former Fed chairs Janet Yellen and Ben Bernanke on Friday, while the manufacturing survey and the December payrolls report should shed more light when they emerge on Thursday and Friday respectively.

“What is clear is that the global synchronized growth story that propelled risk assets higher has come to the end of its current run,” OCBC Bank told clients. “Inexorably flattening yield curves ... have poured cold water on further policy normalization going ahead.”

Market Snapshot

  • S&P 500 futures down 1.5% to 2,468.25
  • STOXX Europe 600 down 1.1% to 334.12
  • MXAP down 0.9% to 145.48
  • MXAPJ down 1.8% to 468.48
  • Nikkei down 0.3% to 20,014.77
  • Topix down 0.5% to 1,494.09
  • Hang Seng Index down 2.8% to 25,130.35
  • Shanghai Composite down 1.2% to 2,465.29
  • Sensex down 0.8% to 35,950.08
  • Australia S&P/ASX 200 down 1.6% to 5,557.76
  • Kospi down 1.5% to 2,010.00
  • German 10Y yield fell 6.3 bps to 0.179%
  • Euro down 0.2% to $1.1438
  • Italian 10Y yield unchanged at 2.384%
  • Spanish 10Y yield fell 0.9 bps to 1.407%
  • Brent Futures down 1.4% to $53.05/bbl
  • Gold spot up 0.4% to $1,288.01
  • U.S. Dollar Index up 0.1% to 96.18

Top Overnight News from Bloomberg

  • Factory conditions across some of Asia’s most export-oriented economies slumped in December, hit by the U.S.-China trade war and a fading technology boom.
  • In China, the Caixin Media and IHS Markit PMI fell to 49.7 from 50.2, its lowest reading since May 2017. That confirms a trend seen in the official PMI on Monday, which showed a drop to 49.4 in December, the weakest since early 2016
  • U.S. stock-index futures erased earlier gains after Caixin PMI dropped into contraction territory, fueling global growth concerns
  • President Donald Trump invited the top congressional leaders from both parties to a White House briefing on border security Wednesday and suggested he wants to “make a deal” to end the government shutdown
  • President Sergio Mattarella, who has sought to rein in Italy’s populist leaders, took the government to task for ramming spending plans through parliament and warned that the country’s debt mountain penalizes ordinary citizens
  • The lackluster demand for Asian dollar bonds is likely to recover as investors who shunned weaker quality notes during the turbulent final quarter of 2018 now see them as too cheap to ignore. Asia dollar bond sales may total $250 billion to $300 billion in 2019, according to a Bloomberg survey
  • Yen rises versus all major peers after China’s Caixin manufacturing PMI fell into contraction territory, adding to the weight of other data signaling a slowing Chinese economy and driving demand for haven assets. Aussie leads declines against the dollar, nearing a 70 cents psychological level.
  • The European Central Bank took the unprecedented step of placing the cash-strapped Italian lender Banca Carige SpA in temporary administration, a move that could be a prelude to a sale or merger.

Stocks in developing nations fell the most in three weeks as new evidence of slowing Chinese growth compounded investor fears about prospects for the global economy. A closely watched manufacturing gauge in China had its lowest reading since May 2017 amid ongoing trade tensions with America. MSCI’s gauge of stocks slumped after closing out 2017 with four straight days of gains, with shares in Johannesburg tumbling more than three percent. Most emerging-market currencies weakened against the dollar led by Turkey’s lira, while the zloty extended losses versus the euro after Poland’s manufacturing PMI dropped to its lowest mark since 2013. “The disappointment that came through in December has transferred into January as well,” said Jingyi Pan, a Singapore-based market strategist at IG Asia Pte. Political developments in Washington served as a reminder of the U.S.-China trade tensions and brought “back to the surface worries on growth,” she said.

Top Asian News

  • China Leads Slump in Asia Factories as Trade War Cools Demand
  • Singapore’s Export-Reliant Economy Ends 2018 With Slower Growth
  • China’s Xi Seeks Talks to Unify Taiwan With Mainland
  • Asia’s Stocks Post Worst Start to Year Since 2016: Blame China

Major European Indices [Euro Stoxx 50 -0.4%] are in the red following on from the poor performance seen in Aisa. (Of note the SMI remains closed due to Berchtold’s day). The CAC (-1.4%) is underperforming its peers with index heavyweight Renault (-3.2%) towards the bottom of the index as the Co’s Renault-Samsung Motors division reported a significant decrease in year-on-year sales for December; in addition, the political situation remains fraught in France. Sectors are also in the red, with some underperformance seen in materials and energy names due to Chinese Manufacturing PMI showing a contraction, and oil prices in the red due to continued oversupply concerns respectively.

Top European News

  • Italian Populist Di Maio Promises to Cut Pay for Lawmakers
  • Italian Manufacturing Shrinks Again as Nation Nears Recession
  • European Banks Stock Drops as Banca Carige Gets Administrators
  • German Telecom Companies Sue Regulator Over 5G Auction Rules

In FX, DXY entered the EU session on the backfoot with losses of around 0.3% and below the 96.00 level with JPY out-muscling the greenback during Asia-Pac trade as USD/JPY hit a 7-month low.

  • JPY strength was largely driven by the broader risk environment as disappointing Chinese data overnight and the ongoing US government shutdown remain a key focus for investors. As the European session progressed, USD made a resurgence against its peers (ex-JPY) as losses in European equities accelerated following the cash open; DXY reclaimed 96.00 to the upside and trades relatively unchanged.
  • EUR/USD eventually fell victim to the recovery in the USD (after testing 1.1500 to the upside during Asia-Pac trade) as the pair slipped below 1.1450 with some analysts also suggesting EUR/JPY selling as a potential catalyst for the move. As such, the pair has drifted towards 675mln of option expiries between 1.1452-30 with this morning’s PMI metrics from the Eurozone unable to spur much in the way of noteworthy price action with core readings unrevised from their prior’s.
  • For GBP/USD, the pair began the session on the backfoot and slipped back below 1.2700 despite a high print of 1.2774 seen during Asia-Pac hours. Brexit-related commentary has been relatively light thus far with Parliament not returning from their winter break until 7th Jan. As such, the most interesting development for UK assets today has been the latest manufacturing PMI print which came in at 54.2 vs. Exp. 52.5 (Prev. 53.1). Cable briefly reclaimed 1.2700 to the upside before reversing gains with a pick-up in new orders largely attributed to stock-piling ahead of Brexit.
  • AUD/USD fell victim to the disappointing Chinese data overnight which saw Caixin mfg PMI slip into contractionary territory for the first time in 19 months. Losses were also spurred on by the aforementioned pick-up in USD, however, the pair maintains its status on a 0.7000 handle with option-related bids ahead of the key level said to have stopped the rot in the pair.

In commodities, Brent (-1.0%) and WTI (-1.0%) prices are down due to oversupply concerns as US output continues to increase, with US output reaching an all-time high of 11.5mln BPD in October and Russia’s December production of 11.45mln BPD vs. Prev. 11.37mln BPD. Prices are additionally weighed on by signs of a economic slowdown in China, with a Reuters survey of analysts forecasting 2019 average Brent prices at just over USD 69 a barrel; a drop of over USD 5 compared with the previous projection. UAE Energy Minister Mazrouei says that in light of the agreed OPEC+ production cut he is optimistic that oil market balance can be achieved in the first quarter of 2019. Gold (+0.4%) is in the green due to dollar weakness albeit just off of USD 1287.39/oz a 6-month high which was reached earlier in the session. Elsewhere, copper prices have moved lower as Chinese Manufacturing PMI has fallen into a contraction for the first time in 19 months.

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, est. 53.9, prior 53.9
Published:1/2/2019 6:44:21 AM
[Markets] Deep Dive: The best and worst stocks of 2018 Merck leads Dow industrials gainers; AMD tops S&P 500, despite a horrible fourth quarter.
Published:1/2/2019 6:17:42 AM
[Markets] Dow futures fall more than 400 points after weaker-than-expected economic data in China At around 4:00 a.m. ET on Wednesday morning, Dow futures fell 439 points, indicating a negative open of more than 476 points. Futures on the S&P and Nasdaq were also seen relatively downbeat. Wall Street concluded trading in 2018 on Monday, with all major stock indexes registering their worst yearly performances since the financial crisis. Published:1/2/2019 3:13:18 AM
[Markets] Dow futures fall nearly 300 points after weaker-than-expected economic data in China At around 3:20 a.m. ET on Wednesday morning, Dow futures fell 286 points, indicating a negative open of more than 323 points. Futures on the S&P and Nasdaq were also seen relatively downbeat. Wall Street concluded trading in 2018 on Monday, with all major stock indexes registering their worst yearly performances since the financial crisis. Published:1/2/2019 2:43:36 AM
[Markets] US Futures Tumble Ahead Of EU Open As New Year's Hangover Hits

US futures markets opened overnight with a flourish, extending Monday's New Year's Eve panic-bid close. But as with all moments of excess, there is a price to be paid and the hangover has accelerated as markets head into the European open with Dow futures down 400 points from the highs...

 

All the major indices have reversed early gains, back to last week's lows...

 

And as a reminder, stoks have quiet a catch down to go if bonds are right over the Xmas holiday...

 

Published:1/2/2019 2:14:25 AM
[Markets] Buy IBM Stock as It Begins 2019 as the Cheapest Dow Component has been a so-called "Dog of the Dow" for several years, and now it's the cheapest stock in the Dow Jones Industrial Average. IBM, which has been a Dow Jones Industrial Average component since 1979, has actually rallied 7.3% since setting a multiyear low of $105.94 on Dec. 26. Published:1/1/2019 10:09:19 AM
[Markets] People Are Really Worried About a Recession. Here’s Proof. Talk of an imminent recession has been everywhere lately. With the Dow and the S&P 500 having flirted with bear market territory before recent rallies, investors can’t seem to hide their fear of trouble ahead. Published:1/1/2019 7:09:43 AM
[Markets] 2018’s stock-market Santa rally is leaving this message for 2019 Santa may have visited Wall Street over the last week, but that doesn’t guarantee a bull market in 2019. Defined in either way, Santa has been very good to the market: As of midday on Dec. 31, the Dow Jones Industrial Average (DJIA)  was some 1,500 points higher than where it closed on Christmas Eve. While it is true that the Dow performed dismally for the entire month of December — down 9% even after the Santa Claus Rally — researchers for years have consistently defined the rally to only begin the day after Christmas. Published:1/1/2019 3:37:43 AM
[Markets] Jeremy Siegel: Understanding the Major Stock Indexes The major stock indexes provide a significant amount of information with just a few numbers. In chapter seven of "Stocks for the Long Run," author Jeremy Siegel set out to explain what is behind the numbers so many investors and others watch. Known simply as "the Dow" or even "the stock market," this average is ubiquitous, even though it is no longer the best overall indicator of stock market movements. Published:12/31/2018 4:06:20 PM
[Markets] Stocks in the Dow, S&P 500 had their worst December since the Great Depression Stocks in the Dow, S&P 500 had their worst December since the Great Depression Published:12/31/2018 3:34:29 PM
[Markets] Dow Gains on Last Day of Worst December Since the Depression The Dow and S&P 500 were having their worst December since 1931. Donald Trump said "big progress" was being made in trade talks between the U.S. and China. Stocks rose Monday, Dec. 31, the last trading day of 2018, after Donald Trump tweeted over the weekend that "big progress" was being made in trade talks between the U.S. and China. Published:12/31/2018 3:34:29 PM
[Markets] Gold ends New Year's Eve and 2018 in the red, but books 7% quarterly gain as stocks swoon Gold futures on Monday closed out New Year's Eve with a loss for the session and year, but garnered some upward momentum as stock-market carnage reignited haven-related demand and as the dollar weakened somewhat. February gold trading on Comex finished down $1.70, or 0.1%, at $1,281.30 an ounce, according to FactSet data. Based on the most-active contract, gold futures are up 4.7% in December and 7.3% over the last three months of the year, but down by about 2.1%, so far in 2018, according to FactSet data. Monday's slight loss came as the Dow Jones Industrial Average and the S&P 500 index were aiming to close out a bruising December and 2018 on a slight high note. Weakness in equities over the past three months has given bullion some support, as has a weakening dollar over the past month. A weaker buck can provide support for commodities priced in the unit, as it makes it cheaper to users of other currencies. A measure of the buck, the ICE Dollar Index , was down 0.2% at 96.22 on Monday and has lost 1.1% in December. However, the popular index has gained 1.2% this quarter and has risen 4.5% thus far in 2018. Published:12/31/2018 1:05:27 PM
[Markets] US STOCKS-Wall St limps to end of a tumultuous year on a positive note The S&P 500 looks set to post its worst December since the Great Depression and the Nasdaq confirmed it was in a bear market, or 20 percent below its high. U.S. President Donald Trump indicated on Twitter that progress had been made toward a potential resolution to the trade tensions between the United States and China which have plagued stock markets for much of the year. The Dow Jones Industrial Average rose 222.16 points, or 0.96 percent, to 23,284.56, the S&P 500 gained 16.83 points, or 0.68 percent, to 2,502.57 and the Nasdaq Composite added 45.85 points, or 0.7 percent, to 6,630.37. Published:12/31/2018 12:34:55 PM
[Markets] Dow Pops Amid Signs of Progress on U.S.-China Trade Talks The Dow Jones Industrial Average was rising on Monday after U.S. stocks posted their first weekly gain in four weeks. Despite the gains, the Dow and S&P 500 were having their worst December since 1931. Donald Trump said "big progress" was being made in trade talks between the U.S. and China. Published:12/31/2018 10:04:30 AM
[Markets] Here are the Dow's and S&P 500's best-performing stocks for 2018 Here are the Dow's and S&P 500's best-performing stocks for 2018 Published:12/31/2018 9:34:06 AM
[Markets] Merck Stock Was the Best in the Dow in 2018 — by Far In retrospect, 2018 was the year pharma ruled the Dow, and (MRK) (MRK) was king. Merck stock rose 33.9% through Friday’s close, putting it leagues ahead of most other Dow components and its closest rival, (PFE) (PFE). Merck had had a pretty uninspired 2017, but came roaring back to life in 2018. Published:12/31/2018 6:02:59 AM
[Markets] 44 Numbers From 2018 That Are Almost Too Crazy To Believe

Authored by Michel Snyder via The Economic Collapse blog,

Was 2018 everything that you expected it to be?  Every year contains surprises, but 2018 truly turned out to be a year that we will never forget.  Over the past 12 months we witnessed great political shaking, Wall Street experienced the worst downturn that we have seen since 2008, the crust of our planet was rattled by an increasing number of major seismic events, social decay spread like wildfire, and America continued to become even more divided as a nation.  In comparison, 2017 was rather bland and boring, and I truly believe that one day we will look back on 2018 as a major turning point.

It is amazing that 12 months has flown by already.  It seems like the years just keep getting faster, and perhaps that is because we are all getting older.

In any event, the following are 44 numbers from 2018 that are almost too crazy to believe…

#1 One study found that the average American spends 86 hours a month on a cellphone.

#2 A different study discovered that 37 percent of all Americans have eaten fast food within the last 24 hours.

#3 90 percent of the beer that Americans drink is produced by just 2 gigantic corporations.

#4 McDonalds feeds approximately 70 million people a day globally.  Pornhub gets more than 78 million visits a day.

#5 60 percent of all Americans actually believe that they have seen a ghost.

#6 The middle class continues to decline, and at this point half of all American workers make less than $30,533 a year.

#7 During the 2018 midterm elections, Democrats were able to pick up 40 seats in the U.S. House of Representatives.  Those that were forecasting a “red tsunami” were completely and totally wrong.

#8 Kevin Spacey’s incredibly creepy YouTube video entitled “Let Me Be Frank” in which he promises that he will never be held accountable for his actions has already been viewed more than 8 million times.

#9 Since 2007, the total amount of student loan debt in America has nearly tripled.

#10 The suicide rate in the United States has risen by 33 percent since 1999.

#11 Suicide is now the second leading cause of death for Americans from age 15 to age 24.

#12 Netflix recently made a deal to renew streaming of “Friends” for another year for 100 million dollars.

#13 According to the United Nations Population Fund, 40 percent of all births in the U.S. now happen outside of marriage. But if you go back to 1970, that figure was sitting at just 10 percent.

#14 13 million households in the United States do not always have enough food to eat.  So if you have enough food to eat every day, you should consider yourself to be very blessed.

#15 According to the U.S. Department of Agriculture, almost 1 out of every 4 children in rural areas is currently living in poverty.

#16 At this point, almost 52 percent of all children live in a home that receives monthly help from the federal government.

#17 Over half a million people are homeless in the United States right now.

#18 Today, a million Americans are living in their RVS, and that number is rising with each passing year.

#19 Social decay is clearly evident even in our most prosperous cities.  One recent investigation found 300 piles of human feces on the streets of downtown San Francisco.

#20 62 percent of all U.S. jobs do not pay enough to support a middle class lifestyle.

#21 In 1980, the average American worker’s debt was 1.96 times larger than his or her monthly salary. Today, that number has ballooned to 5.00.

#22 Over half the country now receives more in government transfer payments than they pay in taxes.

#23 According to one recent study, the “rate of people 65 and older filing for bankruptcy is three times what it was in 1991”.

#24 More than 100 churches in the United States are dying every single week.

#25 If you go back to 1986, just 10 percent of all young adults were “religiously unaffiliated”, but now that number has jumped all the way to 39 percent.

#26 According to one recent survey, Americans from the age of 18 to the age of 29 favor Democrats over Republicans by a 66 percent to 32 percent margin.

#27 One study found that one-third of all American teenagers haven’t read a single book in the past year.

#28 The number of married couples with children in the U.S. just reached a 56 year low.

#29 In the city of Baltimore, approximately one out of every four babies is born as an opioid addict.

#30 According to the New York Times, approximately 110 million Americans have a sexually-transmitted disease right now.

#31 It is being projected that the total amount of plastic in the oceans of the world will exceed the total weight of all fish by the year 2050.

#32 90 percent of all seabirds in the world now have plastic in their stomachs.  Back in 1960, that number was sitting at just 5 percent.

#33 In August, we learned that the number of global earthquakes over the last 30 days had risen to a level that was 50 percent above normal.

#34 In September, an all-time record high seven named storms were swirling across the globe simultaneously.

#35 In October, we witnessed the third largest single day point crash in stock market history on the exact same day that the third most powerful hurricane in U.S. history made landfall.

#36 In November, the Camp Fire destroyed 14,000 homes and businesses in northern California.  It was the most destructive wildfire in the history of the state.

#37 According to the official Twitter account of Mount Washington Observatory in New Hampshire, they had wind chills of between -70 and -75 degrees on Thanksgiving morning.

#38 In the aftermath of the magnitude 7.0 earthquake that rattled Anchorage, the state of Alaska was shaken by more than 1,400 earthquakes.

#39 In early December, the largest earthquake in 45 years hit eastern Tennessee.

#40 During the last full week before Christmas, the Dow fell 1,655 points.  That was the worst week for the stock market since the financial crisis of 2008.

#41 The National Retail Federation was projecting that total Christmas spending would surpass $465,000,000,000 in 2018. Only 25 countries on the entire planet have a GDP that is greater than that number.

#42 In 2017, the Dow was either up or down by 1 percent or more just 8 times.  In 2018, it happened 64 times.  Volatility has returned to Wall Street in a major way, and that is a really bad sign.

#43 A recent survey of corporate financial officers discovered that 82 percent of them believe that a recession will have started by the end of 2020.

#44 During 2018, the U.S. national debt increased by nearly 1.4 trillion dollars.  We are now almost 22 trillion dollars in debt, and there is no end to our debt problems on the horizon.

Published:12/31/2018 6:02:59 AM
[Markets] Microsoft Stock Was the Dow’s Top Tech Performer in 2018 (MSFT) stock (ticker: MSFT) made it to the top of the heap this year thanks its successful transition to cloud computing and the subscription model. Not only did Microsoft surpass (AAPL) (AAPL) to become the most valuable publicly traded U.S. company in November, Microsoft also ranked as the top-performing technology stock in the Dow by reporting earnings above Wall Street’s expectations for every quarter it reported in 2018. On Friday, Microsoft had a market value of about $770 billion, enough to beat Apple’s roughly $740 billion and Amazon’s $730 billion. Published:12/31/2018 4:32:17 AM
[Markets] A History Of Market Crashes In Charts

As stocks plunged toward their harrowing, bear-market lows earlier this month, Omega Advisors CEO Leon Cooperman infamously railed against algorithmic traders and HFT for creating distortions in the market that caused the cascading selloff (though, as we joked at the time, no fingers were pointed when stocks soared off the lows following a massive pension buy order).

Though the Dow's biggest one-day point gain on record was likely spurred by pension fund rebalancing (or the frontrunning of said rebalancing), the scrutiny that this month's volatility has brought to algos and their potential to amplify selloffs and rallies (even when there's no clear catalyst for such moves) due to their trend-following nature has been perhaps the most salient takeaway from the worst December for US stocks since the Great Depression.

With mainstream investors finally questioning the very integrity of the markets and their ability to accurately set prices - a phenomenon that we have been warning about for some time now - Bloomberg's editors decided that now would be a good time to remind their readers of every major selloff of the 20th century as a way to nudge the market that selloffs like the one we just endured are quite "normal", and have been happening since the days when order tickets were written up by hand (don't tell that to any of the hedge fund managers who will be shutting down their hedge funds as a result of December's bizarre market violence).

Mkts

In any case, as Bloomberg claims, vicious selloffs like the 20% drop we just witnessed are "far from unheard of."

While any 20 percent sell-off hurts, the one happening now is far from unheard of in terms of depth or velocity. Over the past 100 years, there are almost too many examples to count of stocks tumbling with comparable force.

"It’s an inevitable process," Marshall Front, founder of Front Barnett Advisers, who began on Wall Street in 1963. "It goes on over and over again."

In fact, selloffs like these are "very normal".

"This is very normal. It unnerves people because we’re all talking about it all the time," said Nancy Tengler, chief investment strategist at Tengler Wealth Management. "It’s in our face more. We have too much focus on the day-to-day or minute-by-minute or second-by-second movements. Historically, is this normal? Yes."

And traders shouldn't be so quick to blame quantitative traders, HFT and passive investors.

A fair amount of complaining has gone on in recent months about the role of high-frequency traders and quantitative funds in the drubbing that reached its peak around Christmas. Perhaps. Those groups are big, and in the search for villains, they make easy targets. Treasury Secretary Steven Mnuchin is among the people who have made the connection.

One thing that makes it tough to lay blame for the meltdown on machine-based traders is the many past instances when markets fell just as hard without their help. The Crash of 1929 is one big example. However bad this market is, it’s a walk in the park compared with then.

In fact, the biggest, most volatile swings in the market occurred back in the 1920s and 1930s, when algos were still firmly within the realm of science fiction.

"The largest percentage changes, except for 1987, were in the ’20s and ’30s," said Donald Selkin, chief market strategist at Newbridge Securities Corp. "You had dramatic moves then and you didn’t have electronic trading then."

So, without further delay, here's BBG's roundup of 20th century market downturns that happened well before algos dominated the trading environment.

Dot-com Bust

The dot-com bubble that had been developing since the late 1990s popped in March 2000, when the S&P 500 lost 35 percent over the course of two months. It took the Nasdaq Composite Index, which peaked at 5,040.62 on March 10, about 15 years to get to its old high.

Dotcom

Black Monday of 1987

The S&P 500 rose 36 percent between January and August 1987 in what was set to be the best year in almost three decades. Then the October sell-off pushed the S&P into a 31 percent correction over just 15 days, much of it occurring in that one infamous session.

Cliff

1974 Sell-Off

The worst year since 1937 for the S&P 500 saw the index fall 33 percent in 115 days as a weakening economy, rising unemployment and spiking inflation pushed investors to head for the exits. Stocks subsequently rebounded, surging more than 50 percent between October 1974 and July 1975.


Two

1962 Rout

Investors of a certain age may recall 1962, when the S&P 500 Index lost a quarter of its value between March and June 1962. The rout known as the Kennedy Slide came after the S&P 500 advanced 79 percent in the prior four years. The S&P 500 was essentially flat over the next two decades.

Cliff

Not So Fat ’57

A dive in car sales and slowing housing construction pushed stocks into a 20 percent correction over 99 days in 1957. This preceded a recession that saw the U.S. gross domestic product contract 10 percent in a matter of three months in 1958.

Four

* * *

To be fair, we haven't heard anybody argue that algos are solely responsible for the December selloff. Most arguments - at least of the arguments that are being taken seriously - are slightly more nuanced. With market liquidity at record lows, with 85% of the market on autopilot, and the Federal Reserve siphoning off $50 billion each month from the liquidity tidal wave that sent sticks higher in an almost uninterrupted rally over the past decade, the notion that algos played an important role in the selloff isn't speculation. At this point, as we've been saying since 2009, it is established fact.

Published:12/30/2018 1:28:14 PM
[Markets] El-Erian: 1000-Point Swings In The Dow Are The "New Reality"

While even some of the most dogged bulls are throwing in the towel on their optimistic forecasts for the US (see Goldman taking the axe to its 2019 GDP forecast noted earlier), there are those who steadfastly believe that 2019 will be a solid year for the US economy, and that no recession is still in sight.

One among them is Allianz chief economic advisor Mohamed El-Erian, who dismissed concerns that the US is facing a recession in the coming year, saying in an interview on Fox News Sunday that the economy is likely to continue growing at 2.5-3%.

"[A recession] is certainly not becoming a reality. You need either a major policy mistake or a massive market accident to push us into recession. But we will slowdown unless we build on the pro-growth policies."

On the same day that he penned a Bloomberg op-ed, explaining why "life is getting harder for central banks" in which he concluded that "whichever way you look at it central banks will be exposed to more criticism from politicians, market participants and analysts" - and rightfully so, after all it was the central banks that engaged in the biggest can-kicking experiment in history by injecting $16 trillion in liquidity and the time to pay the piper is fast approaching, El-Erian said that "Trump’s frequent criticism of Fed policy is unusual" (in fact, as Goldman observed earlier it is not at all unusual and that "it is far from unprecedented on a longer-term comparison"), adding that the independence of the central bank is important to economic security (at this point we could go into a tangent how only career economists believe the Fed is "independent", especially from commercial bank pressure but we won't).

And yet, adding his own set of criticism to US monetary policy, El-Erian said that the Fed realizes that it can’t put its key policy tool, the federal funds rate, on autopilot, and that "it needs to better communicate its policy choices."

El-Erian also said that the turmoil in Washington, including a government shutdown now in its ninth day, is a factor in the market’s recent decline, which is also open for debate considering that the market is up nearly 3% since the government was officially shutdown at midnight on December 21.

And while the Allianz economist remaind optimistic on the US economy, he correctly noted that a bigger factor is that the global economy - notably China and Europe - has become more uncertain.

Finally, one statement by El-Erian that was largely undisputed was his contention that with the Fed and ECB tightening liquidity (the ECB's QE ends in two days) "it’s no longer about buying every dip, it’s about selling every rally." And as market uncertainly is amplified by computer trading (but not only as we discussed extensively yesterday) the possibility of 1,000-point daily swings in the Dow Jones Industrial Average is the “new reality” for now, he concluded:

"The economy will remain strong, growing at 2.5%-3.0% but because what is happening in the rest of the world, because liquidity conditions have changed markets will remain volatile, so don't be surprised if you see these 1000-point swings in the Dow, that is the new reality for now, and it reflects the fact that we are coming from a very good 2017. Everything went right in 2017: higher returns, no volatility and great correlations. So I think of this a normalization, it doesn't feel good in the short-term but it's ok over the long-term."

Full clip below:

Published:12/30/2018 11:58:33 AM
[Markets] Cisco Stock Rose in 2018 by Avoiding Drama Chuck Robbins has just finished a successful first year as chairman and CEO of networking giant (CSCO) (ticker: CSCO). Cisco stock has generated a 15% gain for investors year to date. In 2018, Cisco has managed to avoid much of the stock-market drama that’s plagued some other Dow stocks. Published:12/30/2018 11:29:11 AM
[Markets] UnitedHealth Stock Rose in 2018 Because Stability Paid Off UnitedHealth followed 2017’s results with more strength: Even though recent market volatility means that the shares aren’t up as much this year as last, it still landed near the top of the Dow and easily outperformed the broader market. Analysts were upbeat to start the year, citing the benefit of lower corporate taxes, and saw UnitedHealth as fairly insulated from a bid by several billionaires to improve health care. Of course, the year wasn’t without ups and downs for the insurance giant, which stumbled despite strong earnings this summer, and that slump was worrisome, given how much UnitedHealth had carried the Dow. Published:12/30/2018 10:27:35 AM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Analysis – Friday’s Rally Rejected by 23156 to 23558 Retracement Zone Based on Friday’s price action and the close at 23156, the direction of the March E-mini Dow Jones Industrial Average on Monday is likely to be determined by trader reaction to the 50% level at 23156. Published:12/30/2018 2:25:46 AM
[Markets] Countdown to 2019: Lessons From the Dow’s Painful Year After gaining 25% in 2017, the Dow could be headed for a double-digit loss to close out 2018. We’ll review what went right—and wrong—for each Dow component, and look ahead to 2019. Published:12/29/2018 2:53:14 PM
[Markets] This Is Exactly The Kind Of Behavior That You'd Expect During A Stock Market Implosion...

Authored by Michael Snyder via The Economic Collapse blog,

If a doctor tells you that his patient’s condition is swinging up and down wildly, is that a good sign or a bad sign?  Of course the answer to that question is quite obvious. 

And if a doctor tells you that his patient’s condition is “stable”, is that a good sign or a bad sign? 

Just like in the medical world, instability is not something that is a desirable thing on Wall Street, and right now we are witnessing extreme volatility on an almost daily basis.  On Thursday, the Dow was already down several hundred points when I went out to do some grocery shopping with my wife, and at the low point of the day it had fallen 611 points.  But then a “miracle happened” and the Dow ended the day with an increase of 260 points.  As I detailed yesterday, this is precisely the sort of behavior that you would expect during a chaotic bear market.

As Fox Business has noted, bear market rallies are typically “sharp, quick and usually short” I figured that the momentum from Wednesday would carry over into the early portion of Thursday, so I was surprised when the Dow was down by so much as we neared the middle of the day.  But then around 2 PM we witnessed an extraordinary market surge

The Dow Jones Industrial Average posted a 865-point swing in less than two hours. The blue-chip index had been down in mid-afternoon more than 500 points to cut the previous session’s gains in half, before bargain hunters and short covering turned a big decline into a modest gain.

An 865 point swing in less than two hours is not “normal”.

In fact, it is about as far from “normal” as you can get.

Let’s talk about short covering for a moment.  During huge market downturns, speculators often try to make a lot of money very rapidly by shorting stocks.  But if momentum suddenly shifts, those short sellers can be caught with their pants down and the consequences can be quite dramatic.  The following comes from Marketwatch

Indeed, market veterans warn that massive, one-day rallies are often more characteristic of downturns, occurring as selloffs lead to significantly oversold technical conditions that leave markets ripe for short covering only to give way to renewed selling once the frenzy of forced buying is exhausted. Investors who short a stock are essentially betting that its price will fall by first borrowing the shares, but those traders can be forced to buy shares back if prices suddenly swing higher, which, in turn, can amplify price swings.

In addition, it appears that on Thursday there was more of the “forced pension rebalancing” that Zero Hedge has been talking about

It certainly has the smell of a massive pension reallocation as the moment stocks started to surge, bonds were dumped

No stock market crash in U.S. history has ever gone in a straight line.  There are always huge ups and downs during every market crash, and this market crash is no exception.

Ultimately, there is no way that you can possibly interpret the behavior of the market in recent days as “healthy”

Here’s the problem: as we discussed last night, since 1990, every comparable reversal – with a few exceptions – came during the 2008-2009 bear market.  According to Bloomberg data, in eight previous bear markets the S&P 500 experienced rallies of greater than 2.5% more than 120 times as the benchmark plunged from peak to trough. From the collapse of Lehman to the financial crisis bottom in March 2009, the S&P 500 rallied more than 4 percent on 13 different occasions.

This is not the kind of price action you see in normal bull markets,” said Robert Baird equity sales trader Michael Antonelli. “This is just a face ripping short cover rally. I am 100 percent not saying we are in a situation like 2008 now, but look at October 10, 2008 to October 13, 2008: the market rose nearly 12 percent in one day. October 27 to October 28, 2008, it rose 11 percent.”

Meanwhile, it appears that one of America’s most iconic retailers is about to go down in flames.

For years I have been warning that Sears was eventually “going to zero”, and if a last ditch rescue attempt does not materialize by the end of the day on Friday, Sears will be liquidated

The employer of more than 68,000 filed for bankruptcy in October. Its last shot at survival is a $4.6 billion proposal put forward by its chairman, Eddie Lampert, to buy the company out of bankruptcy through his hedge fund, ESL Investments. ESL is the only party offering to buy Sears as a whole, people familiar with the situation tell CNBC. Without that bid or another like it, liquidators will break the company up into pieces.

But as Lampert stares down a deadline of Dec. 28 to submit his offer, he is quickly running out of time. As of Thursday afternoon, Lampert had neither submitted his bid, nor rounded up financing, the people familiar said.

The inevitable demise of Sears could be seen from a mile away, and the same thing can be said about the country as a whole.

Our debt-fueled standard of living has been propped up by the biggest debt binge in the history of the world, and Wall Street has been transformed into the largest casino on the entire planet.

The entire U.S. economic system has become one huge Ponzi scheme, and all Ponzi schemes ultimately collapse.

Right now, we are in the early stages of a game that is going to take some time to fully play out.  The pessimism that has gripped Wall Street is starting to spread throughout the general population, and many experts were stunned to learn that consumer confidence just declined for a second month in a row

The confidence Americans feel in the economy fell for the second month in a row and touched the lowest level since last summer, perhaps a sign that worries about the 9 1/2-year U.S. expansion have spread from Wall Street to Main Street.

The consumer confidence index dropped to 128.1 this month from a revised 136.4 in November, the Conference Board said Thursday. Economists polled by MarketWatch had forecast a 133.3 reading.

If you have been a regular visitor to my websites, then nothing that will happen over the next few months should be a surprise to you.

The inevitable consequences for decades of exceedingly foolish decisions are starting to roll in, and the bursting of “The Bubble To End All Bubbles” is going to be beyond excruciating.

Published:12/29/2018 12:22:38 PM
[Markets] What if the Dow fell another 4,000-plus points — would you be prepared? Would you be prepared if the Dow Jones Industrial Average fell another 4,000-plus points? The Dow has fallen more than 4,000 points from its high this year — all of it in the fourth quarter. In mid-October I suggested that investors be prepared for a sudden downdraft, asking in a column “Would you be prepared if the Dow Jones Industrial Average were to fall 5,700 points?” I chose that number because the Dow fell 23% on Black Monday in October 1987, equivalent to about 5,700 points today. Published:12/29/2018 10:21:53 AM
[Markets] Wall Street faces annual losses despite solid gains for week Wall Street capped a week of volatile trading Friday with an uneven finish and the market's first weekly gain since November. Losses in technology, energy and industrial stocks outweighed gains in retailers and other consumer-focused companies. The Dow Jones Industrial Average and S&P 500 rose more than 2 percent for the week, while the Nasdaq added nearly 4 percent. Published:12/29/2018 12:19:54 AM
[Markets] Corrections & Amplifications The Dow Jones Industrial Average’s 2018 total return, including dividend payments, through Dec. 21 was -7.1%. A chart with a Business & Finance article Monday about the “Dogs of the Dow” incorrectly showed the return as -14.7%, and the chart didn’t specify that the amounts shown were on a total-return basis. Richard Adams, the author of “Watership Down,” died in 2016 at age 96. Published:12/28/2018 8:48:58 PM
[Markets] 2019: Zombie Markets Before The Fall

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

I haven’t really written about finance since April of this year, and given recent fluctuations in what people persist in calling the markets, maybe it’s time. Then again, nothing has changed since that article in April entitled This Is Not A Market. I was right then, and I still am.

[..] markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is. Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all.

[..] we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

But perhaps that is confusing, and confusion in and of itself doesn’t lead to better understanding. So maybe I should call what there is out there today ‘zombie markets’. It doesn’t really make much difference. What murdered functioning markets is intervention by central banks, in alleged attempts to save those same markets. Cue your favorite horror movie.

Now Jerome Powell and the Fed he inherited are apparently trying to undo the misery Greenspan, Bernanke and Yellen before him wrought upon the economic system, and people, cue Trump, get into fights about that one. All the while still handing the Fed, the ECB, the BoJ, much more power than they should ever have been granted.

And you won’t get actual markets back until that power is wrestled from their cold dead zombie fingers. Even then, the damage will be hard to oversee, and it will take decades. The bankers and investors their free and easy trillions were bestowed upon will be just fine, thank you, but everyone else will definitely not be.

Central banks don’t serve societies, they serve banks. They fool everyone, politicians first of all, into believing that societies automatically do well if only the demands of banks are met first, and as obviously stupid as that sounds, nary a squeak of protest can be heard. Least of all from ‘market participants’ who have done nothing for the better part of this millennium except feast at the teat of main street largesse.

In the past few days we’ve had both -stock- market rallies and plunges of 5% or so, and people have started to realize that is not normal, and it scares them. So you get Tyler posting DataTrek’s Nicolas Colas saying “Healthy” Markets Don’t Rally 1,086 Points On The Dow. Well, he’s kinda right, but there hasn’t been a healthy market in 10+ years, and he’s missed that last bit. Like most people have who work in those so-called ‘markets’.

Here’s why Colas is right, but doesn’t understand why. Price discovery is the flipside of the coin that is a functional market, because it allows for people to see why something is valued at the level it is, by a large(r) number of participants. Take that away and it is obvious that violent price swings may start occurring as soon as the comforting money teat stutters, or even just threatens to do so; a rumor is enough.

In physics terms, price discovery, and therefore markets themselves -provided they’re ‘healthy’ and ‘functioning’- delivers negative feedback to the system, i.e. it injects self-correcting measures. Take away price discovery, in other words kill the market, and you get positive feedback, where -simplified- changes tend to lead to ever bigger changes until something breaks.

Also, different markets, like stocks, bonds, housing, will keep a check on each other, so nothing will reach insane valuations. If they tend to, people stop buying and will shift their money somewhere else. But when everything has an insane value, how would people know what’s insane anymore, and where could they shift that is not insane?

It doesn’t matter much for ‘market participants’, or ‘investors’ as they prefer to label themselves, they shift trillions around on a daily basis just to justify their paychecks, but for mom and pop it’s a whole different story. In between the two you have pension funds, whose rapid forced move from AAA assets to risk will strangle mom and pop’s old-age plans no matter what.

People inevitably talk about the chances of a recession happening, but maybe they should first ask what exactly a recession, or a bear market, is or means when it occurs in a zombie (or just plain dead) market.

If asset ‘values’ have increased by 50% because central banks and companies themselves have bought stocks, it would seem logical that a 10% drop doesn’t have the same meaning as it would in a marketplace where no such manipulation has taken place. Maybe a 50% drop would make more sense then.

The inevitable future is that people are going to get tired of borrowing as soon as it becomes too expensive, hence unattractive, to do so. Central banks can still do more QE, and keep rates low for longer, but that’s not an infinity and beyond move. It a simple question of the longer it lasts the higher will be the price that has to be paid. One more, one last, simple question: who’s going to pay? We all know, don’t we?

That’s where the Fed is now. You can let interest rates rise, as Powell et al are indicating they want to do, but that will cut off debt growth, and since debt is exclusively what keeps the economy going, it will cut into economic growth as well. Or you can keep interest rates low (and lower), but then people have less and less idea of the actual value of assets, which can, and eventually necessarily will, cause people to flee from these assets.

Powell’s rate hikes schedule looks nice from a normalizing point of view, and g-d knows what normal is anymore, but it would massacre the zombie markets the Fed itself created when it decided to kill the actual markets. You can get back to normal, but only if the Fed retreats into the Eccles Building and stays there until 2050 or so (or is abolished).

They won’t, the banks whose interests they protect will soon be in far too dire straits, and bailouts have become much harder to come by since 2008. It’ll be a long time before markets actually function again, and we won’t get there without a world of pain. Which will be felt by those who never participated in the so-called markets to begin with. Beware of yellow vests.

To top off the perversity of zombie markets, one more thing. Zombie markets build overcapacity. One of the best things price discovery brings to an economy is that it lets zombies die, that bankrupt companies and bankrupt ideas go the way of the dodo.

That, again, is negative feedback. Take that away, as low rates and free money do, and you end up with positive feedback, which makes zombies appear alive, and distorts the valuation of everything.

Most of what the ‘popular’ financial press discusses is about stocks, what the Dow and S&P have done for the day. But the bond markets are much bigger. So what are we to think when the two are completely out of sync -and whack-?

Oh well, those are just ‘the markets’, and we already know that they are living dead. Where that may be less obvious, if only because nobody wants it to be true, is in housing markets. Which, though this is being kept from you with much effort, are what’s keeping the entire US, and most of Europe’s, economies going. And guess what?

The Fed and Draghi have just about hit the max on home prices (check 2019 for the sequel). Prices have gotten too high, Jay Powell wants higher interest rates, Draghi can’t be left too far behind him because EU money would all flow to the US, and it’s all well on its way to inevitability.

And anyway, the only thing that’s being achieved with ever higher home prices is ever more debt for the people who buy them, and who will all be on the hook if those prices are subject to the negative feedback loops healthy markets must be subject too, or else.

The only parties who have profited from rising home prices are the banks who dole out the mortgages and the zombie economy that relies on them creating the money society runs on that way. We have all come to rely on a bunch of zombies to keep ourselves from debt slavery, and no, zombies are not actually alive. Nor are the financial markets, and the economies, that prop them up.

Among the first things in 2019 you will see enormous amounts of junk rated debt getting rated ever -and faster- lower , and the pace at which ever more debt that is not yet junk, downgraded to(wards) junk, accelerating. It looks like the zombies can never totally take over, but that is little comfort to those neck deep in debt even before we start falling.

And as for the ‘players’, the economic model will allow again for them to shove the losses of their braindead ventures onto the destiny of those with ever lower paying jobs, who if they’re lucky enough to be young enough, start their careers in those jobs with ever higher student debts.

You’d think that at some point they should be happy they were never sufficiently credit-worthy to afford one of the grossly overpriced properties that are swung like so many carrots before their eyes, but that’s not how the system works. The system will always find a way to keep pushing them deeper into the financial swamp somehow.

The last remaining growth industry our societies have left is inequality, and that’s what our central banks and governments are all betting on to keep Jack Sparrow’s Flying Dutchman afloat for a while longer. Where the poor get squeezed more so the 1% or 10% get to look good a little longer.

But in the end it’s all zombies all the way down, like the turtles, and some equivalent of the yellow vests will pop up in unexpected places. My prediction for next year.

It doesn’t look to me that a year from now we’ll see 2019 as a particular peaceful year, not at all like 2018. I called it from Chaos to Mayhem earlier, and I’m sticking with that. We’re done borrowing from the future, it’s getting time to pay back those loans from that future.

And that ain’t going to happen when there are no functioning markets; after all, how does anyone know what to pay back when the only thing they do know is everything is way overvalued? How wrong can I be when I say debts will only be paid back at fair value?

2019, guys, big year.

Published:12/28/2018 4:17:51 PM
[Markets] Stocks close mostly lower, but S&P 500, Dow book first up week in a month Stocks close mostly lower, but S&P 500, Dow book first up week in a month Published:12/28/2018 3:17:07 PM
[Markets] Stocks Soar Then Slide Following Epic Pension Buying Fake Out

It almost went according to plan.

In what was a relatively quiet market until 2pm suddenly the Dow Jones blasted higher, supported by a burst of massive buy programs, when as noted earlier we observed the highest TICK print on record, and at 2:39pm, the number of NYSE upticks surpassed downticks by a record 1,775...

... and not just one massive buy program, but we got no less than three 1,650+ TICK prints in a space of 10 minutes as one trader tried to fake the arrival of a pension bid as other traders scrambled to figure out if pension buying had indeed returned for the third day in a row.

There was just one problem, because whoever was desperate to pretend they were a pension fund forgot to sell bonds and with the S&P trading at session highs, treasurys remained unchanged...

...in stark contrast with yesterday's true pension reallocation, which saw TSY yields slide as stocks jumped.

And once traders realized that this was just one giant fake out meant to force stops and squeeze shorts, they started buying... bonds, with the 10Y yield sliding as low as 2.7146%, the lowest since February 2018. And as the bond were bid, stocks tumbled losing all intraday gains, and turning negative.

Meanwhile, as it became clear that no real pension bid was coming, the selling returned, and stocks closed near session lows, with the Dow losing almost 400 points of gains and briefly dropping below 23,000 although the selloff was far more controlled than the liquidation puke observed on Monday.

At the end of the day, the Dow was the biggest loser, the S&P was modestly lower, while the Nasdaq closed just green thanks to a strong bid for the FANGs:

Back to Treasurys, where buying across the curve was not uniform, and while 30Y yields were almost unchanged, the short end crumbled, resulting in a sharp curve steepening.

Another confirmation that there was no real pension bid today, the dollar not only did not slide as it did yesterday, but was mostly unchanged if slightly higher on the day.

Meanwhile, despite the unchanged inventory print in today's DOE report (vs expectations of a 3+  MM drawdown) and yesterday's API inventory build, oil rose modestly cementing December's 11% plunge for the commodity, and the worst quarterly drop since 2014.

With the dollar going nowhere, gold and silver were mostly unchanged, and as a result have enjoyed one of the best months for the precious metals in years.

Meanwhile credit, as we noted earlier, did not buy either the Wednesday record point surge, or Thursday's biggest intraday reversal since 2010, and instead  investment-grade bond spreads widened 3 basis points to 171bps, having widened every day since Dec. 14 and most trading sessions this quarter while junk bond also dropped as the high yield index widened 1 basis point to 531 basis points, the highest level since Aug. 4, 2016.

The average junk bond yield now above 8% for the first time since April 2016.

Finally, in what may be the biggest unspoken story of the day, the LSTA leveraged loan index tumbled to new multi-year lows: as shown below, the price of leveraged loans has been a one way train down, which together with another week of record outflows from the loan market, is the most ominous signal because should the loan market freeze up, 2019 will be nothing short of a credit disaster as billions of M&A and LBO deals lock up.

Published:12/28/2018 3:17:07 PM
[Markets] Stocks maintain their post-Christmas cheer, with Dow up more than 200 points Stocks maintain their post-Christmas cheer, with Dow up more than 200 points Published:12/28/2018 2:16:48 PM
[Markets] Here They Come: Second Biggest Buy Order In History Hits, Sending Stocks Surging

"Will they, or won't they" - that's the question on every trader's mind.

In the last two days, massive buy orders driven by pension reallocation trades sent stocks soaring (something even Bloomberg now admits was the catalyst for the surge) in late day trading, and with less than 2 hours left to go in today's session, all traders wanted to know is whether pensions funds would make it a three-peat.

And while we don't know if it is indeed pensions, or someone merely frontrunning today's forced buying - or perhaps just pretending to be them - at precisely 2:05pm, the NYSE TICK - an indicator showing relative strength of buy and sell orders - just hit 1,735, the second highest reading on record, as an absolutely gargnatuan buy order hit...

... sending stocks to session highs.

Putting today's massive buy program burst in context, within just 15 minutes, we had three TICK prints that were 1,631 or higher. As a reminder, yesterday's high TICK print - which helped send the Dow nearly 900 points higher - of 1,662 was the 4th largest buy order of all time. That means that today alone we have had three absolutely massive buy programs all within just minutes of each other.

While this was a little early considering yesterday the pension bid emerged at precisely 2:30pm, perhaps pension fund managers decided to be "less predictable" today and start the buying earlier. Alternatively, it may be a trader posing as a "pension", hoping to spark upward momentum into which to dump positions.

In any case, keep a close eye on the TICK - if this is a fake breakout, we may see some truly historic downward TICK prints over the next 90 minutes.

Published:12/28/2018 1:47:15 PM
[Markets] Dow industrials down triple digits as Friday session takes turn for worse Dow industrials down triple digits as Friday session takes turn for worse Published:12/28/2018 10:16:42 AM
[Markets] Dow Drops 300 From Overnight HIghs, Bonds & Bitcoin Bid

Dow futures tagged yesterday's highs overnight and have now fallen over 300 points since. Treasury bonds are bid, with 10Y yields well lower on the week, and cryptos just exploded higher...

While it looks like a fleshwound compared to the last two days historic panic buying ramps, stocks are being faded...

 

Bonds are well bid...

 

And Bitcoin, Ethereum, and Litecoin suddenly spiked...

Is it time for stocks to catch back down to bonds?

 

Published:12/28/2018 9:47:31 AM
[Markets] US STOCKS SNAPSHOT-Wall Street opens higher as post-Christmas continues U.S. stocks opened higher on Friday in broad-based gains, with technology stocks providing the biggest boost as the market rallied for the third day. The Dow Jones Industrial Average rose 74.79 points, ... Published:12/28/2018 8:46:02 AM
[Markets] Wild Wall Street, Pot Stock Aphria, Sears' Final Hours? - 5 Things You Must Know Contracts tied to the Dow Jones Industrial Average were up 187 points, futures for the S&P 500 gained 21.25 points, and Nasdaq futures rose 45 points. The Dow on Thursday rose 260 points, or 1.1%, to close at 23,138.82 - at the session low the blue-chip index had declined 611 points. "So many things have come together that I'd expect the volatility to continue into the new year," JJ Kinahan, chief market strategist at TD Ameritrade, told The Wall Street Journal. Published:12/28/2018 6:15:55 AM
[Markets] Global Stocks Gain, Volatility in Focus, After Frantic Final Hour on Wall Street Global stocks rebound, with firm gains in Europe, but investors are favoring defensive assets amid heightened equity market volatility. Gold tests six month highs, 10-year Japanese government bonds turn negative and the yen trades at 110.41 as investors find cover from rising market turmoil. Global stocks rebounded Friday, following an extraordinary final-hour rally on Wall Street last night that saw the Dow swing nearly 900 points from its session low, even as investors quietly move into defensive assets heading into the New Year break as surging volatility rattles markets all over the world. Published:12/28/2018 2:44:03 AM
[Markets] U.S. stock futures point to continued volatility for Wall Street U.S. stock futures indicated another choppy session for Wall Street on Friday, with Dow futures lower, though oil prices were firmer. Published:12/28/2018 2:14:06 AM
[Markets] Market Snapshot: U.S. stock futures point to continued volatility for Wall Street U.S. stock futures indicated another choppy session for Wall Street on Friday, with Dow futures lower, though oil prices were firmer.
Published:12/28/2018 2:14:06 AM
[Markets] Asian Markets Rise After Turbulent Session on Wall Street Investing.com - Asian markets rose in morning trade on Friday after U.S. stocks closed in positive territory following a turbulent session that saw the Dow plunge more than 600 points at one point. Published:12/27/2018 11:45:28 PM
[Markets] "The Worst Is Yet To Come Next Year..."

The day after The Dow soars by the most points in history, and on the biggest reversal day in stocks since 2010, Michael Snyder provides a little context for what is really occurring...

When talking heads on mainstream news networks are using phrases such as “the worst is yet to come next year”, that is a clear indication that a new financial crisis has arrived.  And that is an extremely bold statement to make considering that this is already the worst quarter for the stock market in 10 years, this is the worst December for stock prices since 1931, and we just experienced the worst Christmas Eve that Wall Street has ever seen.  So when Mark Jolley made the following statement during a recent guest appearance on CNBC, it definitely raised some eyebrows…

“I would love to be more optimistic but i just don’t see too many positives out there. I think the worst is yet to come next year, we’re still in the first half of a global equity bear market with more to come next year,” Mark Jolley, global strategist at CCB International Securities, told CNBC’s “Squawk Box.”

At this point last year, nobody on Wall Street was talking like this.

In fact, nobody was talking like this even four or five months ago.

But after three extremely painful months the outlook has completely changed, and a lot of market participants are really starting to freak out.

And this is not just happening in the United States.  The truth is that most most markets around the world started to fall well before U.S. markets did, and at this point almost all of the big global indexes are in a bear market

Bear markets — typically defined as 20 percent or more off a recent peak — are threatening investors worldwide. In the U.S., the Nasdaq Composite closed in a bear market on Friday and the S&P 500 entered one on Monday. Globally, Germany’s DAX, China’s Shanghai Composite and Japan’s Nikkei have also entered bear market levels.

This is the first global bear market that we have seen in a decade, and if central banks are going to try to stop the bleeding they will need to move very quickly.

But the Federal Reserve has already indicated that they do not plan to intervene.  In fact, they just told everyone that they plan to keep raising interest rates.

That is completely insane, but since they aren’t accountable to us they can literally do whatever they want.

So if the central banks don’t step in, who is going to come riding to the rescue?

Individual national governments could try to stimulate economic activity by spending more money, but most of them are already drowning in debt.

Just look at the mess that the U.S. government has created.  Since the beginning of the last financial crisis, we have been adding more than a trillion dollars a year to the national debt.  And over the last 12 months our debt problems have actually accelerated.  Between December 25th, 2017 and December 25th, 2018 we added almost 1.4 trillion dollars to the national debt.  The following comes from CNS News

The federal government has added another $1,370,760,684,441.54 to the debt since last December 25according to numbers published by the U.S. Treasury.

On Dec. 25, 2017, the federal debt was 20,492,874,492,282.58, according to the Treasury.

According to the latest numbers published by the Treasury, which show where the debt stood on Dec. 20, 2018, the federal debt was $21,863,635,176,724.12.

So the reality of the matter is that there is simply no room for more “stimulus spending”, because we have already been spending money like drunken sailors that think that they are likely to die tomorrow.

Right now the government is shut down as President Trump and Chuck Schumer square off over 5 billion dollars in border wall funding.  But nobody on Capitol Hill is even talking much about the 1.37 trillion dollars that we just added to the national debt, and that is really what everybody should be focusing on.

We are literally committing national suicide.  No matter what happens with border wall funding, the U.S. will continue to steamroll toward financial oblivion unless something is done about this horrific debt that we are accumulating.

As I wrap up this article, I would like to share something that Austin Murphy wrote that really struck a chord with me.  Over the course of a 33 year career in journalism, Murphy interviewed five presidents and wrote thousands of articles for Sports Illustrated.  But now he is delivering packages for Amazon

Let’s face it, when you’re a college-educated 57-year-old slinging parcels for a living, something in your life has not gone according to plan. That said, my moments of chagrin are far outnumbered by the upsides of the job, which include windfall connections with grateful strangers. There’s a certain novelty, after decades at a legacy media company—Time Inc.—in playing for the team that’s winning big, that’s not considered a dinosaur, even if that team is paying me $17 an hour (plus OT!). It’s been healthy for me, a fair-haired Anglo-Saxon with a Roman numeral in my name (John Austin Murphy III), to be a minority in my workplace, and in some of the neighborhoods where I deliver. As Amazon reaches maximum ubiquity in our lives (“Alexa, play Led Zeppelin”), as online shopping turns malls into mausoleums, it’s been illuminating to see exactly how a package makes the final leg of its journey.

Like Murphy, America’s future is going to be far less bright than its past if we don’t get things turned around, and right now there is absolutely no indication that this is going to happen.

Our national problems are multiplying, the conditions for a perfect storm are rapidly coming together, and pessimism is quickly growing all across America.

Mark Jolley believes that “the worst is yet to come next year”, and in the end he may turn out to be exactly correct.

Published:12/27/2018 8:13:37 PM
[Markets] Stocks - Market Stages a Serious Late-Day Rally to Close Higher Investing.com - Wall Street ended higher in another roller-coaster day that saw the Dow Jones down more than 600 points before finishing more than 250 points higher. Published:12/27/2018 5:43:31 PM
[Markets] Investors Are Speechless: "It's Like Watching Pulp Fiction"

With market action becoming increasingly surreal and the panicked, vertigo-inducing bear market rallies (spawned by a record $64 billion pension fund reallocation into stocks in a historically illiquid market) reminiscent of the chaos observed at the depths of the financial crisis, it is only appropriate that some of the quotes Bloomberg picked for its daily wrap piece which commemorated the biggest intraday reversal since 2010, be just as surreal.

"Investors are becoming desensitized," Bryce Doty, SVP at Sit Investment Associates, told Bloomberg, then continued the verbal poetry: "It’s like watching ‘Pulp Fiction.’ Halfway through, the violence doesn’t even bother you anymore."

He's right, although whereas the market "violence" in past weeks was one directional, this week it has developed a twist to trap both the bulls and bears, and while the latest Dow swing (of nearly 1000 points) was only slightly bigger than the average up-and-down move last week, back then equities were merely tumbling, now it tends to drop early in the day then soar in afternoon trading. So fast forwarding to the post-Christmas chaos - which this website explicitly warned about when last Friday we said to "Brace For Seismic Volatility" - strategists are starting to ask: if days like these are now normal, is there a context in which the whole three-month rout starts to feel routine?

There are the optimists like Jim Kelleher, director of research at Argus Research, who said market turmoil that happens when the economy is holding up reminds him of past stock declines that ended gently.

Unless evidence emerges of deep global growth erosion, what’s going on now “will prove to be shorter and more shallow than the declines experienced in ‘classic’ bear markets.”

Others are not so sure: "Investors are wondering if this will be a crash,” said Dave Campbell, a principal at San Francisco's BOS, who nonetheless still managed to put a favorable spin on events.

"The risks are there, but they’re always there. They’re more heightened but it’s not the most likely outcome. The economy continues to grow - maybe a little more slowly - but next year markets will have hit their lows and we’ll be on the rebound."

Then there are those who echo what we asked yesterday, namely if this is only a bear market rally, although granted a very furious one: as Bloomberg writes in its second end of day wrap, "on the surface, the rally is good news for investors searching for a bottom after a three-month sell-off sent the S&P 500 to the brink of a bear market. But days like this are rarely good omens."

Here's the problem: as we discussed last night, since 1990, every comparable reversal - with a few exceptions - came during the 2008-2009 bear market.  According to Bloomberg data, in eight previous bear markets the S&P 500 experienced rallies of greater than 2.5% more than 120 times as the benchmark plunged from peak to trough. From the collapse of Lehman to the financial crisis bottom in March 2009, the S&P 500 rallied more than 4 percent on 13 different occasions.

"This is not the kind of price action you see in normal bull markets,” said Robert Baird equity sales trader Michael Antonelli. "This is just a face ripping short cover rally. I am 100 percent not saying we are in a situation like 2008 now, but look at October 10, 2008 to October 13, 2008: the market rose nearly 12 percent in one day. October 27 to October 28, 2008, it rose 11 percent."

In other words, as Bloomberg notes and as Antonelli said yesterday, much as the market has shown the impetus to rally, "violent action like this normally don’t bespeak a healthy market." The latest bounce happened during a holiday week when prices are typically susceptible to swings because of low liquidity, which in the context of the ongoing $64BN pension rebalancing, makes sense that we would see a massive swing higher as the market at times goes offerless.

Jeff deGraaf, co-founder of Renaissance Macro Research, may have summarized trader sentiment best:

“How much do we trust the market’s message, up or down, over this holiday week? About as much as we trust uncle Albert to drive home after Christmas dinner.”

And speaking of a Pulp Fiction market, at least there is no friction as investors are now getting used to the daily whiplash: Thursday marked the ninth time this quarter where the S&P 500 reversed an intraday move of at least 1%. That’s the most since August 2011, when S&P downgraded the U.S. sovereign rating, sending stocks also within points of a bear market.

Which begs the question: having failed to firmly enter bear market territory, are we in a bear market or is this merely a violent correction? According to Argus research, bear markets that go way past 20% tend to be associated with “secular transitions,” things like the excessive valuations of the dot.com bubble. Near-bear markets, however, are more common around technology transitions or one-time disruptions. The one taking place now is perplexingly occurring next to high consumer and small business confidence, solid industrial activity and low interest rate and energy inputs.

There is another silver lining to the current constant whiplash: even in a worst case scenario,"only" half of the 14 bear markets that took place since World War II occurred during a prolonged economic contraction, LPL Research showed. Sell-offs when the economy contracts are bad, see the S&P falling 37% on average. The ones that come when growth is positive level off at 24%.

“In the end, the largest market corrections take place during recessions. Will we have a recession in 2019? We don’t think so,” LPL's traditionally cheerful Ryan Detrick told clients. "The bottom line is that you can have bear markets without a recession."

Which, of course, is bad news if the violent rally of the past two days is indeed only due to a massive pension reallocation trade, as the "bad" kind of bear market lasts an average of 556 days and is much worse than 20%, according to Argus. The mean peak-to-trough decline during recent bear markets has been around 35%.

Alternatively, if stocks are indeed trying to find a bottom and can reverse their recent downtrend, the current "bearish duration" would be short, at less than 90 days.

Until we know for sure, better strap in... or is that strap on?

Published:12/27/2018 5:13:37 PM
[Markets] What Investment Advisers Are Saying On the Dow's 871-Point Bounce (Bloomberg) -- Wall Street mouths were again agape at the sight of frantic moves in equities. The S&P 500 climbed 3.8 percent from its lows, turning on a dime at about 2:20 p.m. in New York, while the Dow Jones Industrial Average swung 871 points straight up. Published:12/27/2018 4:42:46 PM
[Markets] Kevin Hassett: Trump-Powell Meeting Would Be "A Very Favorable Thing"

Mere minutes after stocks staged the biggest reversal since 2010 to build on Wednesday's historic rebound (a rebound that many attributed to Kevin Hassett's assurances that Fed Chairman Jerome Powell's jobs was "100% safe"), the White House economic advisor was back on Fox Business Thursday afternoon to reprise his role as the last remaining WH official with any credibility in the eyes of the market.

Hassett, the chairman of the White House Council of Economic Advisers, said that while he has no first-hand knowledge of plans for a meeting between Trump and Powell (speculation has intensified since WSJ reported yesterday that Powell would be "open" to such a meeting), Hassett believes such a get together would be "very productive" and "a very favorable thing."

TP

Both Powell and Trump are "great guys" who would "get along" if they could only meet up and talk through their issues.

"I’ve not been involved in those discussions but I can say that I think that if they did meet it would be a very favorable thing," Hassett said during the interview. "The two of them are great guys that would get along if they were to meet and talk things through and the president loves to listen to reason, to arguments, to analysis, and Jay does too. So I think they would have a very productive dinner were they to meet."

Trump continued his attacks on the Fed this week, tweeting on Christmas Eve after the worst pre-Christmas session in history that "the only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders."

But as we pointed out earlier this week, while the Fed is to blame for the market carnage, it's not for the reasons Trump thinks. By dropping interest rates to zero and aggressively expanding its balance sheet, the Fed created what campaign-era Trump once decried as a "big fat ugly bubble."

Then again, even if a meeting between Trump and Powell goes south, how long would it take the market to switch gears and realize that getting rid of the hawkish Fed chairman might possibly be a good thing (for asset prices, that is)? 

Published:12/27/2018 4:13:58 PM
[Markets] 4th Biggest Buy Program Of All Time Sends Dow Soaring Over 900 Points

Dow futures plunged over 760 points after tagging yesterday's highs overnight, but those darn algos ripped the market higher in the last hour erasing the entire drop...  with the biggest buy program since February...

And the 4th biggest buy program of all time...

In words...

And pictures... Dow futs exploded over 900 points higher, taking out yesterday's highs and ending like yesterday at the highs of the day...

 

On the day, Small Caps ended red but The Dow led the rest green...

 

Quite a wild ride this week so far...

The plunge was not a total surprise after economic confidence crumbled and job expectations crashed, but the buying panic had the same short squeeze and pension panic reallocation fingerprints from yesterday.

However, gold and bonds remain green since the Fed hike and stocks still down over 4%...

 

It certainly has the smell of a massive pension reallocation as the moment stocks started to surge, bonds were dumped...

 

Especially the long-end as pensions unwound as much duration as quickly as possible to cover the increased equity exposure...

 

While the USD and stocks were correlated today, the former plunged and was unable to rip back with the magnitude of stocks...

In fact the usd fell well short...

Dollar weakness helped lift Silver again as crude slipped...

 

Silver has dramatically outperformed gold in the last few days...

 

But finally, no matter how much lipstick they put on December, it is still a pig...

Published:12/27/2018 3:12:26 PM
[Markets] Markets Prove Volatility Is King as Dow Swings to Gains Following 500 Point Drop The Dow was on track to give back significant gains from Wednesday's record-setting session, but instead ended the day in the green along with the S&P and Nasdaq. Published:12/27/2018 3:12:26 PM
[Markets] Markets Pare Losses Heading Into Closing Bell Three Things to Know Thursday The Dow had its highest single-day point increase in its history on Wednesday, jumping 1,086 points in the post-Christmas session. All three major indices are experiencing sharp declines following Wednesday's rally. Published:12/27/2018 2:44:50 PM
[Markets] Dow Gives Back Gains as Market Selloff Worsens Three Things to Know Thursday The Dow had its highest single-day point increase in its history on Wednesday, jumping 1,086 points in the post-Christmas session. All three major indices are experiencing sharp declines following Wednesday's rally. Published:12/27/2018 2:13:01 PM
[Markets] Americans Just Blew $850 Billion On Xmas But Here's Why That's Not A Good Sign

Authored by Daisy Luther via The Organic Prepper blog,

The preliminary numbers are in and it appears that Americans exceeded last year’s shopping frenzy with an even more extravagant one this year. Mastercard says that spending was up 5.1%over last Christmas, which brings us to an astronomical $850 billion spent between November 1st and Christmas Eve.

Of these shopping sprees, online sales increased by nearly 20%, which means that we could soon see another wave of brick and mortar closures, just like last year. Amazon pretty much owned Christmas, with a “record-breaking” holiday season, reporting one billion items delivered for free.

Three times as many purchases this year were handled by Alexa, too, which means buyers didn’t even have to type in a credit card number.  “Alexa, find me a bankruptcy attorney.”

So, even though Americans blew through $850 billion dollars at Christmas, this may not actually mean that the economy is on the upswing. All the problems there before the holiday didn’t just go away.

All this spending is good news for the economy, right?

Wrong.

Before you get too excited thinking that all the negative predictions are just hogwash, Zero Hedge puts the spending binge into alarming but unsurprising perspective.

But though analysts might be tempted to cite holiday spending as an example that consumption is stronger than the hard and soft data would suggest, and that the mighty US consumer just might come through and save the US economy from a late-2019 or early-2020 recession, there is one thing to consider: As the latest raft of spending data revealed, spending outpaced incomes once again in November, sending the savings rate lower, suggesting that this latest consumption binge was largely fueled by debt.

In other words, analysts who interpreted these strong holiday sales as one last binge before the end of the business cycle might soon be vindicated. (source)

So, in reality, what seems like a bunch of prosperous people going out and treating their families to well-deserved gifts and holiday joy is just the opposite. This Christmas was most likely an example of people who couldn’t afford to spend saying, “to heck with it” and maxing out credit cards that they may never be able to pay off.

All of those problems from before Christmas didn’t just disappear.

Right before the holiday, I wrote an unpleasant article about 8 worrisome signs for our economy. These things didn’t magically disappear because it was Christmas and people blew their budgets. After the article, the stock market plunged even further, making it the absolute worst Christmas Eve in market history. We’re talking Great Depression-era lows.

What’s more…and this should keep you up at night…President Trump had Treasury Sec. Steve Mnuchin summon heads of the 6 largest banks in the country for emergency calls on Christmas Eve.

Brian Moynihan of Bank of America, Michael Corbat of Citigroup, David Solomon of Goldman Sachs, JPMorgan’s Jamie Dimon, James Gorman of Morgan Stanley, and Tim Sloan of Wells Fargo were all contacted.

According to The Street, it’s all good and there’s no need to worry.

U.S. Treasury Secretary Steven Mnuchin said Sunday that he held individual calls with CEOs of the nation’s six largest banks, all of whom said their institutions had ample liquidity for lending to consumers, businesses and all other market operations despite the recent market turmoil.

The unusual statement, issued via the Treasury Department’s verified Twitter feed, also noted that Mnuchin would chair a meeting of the President’s Working Group on Financial Markets, which includes the Board of Governors of the Federal Reserve system, the Securities and Exchange Commission and the Commodities and Futures Trading Commission.

“We continue to see strong economic growth in the U.S. economy, with robust activity from consumers and business,” Mnuchin said in a statement. “With the government shutdown, Treasury will have critical employees to maintain its core operations at Fiscal Services, IRS and other critical functions within the department.” (source)

Mnuchin says everything is just fine but his statement actually made people more concerned than they were in the first place.

This conciliatory statement just made everything worse.

After Mnuchin’s confirmation of ample liquidity, the reactions went something like this:

To which, the collective response from the whole world seemed to be: “Wait, who said anything about not having ample liquidity?”

Mnuchin also said that the major banks “have not experienced any clearance or margin issues and that the markets continue to function properly.” Again, since few expected otherwise, the “clarification” from Mnuchin only seemed to sow more fear and confusion.

Mnuchin was scheduled to hold another call with the President’s Working Group on financial markets – commonly referred to as the “Plunge Protection Team” – which includes the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, and the Commodities Futures Trading Commission. He said that the FDIC and the Comptroller of the Currency might participate as well. “These key regulators will discuss coordination efforts to assure normal market operations,” Mnuchin’s statement said.

The curious statement intended to reassure the markets prompted the opposite response. “This is the type of announcement that raises the question of whether Treasury sees problems that the rest of the market is missing,” Cowen & Co. analyst Jaret Seiberg wrote in a note to clients. “Not only did he consult with the biggest banks, but he is talking to all of the financial regulators on Christmas Eve. We do not see this type of announcement as constructive.” (source)

Now, people in the know who may not have been particularly concerned have questions. Lots of questions.

President Trump’s Christmas message was certainly not uplifting.

The holiday greeting from the President included a few words about his displeasure with the Fed. Not only did he say he lacked confidence in Fed Chairman Jerome Powell, but he had a few other choice words about the increase in interest rates.

“They’re raising interest rates too fast, that’s my opinion. I shouldn’t have confidence. They’re raising rates too fast because they think the economy is so good. But I think they will get it pretty soon. I really do,” Trump said, a day after the Dow lost more than 650 points and fell 2.9 percent — the worst Christmas Eve performance ever.

“I mean, the fact is that the economy is doing so well that they raised interest rates and. President Obama had a very low-interest rate. We have a normalized interest rate, a normalized interest rate, it’s good for a lot of people. They have money in the bank, they get interest on their money,” he said. (source)

Some economic pundits see the 7th rate increase since President Trump took office as a sign that the Fed is deliberately trying to crash the economy and show Trump who is truly in charge.

And all of this isn’t affecting only poor people. The richest folks in the world lost more than $550 billion in 2018. Of course, it isn’t going to affect them like a similar percentage of wealth will affect us normies, but it’s still a startling sign of economic changes.

Things aren’t looking good today.

And as far as this morning goes, things are NOT looking up in the markets on the day after Christmas. Markets in Europe seem to be bracing themselves for upheaval today and stocks in China have already fallen. Bloomberg reports that US Futures are also looking shaky.

Let’s cross our fingers that things pick up throughout the day.

The entire thing is psychological warfare, according to Brandon Smith of Alt-Market.

…the goal of economic subversion is to break down the human mind and change it into something else; something less human or, at the very least, something less rebellious. One can only control people through debt and false rewards for so long before they start to recoil and revolt. Economic collapse, on the other hand, can change people fundamentally through persistent terror and through tragedy. Through trauma, the globalists hope to make men into monsters or robots.

The current system was never built to last. Our economy is designed to fail, yet few people seem to question why that is? They tell themselves that this is because greed has led the money elite to self-sabotage, but this is a fantasy. It is not just that the system is designed to fail, but that it is designed to fail according to an organized timetable. (source)

We’ve seen exactly this happening through the writings of our friend Jose, in the articles where he shares how the collapse of Venezuela went down. Actually, quite a few of the things that Smith writes about in his article can be clearly witnessed in the fall of Venezuela, right down to the replacement of the national currency with a government-controlled cryptocurrency.

What can you do?

This is the worst time possible to dig yourself further into debt. We’re on the brink of catastrophe unless a bunch of rabbits get pulled out of a bunch of hats. And even then, with the astronomical national debt, it would just be kicking the can a little bit further down the road, like paying off all your overdue Mastercard bills with your shiny new Visa.

My suggestions are this:

Find as many ways as possible to reduce your reliance on the system. I think we’re in for a bumpy 2019, but if I’m wrong, none of these recommendations is outrageous. In fact, all of them will increase your quality of life. So, what can it hurt to be ready?

Here’s hoping it will all be unnecessary.

Published:12/27/2018 2:13:01 PM
[Markets] Apple Lost $11 Billion Buying Back Its Own Stock In 2018

There's a funny thing about buybacks: when stocks are rising (and are therefore more expensive), companies have zero doubts  about repurchasing their own stock, especially if said purchase is funded with cheap debt. Of course, by repurchasing their stock, the price goes even higher making management's equity-linked comp more valuable, which explains why management teams usually have no misgivings about allocating capital to this most simplistic of corporate uses of funds. However, when stocks fall, companies tend to clam down on buybacks due to fears that the drop may continue, forcing the CFO or Treasurer to explain his actions to the CEO or the board, and why they risked losses on capital (as well as getting a pink slip) instead of investing in "safer" corporate strategies like M&A, R&D or capex.

The irony, of course, is that companies should not be buying back stocks when the stock is rising (as that's when it is more expensive), and accelerate repurchases when it is dumping. And yet, that virtually never happens in reality as management teams, like most investors and algos, tend to chase momentum and direction. Meanwhile, confused by underlying pricing mechanics, management - which is singlehandedly responsible for the levitation in the stock price with its buybacks - then watches its stock price tumble even more one stock repurchases are halted.

But the "funniest" moments are reserved for when companies spent tens of billions on stock repurchases then had the rug pulled under from under the market - and their stocks - resulting in billions in unbooked losses on invested capital.

And in 2018, there has been no company that has had a greater share of "funny" buyback moments than Apple, which as we reported recently, accounted for 24% of all buyback growth in the first half of 2018, a year that will go down in history books for a record $1+ trillion in stock repurchase announcements and over $700 billion in executed buybacks.

The reason is that having spent tens of billions on buying back its own stock, Apple - the year's most aggressive stock repurchaser - has lost more than $9 billion this year on an underperforming investment: its own stock.

Like many large companies, Apple has used much of its windfall from 2017 tax reform to buyback shares. But, as so often happens, the recent plunge in stock prices has made that look like a bad idea. Apple and companies including Wells Fargo, Citigroup and Applied Materials repurchased their own shares at near record prices, only to see their value decline sharply.

In effect, the WSJ notes, "the market has told them they overpaid by billions of dollars." And nobody has been hit more by the plunge in overvalued Apple stock than Apple itself (and perhaps Warren Buffett).

While buyback advocates and companies contend that buybacks are a good way to return excess capital to shareholders and that the paper losses can reverse themselves if their stocks rebound, those advocates are clearly unfamiliar with the rise and fall - literally - of IBM stock in the period when the company would buy back its stock, and then after it no longer could as it had accumulated too much debt; additionally the sharp stock declines call into question their decision to devote so much of their tax savings to buybacks, rather than using it to invest in their businesses, raise employee pay or pay higher dividends.

"If they made an acquisition that decreased in value this much, people would be up in arms," Nell Minow, vice chairwoman of ValueEdge Advisors, told the WSJ. "They have one job, and that is to make good use of capital."

And, with a handful of exceptions, few companies have made worse use of capital than those who spent billions and billions on repurchasing their own stock this year: indeed, when the market was riding high, companies bought back shares at a furious pace, juiced by the tax savings they reaped from the December 2017 passage of the Tax Cuts and Jobs Act. The law enriched companies by slashing the corporate tax rate to 21% from 35% and making it easier for firms such as Apple to shift foreign earnings to the U.S.

S&P 500 companies bought back $583.4 billion worth of their own shares in the first nine months of 2018, according to S&P Dow Jones Indices, up 52.6% from the same period in 2017. As a result, nearly 18% of S&P 500 companies reduced their share counts by at least 4% year-over-year, according to S&P Dow Jones Indices.

Apple, having lost its vision to create "must have" gizmos and picking financial engineering instead, spent $62.9 billion on buybacks in the first nine months of 2018, according to securities filings.

But the subsequent selloff has pummeled its shares, and as a result the company’s repurchased shares were worth about $51.8 billion as of Thursday's trading, some $11 billion less than it paid for them as Apple repurchased shares at monthly average prices as high as $222.07, according to securities filings. The stock was trading at $151.27 on Thursday.

Apple advocates were quick to defend the company:

Apple makes iPhones. Timing the market is not what they do,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Companies that try to time the market in buying back shares “are going to be in the red at times.”

Still, with Apple promising to invest $30 billion in the US and create 20,000 US jobs over the next five years, that's $10 billion the company could have used toward said noble goal instead of providing a one-time transitory boost for its shareholders.

To be fair, it's not just Apple as some big banks have encountered the same issue. Wells Fargo spent about $13.3 billion on buybacks from January through September for shares now worth $10.6 billion, about $2.7 billion less than they paid. Citigroup spent $9.9 billion on buybacks in the nine-month period for shares now worth about $7.1 billion, about $2.8 billion less.

As the WSJ notes, both banks bought back some shares at monthly average prices that weren’t far below their 52-week highs, and both companies’ share prices have fallen well below those levels. Wells and Citigroup declined to comment, although it would be interesting to hear their thoughts on why they were buying back stock at multi-year highs instead of saving the dry powder for when the stocks dropped... Unless, of course, the stocks would never have been near 52 week highs if it weren't for the buybacks (spoiler alert: that's exactly the case).

Other tech companies were also sucked in by the siren song of rapid stock price appreciation and Applied Materials spent $4.5 billion for shares now worth $2.7 billion—about $1.8 billion less. The stock has declined 40% this year. Applied Materials bought back many of its shares for prices above $50; the stock closed Wednesday at $30.64.

And as noted above, now that the market is sliding and many of these stocks are tumbling, management teams have suddenly stopped repurchasing shares. Furthermore, while it is possible some companies may take advantage of the currently beaten-down prices to buy back more shares, many companies are heading into their pre-earnings blackout period, when they can’t buy back stock because they know what their forthcoming quarterly earnings will look like.

And companies remain nervous about the volatility in stock prices, Mr. Silverblatt said. “It’s hard to fight the market."

In other words, the math is simple: corporate buybacks are no better timers than the average retail investor who buys near the all time high, and then sit quietly when the stock is tumbling and they should be buying.

But the bigger question is whether Apple has been shamed enough into halting buybacks for good. If so, watch out for the news that Warren Buffett has sold his entire investment, which he only made expecting to frontrun AAPL management... exactly the same reason why he bought IBM when he did, and why he dumped it at a major loss a few years later when IBM management made it clear it was done spending billions on stock repurchases.

Published:12/27/2018 1:11:07 PM
[Markets] Dow's Record Setting Gains Cut in Half With 500 Point Drop Thursday Three Things to Know Thursday The Dow had its highest single-day point increase in its history on Wednesday, jumping 1,086 points in the post-Christmas session. All three major indices are experiencing sharp declines following Wednesday's rally. Published:12/27/2018 1:11:02 PM
[Markets] Stocks Slide a Day After Record Surge A taxing stock slump resumed Thursday, as the euphoria that swept the Dow Jones Industrial Average to its biggest-ever point gain subsided, pulling the blue-chip index down more than 300 points. , after investors made an about face from Wednesday’s historic rally—when the Dow surged more than 1,000 points. While investors weren’t surprised to see major stock indexes fall again—the Dow industrials has risen just six of the 17 trading days in December so far—the volatility and massive moves have been dizzying. Published:12/27/2018 10:13:06 AM
[Markets] "Something Is Wrong": Deutsche Bank Spots An Odd Market Divergence

One of the closest correlations between major asset classes has been that between stocks and bonds. But not anymore, because as Deutsche Bank's chief international economist notes in a Wednesday note, the historical relationship between stocks and bonds is breaking apart, prompting Slok to exclaim that "something is wrong", as it could portend danger for those investors holding Treasurys in the hope these would cushion the slide in stocks.

it is no secret that bond prices and stocks are inversely correlated, or at least have been in normal times, but all that changed this year as Treasury prices have largely failed to reflect the slump in stocks, as MarketWatch notes.

"What is safe to say is that there is something driving equities lower, which is not impacting rates. Or there is something keeping long rates high, which is not impacting equities," Slok wrote in a Wednesday note.

This correlation breakdown has undercut the bond market’s status as a safe haven in a year in which few asset classes have eked out positive returns. This correlation "failure" was on full display yesterday when despite the record point surge in the Dow, Treasury yields posted a very modest move higher (one which has since been faded on Thursday). And, as MW notes, if traditional havens like U.S. government paper struggle to shield portfolios from a further selloff in equities it could mean investors will lack few reliable boltholes going forward.

To show this regime shift, Slok charts the movement of the 10-year Treasury yield against percentage changes in the S&P 500 over the last five years. It shows the two correlating closely until 2018, when they split.

Another indication of the failure of bonds to keep up with stocks: the S&P 500 is down 8% YTD, while the 10-year note yield is up more than 30 bps to 2.77% leaving the bond market also nursing negative returns this year. As a result, investors with a balanced portfolio of stocks and bonds (usually in a 60/40 ratio) have been saddled with unexpectedly deep losses, which have also hit such "balanced" entities as risk-parity funds.

What is behind this odd divergence?

According to Slok, the uncharacteristic weakness in bonds may have taken hold after bond traders began to see a gradual increase in auction sizes after Trump signed off on tax cuts, bringing the reality of trillion-dollar deficits much closer and a surge in bond supply in coming years. That may have pushed bond yields higher this year, when they should have fallen along with equities if their classic relationship had held up.

"What happened in January 2018 was that the corporate tax cut had to be financed by a significant increase in Treasury supply, and maybe the reason why long rates remain so high is because the market is beginning to price a U.S. fiscal premium into U.S. government bonds," said Slok.

Furthermore, according to Slok anyone expecting this divergence to collapse shortly may be disappointed since the breakdown of the positive correlation between stocks and bond yields may not just be a temporary problem as the federal government is projected to notch annual trillion dollar deficits for a “very long time,” said Slok, prompting traders to demand even higher bond yields in the future regardless if stocks underperform.

Published:12/27/2018 9:09:22 AM
[Markets] US STOCKS-Wall Street drops 1 pct after Dow's record-breaking surge U.S. stocks tumbled 1 percent on Thursday in a broad-based decline led by energy shares, giving back some of the gains from a spectacular rally a day earlier that helped the blue-chip Dow Jones Industrial Average surge more than 1,000 points for the first time ever. All the 11 S&P sectors fell more than 1 percent and all the 30 components of the Dow Jones Industrial Average were in the red. A drop in oil prices led to a 2.21 percent drop in the energy index, while technology and consumer discretionary stocks shed 1.54 percent and 1.77 percent, respectively. Published:12/27/2018 9:09:22 AM
[Markets] Wall Street falls at open after Dow's record-breaking surge (Reuters) - U.S. stocks fell sharply at open on Thursday following a spectacular rally a day earlier that helped the blue-chip Dow Jones Industrial Average surge more than 1,000 points for the first time ... Published:12/27/2018 8:41:30 AM
[Markets] Wall Street set to open lower after Dow's record-breaking surge At 8:36 a.m. ET, Dow e-minis were down 1.35 percent. All 30 Dow components were in the red in premarket trading while members of the FAANG group of stocks lost between 1.1 percent and 1.8 percent. U.S. banks were also seen losing ground, with Goldman Sachs Group Inc, Bank of America Corp, JPMorgan Chase & Co and Morgan Stanley down between 1.2 percent and 1.7 percent. Published:12/27/2018 8:09:23 AM
[Markets] DataTrek: "Healthy" Markets Don’t Rally 1,086 Points On The Dow

Submitted by Nicholas Colas of DataTrek Research

Even with Wednesday’s rally, December’s 11-13% declines (S&P 500, Russell 2000) for US stocks couldn’t have come at a worse time for markets. First, there is the psychological damage of seeing such a swoon in what is a typically good month for domestic equities. Then there is the magnitude of the decline, erasing solid YTD gains in just a few weeks and making 2018 the first down year for US stocks since the Financial Crisis a decade ago.

One underappreciated problem, however, (unless you happen to manage taxable portfolios) is how money managers and investment advisors had to respond to this sudden reversal of fortune. Put yourself into their shoes for a moment:

  • In a few days your clients will see a year-end statement with declining bond, stock, and commodity asset prices. Pretty much nothing worked this year… That will sting, but after a decade of gains that is a manageable issue.
  • But… Say you sold some large winners earlier this year as stocks began to roll over, perhaps the large cap Tech names that everyone from hedge funds to retail investors over-weighted until recently. Those were good sales, to be sure, but in a taxable account they create a future liability and your clients will have to cut a large check to the US Treasury in April 2019.
  • To minimize the tax bill from those capital gains, you need to sell some losers to offset those winners. Clients understand market-to-market losses; they can be less forgiving, however, of out-of-pocket tax payments when there is no wealth effect of rising asset prices to soften the blow. Until September, those paper gains were there. Now, they aren’t.

Here is the real-world market impact of that problem. Back on December 17th we gave you a list of the 11 worst performing names in the S&P for the then-YTD. This basket shows that tax loss selling is very much in play at the single-stock level just now. Consider:

  • The names we highlighted as the biggest S&P 500 losers YTD: General Electric (GE), Mohawk (MHK), Newfield (NFX), Affiliated Managers (AMG), Invesco (IVZ), Western Digital (WDC), L Brands (LB), Alcoa (AA), Unum (UNM), Brighthouse Financial (BHF), and IPG Photonics (IPGP).
  • From the last day of November to December 24th, the average decline for these 11 names was 21.1%. Excluding GE, which was only down 7.5% over the period after a drubbing through much of 2018, the average decline of the remaining 10 names was 22.6%.
  • This group’s performance was much worse than either the S&P 500 or Russell 2000 over the same period, at -14.8% and -17.4% respectively. These 11 names didn’t suddenly show even-worse fundamentals in December; tax loss selling must have played roll in their dramatic underperformance.
  • Today, 10 of the 11 names outperformed the S&P 500, with an average gain of 6.8%. With tax loss selling likely near the tail end (or done), this makes sense.

Next: looking at the “macro” of tax loss selling, consider money flows between mutual funds and exchange traded funds over the month. The dynamic here: an advisor sells a money-losing mutual fund, creating a short/long term loss, and uses the proceeds to purchase an ETF to replace it. This has become a common practice in the last decade, even with (or perhaps because of) murky Internal Revenue Service guidance around wash sales. Recent data shows it happened with a vengeance this December:

  • The most recent Investment Company Institute data on all mutual fund/ETF flows for US equity products shows a net redemption of $8.4 billion through December 19th. Assuming that investors pulled out another $5 billion (a reasonable estimate given recent volatility) over the last week and the month’s total redemptions would be about -$13.4 billion.
  • US equity ETF inflows over the last month total +$24.7 billion. Since that includes a few days from late November, we will assume that December’s inflows will resemble that figure. (Source: www.xtf.com)
  • Conclusion: US equity mutual funds (many of them actively managed) have borne the brunt on December’s tax loss sales ($41 billion), only partially replaced by offsetting ETF purchases (that $25 billion from the previous point).
  • Important: unless a mutual fund holds enough cash to satisfy redemptions, it must sell underlying equities as net “Sell” orders come in. By contrast, an ETF purchase only creates offsetting demand for stocks if it is large enough to force a “creation” of new shares. That clearly did not happen this month, as the ICI data shows, with ETF “creates” smaller than mutual fund redemptions.

The upshot to all this: tax loss selling made December much sloppier than it otherwise might have been. It depressed many stocks that were already on track for sizeable losses. And it made the lives of active mutual fund managers very difficult as they sold holdings to keep up with redemptions. That filtered through to single stock prices as net inflows into ETFs did not keep pace.

The silver lining in this dark cloud is the “January Effect”, one of finance’s most researched and published anomalies. Two points:

  • The January Effect is NOT the idea that US stocks enjoy outsized rallies in that month. Data back to 1928 shows that July (1.6% average gain), December (1.4%), and April (1.3%) are all better bets than January (1.1%). Data here: https://www.yardeni.com/pub/stmktreturns.pdf
  • Rather, the idea is that beaten up small cap stocks tend to trade higher in January as tax loss selling abates and more normal buy-sell balances reassert themselves. That 401(k) contributions to US stock mutual funds restart in January for high-income earners also helps, to be sure.

The big questions just now, made more pointed by today’s rally: is tax loss selling done, and have markets re-priced to attractive enough levels to keep the momentum going? Our thoughts:

  • The answer to the former is clearly “Yes” – there are only 3 days left in the year, after all.
  • But… “Healthy” markets don’t rally 1,086 points on the Dow. Recall that today’s record advance eclipsed the following prior gains: October 13 2008 (936 points, the old record), October 28 2008 (889 points) and March 26 2018 (669 points). In each case, markets chopped around for months after.
  • And… Since percentage gains matter more, consider the 2 other instances where the Dow rallied closest to 5% in a day (as with today’s 4.98% advance): March 16 2000 (4.93%) and July 29 2002 (5.4%). The first was near a top; the latter was closer to a bottom, but one that would take almost a year to settle out.

Bottom line: US equity market sentiment hangs on a very fine balance just now. Tax loss selling was a reasonable (if unwelcomed)  explanation for December’s parlous performance, paired with trade/Fed/White House headlines to add fuel to the fire. But the calendar turns very shortly. The market’s fortunes need to start turning soon as well, because we’re about to lose one excuse for lousy performance.

Published:12/27/2018 7:41:49 AM
[Markets] Markets roil, futures slump after Dow's record, one-day gain More wild market swings appeared imminent Thursday, with U.S. stocks heading sharply lower after the largest single-day point gain in history for the Dow. Slowing economic growth globally and a partial U.S. government shutdown heading into its sixth day whipsawed markets from Europe to Asia. Dow futures pointed to a 400-point loss less than two hours before the opening bell, following a 1,000-point gain the previous day. Published:12/27/2018 7:41:49 AM
[Economy] Dow Has Biggest Point Gain In History

The Dow Jones Industrial Average soars more than 1,050 points, its biggest point gain in history… It roared 1,086 points or 4.98%. Its biggest point gain in history. The historic jump more than offset the 653-point drop in Monday’s shortened session, which had made history as the worst-ever Christmas Eve for the blue-chip index. Daily Caller: ...

The post Dow Has Biggest Point Gain In History appeared first on Godfather Politics.

Published:12/27/2018 7:09:36 AM
[Economy] Dow Has Biggest Point Gain In History

The Dow Jones Industrial Average soars more than 1,050 points, its biggest point gain in history… It roared 1,086 points or 4.98%. Its biggest point gain in history. The historic jump more than offset the 653-point drop in Monday’s shortened session, which had made history as the worst-ever Christmas Eve for the blue-chip index. Daily Caller: ...

The post Dow Has Biggest Point Gain In History appeared first on Godfather Politics.

Published:12/27/2018 7:09:36 AM
[Markets] Markets seesaw; Dow slides 400 after record, one-day gain FRANKFURT, Germany (AP) — More wild market swings appeared imminent Thursday, with U.S. stocks heading sharply lower after the largest single-day gain in history for the Dow. Published:12/27/2018 7:09:36 AM
[Markets] Back From Dead or Dying Gasp? Giant Rally Gets Bulls’ Blood Racing Futures on the S&P 500 had lost 43 points of the previous session’s 129-point advance as of 7:16 a.m. in New York. “I don’t know if it’s the all clear signal here but there are some good opportunities,” said Scott Colyer, chairman and chief executive at Advisors Asset Management. The S&P 500 rallied 5 percent, the Dow Jones Industrial Average added 1,086 points, and the Nasdaq 100 had its best day since 2009. Published:12/27/2018 6:40:21 AM
[Markets] Dow Futures Slump, JPMorgan, Verizon and Disney, Huawei - 5 Things You Must Know U.S. stock futures pulled back sharply on Thursday, Dec. 27, a day after the Dow Jones Industrial Average recorded its largest daily point gain in history and the three major stock indexes posted their largest percentage gains since March 2009. Contracts tied to the Dow Jones Industrial Average slumped 340 points, futures for the S&P 500 were down 37.75 points, and Nasdaq futures tumbled 112.75 points. The Dow on Wednesday soared 1,086 points, or 4.98%, to 22,878, the S&P jumped 4.96% and the Nasdaq climbed 5.84%. Published:12/27/2018 5:09:20 AM
[Markets] Wall Street surge lifts world stocks off 22-month low World stocks bounced off a near two-year low on Thursday, lifted by a dramatic Wall Street surge, though a fall in Chinese industrial profits and renewed Italian banking worries offered a sobering reminder of the problems weighing on the world economy. The Dow Jones Industrial Average surged more than 1,000 points for the first time on Wednesday, leading a broad Wall Street rebound, after a report that holiday sales were the strongest in years helped mollify concerns about the health of the economy. Stocks in Asia and Europe took their cue from this rally, and opened strongly, pushing the MSCI world equity index, which tracks shares in 47 countries, 0.4 percent higher. Published:12/27/2018 4:03:56 AM
[Markets] Kass: 10 Surprises Which Could Spike The Market Another 5% In One Day

Make no mistake about it, the stock market panic and Bear Market of November-December 2018 is serious and profoundly threatens the economic and profit pictures, but after yesterday's panic-buying in stocks (as investors front-ran pension re-allocation panic),Doug Kass (via RealInvestmentAdvice.com), take a look at what else could spark another 5% explosion higher in stocks...

Look up and not down; look out and not in; look forward and not back, and lend a hand.” 

– Edward Everett Hale

As mentioned on Friday, a fragile domestic economy may be undermined by the negative wealth effect of lower equity prices:

“The wealth effect is a theory suggesting that when the value of equity portfolios are on the rise because of accelerating stock prices, individuals feel more comfortable and confident about their wealth, which will cause them to spend more. In 1968, for instance, economists were mystified when a 10 percent tax hike failed to put the brakes on consumer spending. Later, the sustained spending was credited to the wealth effect. Even though disposable income declined because of the additional tax burden, wealth continued to grow because the stock market persistently climbed higher.”— Investopedia

According to Wilshire Associates, the U.S. stock market fell by $2.1 trillion last week. That loss in value is more than 10% of the 2017 U.S. Gross Domestic Production (GDP) of $19.3 trillion. (Our domestic GDP represents approximately 31% of world GDP). The loss in value from the September 2018 market top is well in excess of $5 trillion, representing about 25% of projected 2018 U.S. GDP.

The fixed income’s message of slowing economic and profit growth has been resounding — and until recently has been dismissed by most who were intoxicated by rising equity prices and favorable (but lagging) economic data.

Given the steady drumbeat of disappointing high-frequency economic data that suggest consensus growth expectations are too optimistic and underscores the fragile state of the domestic economy, this is a particularly untimely period for stocks to crater.

The economy — from a rate of change standpoint — is now at a critical point. No doubt a lot of damage to forward 2019 economic growth has already occurred and will result in a reduction in consensus profit forecasts. Any further damage to the stock market will amplify the heightened and powerful headwinds of the negative wealth effect — something few have considered.

All is Not Lost – Look Up and Not Down

To many who have taken a large hit to their investment portfolios over the last six weeks, all seems lost.

As bad as things feel this morning (the worst month of December since 1928), all is not lost.

Though rising recession risks are expanding and the U.S. growth outlook will be tested in 2019, history shows that it truly is darkest before the dawn.

That said, investor sentiment – based on many measures – has now been reduced to pure fear, an ingredient that didn’t exist during the lengthy Bull Market in Complacency so apparent over the last 2-3 years. Under the weight of near unprecedented financial market volatility many of the most confident optimists prior to October are now the most confident pessimists today. (Like the panicky ETF holder community – who too often emotionally redeem at or near the bottom – and the levered risk parity boyz, they too often buy high and sell low).

I’m astounded by people who want to ‘know’ the universe when it’s hard enough to find your way around Chinatown.”- Woody Allen

My annual Surprise List is not about predictions. Rather, my Surprise List incorporates the notion of Possible Improbables. In sports, betting my surprises would be called an “overlay”, a term commonly used when the odds of a proposition are in favor of the bettor rather than the house.

The List is the outgrowth of five core lessons I have learned over the course of my investing career:

  1. How wrong conventional wisdom can consistently be.

  2. That uncertainty will persist.

  3. To expect the unexpected.

  4. That the occurrence of Black Swan events are growing in frequency.

  5. With rapidly changing conditions, investors can’t change the direction of the wind, but we can adjust our sails (and our portfolios) in an attempt to reach our destination of good investment returns.

With the S&P (cash today at 2350 and not 2930 – the September high), today’s Top Ten (surprises) take a different and more upbeat tone that my year end 15 Surprises for 2019.

Given my calculus that the S&P’s “fair market value” is approximately 2450, we should begin to look up and not down as the upside reward v. downside risk has finally shifted into positive ground.

Two quotes, one from an acquaintance (The Oracle of Omaha) and one from a friend (By) come to mind this morning:

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.” – Warren Buffett

“Disasters have a way of not happening.” – Byron Wien

And we should be considering what positive Surprises may occur that could reverse the carnage of the last few months in our markets…

My Top Ten List

Here are the Top Ten possible events that could cause stocks to rise by at least 5% in one trading session:

1. An announcement by the Federal Reserve that it plans to transition from the rigid language of “gradual increases” to a more flexible economic data and market dependent policy. Investors immediately interpret this message to mean that the Fed will (1) cease interest rate increases (in 2019) based on the tightening financial conditions, and (2) will likely slowdown the reduction in the size of their balance sheet.

2. Europe extends QE and it gets authority to buy European stocks. Mario Draghi decides not to retire next year.

3. China introduces a major easing policy that has substance, clout and power.

4. Treasury Secretary Mnuchin resigns and is replaced by Hank Paulson.

5. The U.S.China trade war ends with a full resolution.

6. Democrat Joe Biden and Republican Mitt Romney, aiming at bringing back national unity, jointly declare they are running on the same ticket for President and Vice President in 2020.

7. The Mueller investigation concludes that the President was guilty of collusion and obstruction. Trump immediately resigns and Mike Pence becomes the President of the United States.

8. The SEC initiates broad reform aimed at curbing the dominance of high frequency (quant) strategies and products and reestablishing the uptick rule. Passive investing begins to lose market share to active investing.

9. On the same day that Berkshire Hathaway (BRK.A) (BRK.B) announces a premium bid for 3M (MMM) , KKR and Blackstone announce separate $25 billion acquisitions. Apple (AAPL) follows this M&A explosion with a proposed leveraged buyout, (also) partially financed by Berkshire Hathaway.

10. On the same day, 1Q2019 earnings for Amazon (AMZN) and Alphabet (GOOGL) report substantially better than expected results.

We’ll see.

Published:12/27/2018 4:03:56 AM
[Markets] Global Stocks Steady, US Futures Drift Lower, Amid Wild Week on Wall Street U.S. Treasury bond yields hold steady following yesterday's jump, putting the yield curve at its steepest in three weeks, but mixed U.S. data could add to fading rate hike bets. U.S. stocks set to open lower, with Dow futures indicating a 200 point opening bell decline, ahead of housing and jobless claims data at 8:30 and 9:00 am eastern time. Global stocks steadied Thursday, following two of the most extraordinary trading sessions in Wall Street history on either side of the Christmas holiday, as investors weighed some soothing statements on trade and personnel from the White House against concern that the world economy faces significant challenges in 2019. Published:12/27/2018 3:08:21 AM
[Markets] Asian stocks mostly gain after Wall Street skyrockets; Japan jumps more than 3.5 percent In market action overnight stateside, stocks saw major gains as the Dow Jones Industrial Average soared 1,086.25 points — its largest single-day point gain in history. Published:12/26/2018 6:37:29 PM
[Markets] Asian stocks poised for gains after Wall Street skyrockets Oil-related stocks Down Under also advance on the back of Wednesday's rebound in oil prices. Overnight on Wall Street, stocks surged as the Dow Jones Industrial Average posted its largest single-day point gain in history. Shares in Asia were poised for gains on Thursday following an overnight surge in stocks on Wall Street, with all three major indexes stateside posting gains of more than 4.9 percent. Published:12/26/2018 6:06:44 PM
[] Stock Market Gains Over 1000 Points In Biggest Single-Day Gain in History Recovering a bit from some pre-Christmas losses. Stocks posted their best day in nearly a decade on Wednesday, with the Dow Jones Industrial Average notching its largest one-day point gain in history. Rallies in retail and energy shares led the... Published:12/26/2018 6:06:36 PM
[Markets] Business Highlights Wall Street notched its best day in 10 years as stocks rallied back Wednesday, giving some post-Christmas hope to a market that has otherwise been battered this December. The Dow Jones Industrial Average jumped more than 1,000 points — its biggest point-gain ever — rising nearly 5 percent as investors returned from a holiday break. Published:12/26/2018 5:06:29 PM
[Markets] Dow soars over 1,000 points as stocks bounce back from Christmas Eve meltdown Stocks more than erase losses suffered in the worst Christmas Eve performance in Wall Street history, with the Dow jumping more than 1,000 points. Published:12/26/2018 4:05:33 PM
[Markets] NewsWatch: Dow soars over 1,000 points as stocks bounce back from Christmas Eve meltdown Stocks more than erase losses suffered in the worst Christmas Eve performance in Wall Street history, with the Dow jumping more than 1,000 points.
Published:12/26/2018 4:05:33 PM
[US News] ‘Trump wins again!!’ Dow rallies and closes out day with record-shattering surge

Holy smokes!

The post ‘Trump wins again!!’ Dow rallies and closes out day with record-shattering surge appeared first on twitchy.com.

Published:12/26/2018 3:36:33 PM
[Markets] Dow Gains 775 Points Because the Selling Pressure Can Only Last So Long 3:31 p.m. The Dow Jones Industrial Average was threatening to slip ever closer to a bear market...and then the bulls fought back. The S&P 500 has gained 3.6% to 2435.42, while the Dow Jones Industrial Average has risen 774.66 points, or 3.6%, to 22,566.86. The Nasdaq Composite has climbed 4.5% to 6469.96. Published:12/26/2018 3:05:35 PM
[Markets] US Team To Travel To China In January For Trade Talks

Strategically hitting just minutes before the market close to push today's record Dow point gain into even greater overdrive, Bloomberg just reported that a U.S. government delegation will travel to Beijing in the week of Jan. 7 to hold trade talks with Chinese officials.

The mid-level delegation will be absent US Trade Rep Robert Lighthizer - who Trump recently said would be in charge of the China negotiations - but instead will be headed by deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration’s team, which will also include Treasury Under Secretary for International Affairs David Malpass, with Bloomberg reporting that next month’s meeting will be the first face-to-face discussion the two sides have held since President Donald Trump and China’s Xi Jinping agreed on a temporary truce in Argentina at the start of December. The news comes after Treasury Secretary Steven Mnuchin said last week that the U.S. team and its Chinese counterparts have held discussions over the phone.

As a reminder, Trump agreed to put on hold a scheduled increase in tariffs on some $200 billion in annual imports from China while the negotiations take place through March 1. Beijing has agreed to resume buying American soybeans and to at least temporarily lower retaliatory tariffs on U.S. autos.
 

Published:12/26/2018 3:05:33 PM
[Markets] Stocks soar, wiping out their Christmas Eve losses, with the Dow up 750 points Stocks soar, wiping out their Christmas Eve losses, with the Dow up 750 points Published:12/26/2018 2:37:10 PM
[Markets] Why Stocks Are Soaring: A Massive, $64 Billion Buy Order

Last Friday, when stocks were tumbling, we reported "some good news for the bulls" which was lost in the overall chaos over the latest mutual fund liquidation discussed earlier.

And no, we did not anticipate that President Trump would activate the Plunge Protection Team over the weekend: the good news in question was that as Wells Fargo calculated U.S. defined-benefit pensions fund would need to implement a "giant rebalancing out of bonds and into stocks" - in fact the biggest in history - with the bank estimating roughly $64 billion in equity purchases in the last trading days of the quarter and year, prompting the banks to ask if traders are about to make pension rebalancing "great" again.

Judging by today's market action, the answer is a resounding yes, even though as Wells warned investors and traders looking for a desperately needed respite from market gyrations "may have to deal with yet one more seismic bout of volatility before Dec 31 finally pops up on their calendar dials."

For those who missed our Friday post on the topic, Wells explained where this massive rebalancing comes from: the huge, end-of-quarter buy order was precipitated by the jarring divergence between equity and bond performances both in Q4 and the month of December. The stocks in the bank's pro forma pension asset blend had suffered a 14% loss this quarter, including about an 8.5% drop in December. Contrast this with a roughly +1.6% quarterly total return for the domestic aggregate bond index. The gap between equity and bond performance in pension portfolios would have been even larger had IG credit OAS not widened nearly 40 bps in Q4.

As a result of this need for massive quarter-end rebalancing, corporate pensions would need to boost their equity portfolios by as much as $64 billion into year-end. Getting a bit more granular, Wells analyst Boris Rjavinski wrote that domestic stocks – both large cap and small cap – may need disproportionately large boosts of $35 billion and $21 billion, respectively, compared to “only” $9 billion for global developed equities (see table below). This is driven by large performance gaps within equity markets: U.S. stocks have trailed global and EM equities in Q4 and December after outperforming the ROW for quarters on end.

Meanwhile, in part explaining today's bond market weakness,pensions would be looking at a historically large outflow of about $57 billion.

Some pensions rebalance every month and some only at quarter-end. Since bonds trounced equities both on a quarterly and monthly basis, the flows from the two groups of rebalancers will go the same way. This should amplify the market impact.

Finally, we also touched upon what assets pensions would buy (and sell): according to Wells, most of the initial outflows from fixed income would be affected via liquid Treasury futures contracts. Consequently, the TY and U.S. sectors should underperform potentially for most of the brief trading window this week.

Finally, while not directly related to today's massive pension-driven buying spree, Wells laments that defined-benefit company pensions just cannot seem to catch a break, and notes that just a few short months ago, corporate pensions’ average funding ratio seemed poised to top 90% and stood at 88% in July, up from 85% at the end of 2017.

Alas, the good fortune proved fleeting, and the updated Well Fargo estimate pegs average solvency at 83%. The drop for 2018 is no surprise with equities posting hefty declines while long-term Treasury yields are up only 30-35 bps.  As a result, pension trustees face an unenviable task of going back to the drawing board, while company Treasurers may be looking at writing another sizeable check to shore up their pensions.

We concluded our Friday post as follows:

For now, however, buckle up for what may be the single largest quarter-end pension rebalancing in history.

A few days later, with pensions seemingly deciding to take Christmas Eve off, Wednesday's torrid price action - and that over the next two days with quarter and year-end imminent - is the result of this "single largest quarter-end pension rebalancing in history", which is manifesting itself in the biggest percentage gain in the Dow since late March.

Or, as Trump would tweet, "pensions are BTFD today. Are you?"

Published:12/26/2018 2:06:51 PM
[Markets] Dow Leads Market Rally, Jumps 500 Points Following Christmas Eve Decline Markets had their worst Christmas Eve session of all time Wednesday as turmoil in Washington weighs on markets. The Dow Jones Industrial Average dropped more than 600 points in its previous session. Asian markets were affected by the U.S. selloff, with the Nikkei in Japan dropping 4% over the past two sessions. Published:12/26/2018 12:07:19 PM
[Markets] Stocks Are Panic-Bid

It seems everything is awesome again...

US equity markets are exploding higher - with Nasdaq up a stunning 3.5% - tagging Monday's cash opening level...

With Dow futures up over 600 points...

Thanks to another big short squeeze that started at 11am ET...

What happens next?

Published:12/26/2018 11:34:20 AM
[Markets] Dow up 400 points as U.S. stocks attempt rebound from four-session nosedive Dow up 400 points as U.S. stocks attempt rebound from four-session nosedive Published:12/26/2018 11:34:20 AM
[Markets] Dow up triple digits as U.S. stocks reassemble early gains Dow up triple digits as U.S. stocks reassemble early gains Published:12/26/2018 10:33:49 AM
[Markets] Dow Loses 300 Point Gain, Rebounds After Hassett Says Powell Is "100 Percent Safe", Then Tumbles Again

It was set to be another dismal day for traders, with the Dow set to fade the entire 282 points jump hit shortly after start of trading after Trump's Christmas Day trading reco to "buy the dip", when with the Dow at session lows and set for its 5th straight decline, White House economic advisor Kevin Hassett - the only White House economy official who still appears to have some credibility left in the eyes of investors, and whose jawboning abilities might still elicit a positive impact on equity prices - came on Fox Business to deny rumors that President Trump is considering firing Fed Chairman Jerome Powell, whose job is "100 percent" safe, while pointing out that, despite the abysmal market performance, we're looking at "perhaps the best Christmas ever" in terms of the economy.

Hassett also insisted that Trump is "happy" with Treasury Secretary Steven Mnuchin and has no plans to fire the Treasury  Secretary.

Hassett's comments sparked an immediate rebound in the Dow...

.... and then the Dow slumped again after algos realized that by confirming Powell will stick around, it actually make the bearish case for stocks that much stronger, as it means that Powell's hawkishness will persist for far longer than if Trump were to replace him with some dove such as the "short" Yellen.

Published:12/26/2018 10:04:33 AM
[Markets] Dow industrials up just a handful of points as post-Christmas rebound weakens Dow industrials up just a handful of points as post-Christmas rebound weakens Published:12/26/2018 10:04:33 AM
[Markets] Stocks Open Post-Christmas Session on Higher Note Markets had their worst Christmas Eve session of all time Wednesday as turmoil in Washington weighs on markets. The Dow Jones Industrial Average dropped more than 600 points in its previous session. Asian markets were affected by the U.S. selloff, with the Nikkei in Japan dropping 4% over the past two sessions. Published:12/26/2018 9:04:24 AM
[Markets] Stock futures higher after four sessions of sharp declines S&P 500 e-minis (ESc1) were up 0.96 percent at 7:34 a.m. ET, reopening after the Christmas holiday. Dow e-minis (1YMc1) were up 0.94 percent and Nasdaq 100 e-minis (NQc1) were up 0.95 percent. A four-day slide saw the benchmark S&P 500 (.SPX) end Monday at a 20-month low and 19.8 percent below its closing high, just shy of the 20-percent threshold commonly used to define a bear market. Published:12/26/2018 7:03:17 AM
[TC] Amid plummeting stocks and political uncertainty, VCs urge their portfolios to prepare for winter The warning signs are flashing faster and more furiously now and investors are increasingly urging their startups to take notice. With the Dow Jones Industrial Average enduring a Christmas Eve rout of historic proportions and other indices entering bear market territory, the long-predicted end of the latest bull market is upon the technology industry. Stock […] Published:12/25/2018 7:03:26 PM
[Markets] [$$] Stock Rout Fueled By Market on Auto By Christmas Eve it was below $43. Monday was the worst Christmas Eve for the Dow Jones Industrial Average in its history. Today, quantitative hedge funds, or those that rely on computer models rather than research and intuition, account for 28.7% of trading in the stock market, according to data from Tabb Group--a share that?s more than doubled since 2013. Published:12/25/2018 7:03:24 PM
[Markets] Dow futures are pointing to yet another decline at the open On Tuesday evening, Dow Jones Industrial Average futures were down 109 points, implying an opening decline of more than 195. S&P 500 and Nasdaq futures also pointed to negative moves for when the indexes open on Wednesday. The Dow sank more than 2 percent, then recovered nearly all of the day's losses, before again falling more than 2 percent. Published:12/25/2018 6:02:17 PM
[Markets] This still looks like just a stock-market correction, not something worse The stock market’s recent correction has been more abrupt than you’d expect if the market were in the early stages of a major decline. Consider the losses incurred by the Dow Jones Industrial Average over the first three months of all bear markets of the last 80 years. The stock market’s decline since the all-time highs, in contrast, has been nearly twice as large: The Dow (DJIA) has skidded 18.7% from its Oct. 3 record close, for example, and the S&P 500 (SPX) 19.8% from its Sept. 20 record close. Published:12/25/2018 3:26:08 AM
[Markets] Apple's stock tumble pushed market cap below $700 billion for first time since February 2017 Shares of Apple Inc. sank 2.6% in Monday's abbreviated session to close at the lowest level since July 12, 2017, amid a broad-market selloff. The decline has pushed the technology giant's market capitalization below the $700 billion mark for the first time since Feb. 10, 2017, according to FactSet data. Apple's stock has now plunged 36.7% since it the Oct. 3, 2018 record close of $232.07, with the market cap plummeting about $404.5 billion from its peak of about $1.10 trillion. The stock's price decline during that time has shaved about 578 points off the Dow Jones Industrial Average's price, or about 11.5% of the Dow's 5,036-point drop during that time. Apple is currently the second-largest use company by market cap, behind first-place Microsoft Corp. at $722.7 billion and just ahead of Google parent Alphabet Inc. at about $684.8 billion, according to FactSet. Amazon.com Inc. is in fourth place at $657.2 billion. Published:12/24/2018 12:22:33 PM
[Markets] Christmas Eve selloff puts Dow industrials on track to close at 15-month low Christmas Eve selloff puts Dow industrials on track to close at 15-month low Published:12/24/2018 11:53:03 AM
[Markets] The Dow Is Headed for Its Worst Christmas Eve Loss Ever At its current pace, the Dow Jones Industrial Average would surpass the 1.1% decline on Dec. 24, 1918. Published:12/24/2018 11:53:03 AM
[Markets] Dow Drops Below 22K, Stocks Trade Lower as Wall Street Can't Shake Steep Slide The Dow Jones Industrial Average sank Monday after the blue-chip index fell 6.9% last week, its worst week since 2008. The S&P 500 dropped 7.1% and the Nasdaq declined 8.4% and entered bear market territory. The U.S. stock market will close Monday at 1 p.m. ET, will be closed for Christmas Day, and will reopen with a full day of trading on Wednesday, Dec. 26. Published:12/24/2018 11:22:42 AM
[Markets] Wall Street falls for fourth straight day, with no Santa in sight All the 11 major S&P 500 (.SPX) sectors were lower, and all the 30 components of the Dow Industrials (.DJI) were in the red, pushing them closer to bear territory. Also lower were the FAANG stocks – Facebook Inc (FB.O), Amazon.com Inc (AMZN.O), Netflix Inc (NFLX.O), Apple Inc (AAPL.O) and Google-parent Alphabet Inc (GOOGL.O). "The main factor on investors' minds is the government shutdown and what the resolution can be. Published:12/24/2018 9:51:13 AM
[Markets] All 30 Dow stocks are in negative territory early Monday All 30 Dow stocks are in negative territory early Monday Published:12/24/2018 9:22:54 AM
[Markets] Mindbody Stock Soars, Apollo Global Sinks, and 3 More Monday Morning Movers STOCKSTOWATCHTODAY BLOG The Dow Jones Industrial Average looks set to continue its losing ways Monday morning after briefly looking like it could open higher. In this case, the trend is definitely not out friend. Published:12/24/2018 8:22:25 AM
[Markets] The Dow Jones Industrial Average’s Terrible, Horrible, No Good, Very Bad Year STOCKSTOWATCHTODAY BLOG The year is almost over, and we can’t wait to get to 2019. The Dow Jones Industrial Average made it through the first nine months of the year just fine—as long as you count one correction in early 2018 as fine—but has tumbled 16% since hitting an all-time high of 26,828. Published:12/24/2018 7:50:49 AM
[Markets] Futures Suddenly Plunge Ahead Of Mnuchin's "Plunge Protection Team" Meeting

In what was a surprisingly quiet trading session following the weekend's "Powell in Turmoil" newsflow and Mnuchin's bizarre "liquidity is fine" announcement, which only sparked memories of similar notices from the peak of the financial crisis, which some speculated could result in a major hit to the market in Monday's holiday-shortened session, S&P futures suddenly tumbled in a what appears to be zero liquidity just around 7am (when we suppose at least some human traders walked in to their trading desks or logged in from the Maldives)...

... dragging all US equity futures sharply lower.

The sudden plunge came hours after Treasury Secretary Mnuchin said he called the heads of the 6 biggest banks (JP Morgan, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo and Citigroup) from Cabo, to discuss recent market turmoil and assure liquidity conditions, while also attempting to assure markets that Powell would not be ousted from the central bank following an earlier report that said Trump has repeatedly discussed removing him.  On top of that, the U.S. government shutdown now in its third day, looks set to last past Christmas as negotiations between Democrats and the White House continue over Trump’s demand for border wall funding.

“It would be extremely damaging for the President to carry through on his vague inquiries about whether or not he can fire the head of the Federal Reserve,” Stephen Davies, CEO and co-founder of Javelin Wealth Management, told Bloomberg TV in Singapore. “That will do market confidence no good whatsoever.”

As futures tumbled, gold continued it sharp recent ascent, rising to over USD 1262/oz which is just under a 6-month high. The yellow metal is benefiting from US political uncertainty as a partial government shutdown has begun alongside continued dollar weakness.

The sudden futures plunge followed what was a mixed if quiet session in Asia, where the MSCI Asia-ex Japan index dropped 0.4%. The  ASX 200 (+0.5%) and Shanghai Comp. (+0.4%) nursed opening losses with the former aided by IT and material names amid positive comments from China’s MOFCOM over the weekend that US and China have “made new progress” on trade and IP issues. Meanwhile, trade optimism also led Mainland China higher as most sectors moved into the green with telecom, healthcare and tech leading the gains, however, upside was capped after the PBoC’s liquidity efforts amounted to a net daily drain of CNY 140bln. Finally, Hang Seng (-0.4%) came off intra-day lows but ultimately underperformed after the Hong Kong Finance Chief stated there will be “fewer sweeteners” in the FY19/20 budget and as such, almost all sectors were in the red with hardware names leading the decline. Over in Japan, Nikkei 225 was closed as participants observe the Emperor’s day public holiday.

China's Commerce Ministry said China and the US "made new progress" on the issues of trade balance and intellectual property during a phone call between officials. Chinese Finance Ministry said tariffs on some import and export products will be adjusted from Jan 1st, 2019. China will levy temporary import tariffs on over 700 items but not levy export tariffs on 94 items including fertiliser and iron ore. China will further cut MFN tariffs on 298 IT products from July 2019 and will maintain "relatively low" import tariffs temporarily on some aircraft engines.

Asia's lukewarm optimism did not carry over into Europe, where major indices are in the red with miners and retailers among the biggest decliners in the Stoxx Europe 600 Index as several European markets are closed ahead of the festive season. Sectors are similarly in the red. In terms of notable movers JustEat (-2.5%) are in the red as shareholder rebellion gathers momentum following two of the Co’s largest investors gave support to Cat Rock Capital, which have attacked the flawed metrics surrounding executive bonuses.

Emerging market currencies and shares fell even as the dollar stumbled and China’s top policy makers said they’ll roll out more monetary and fiscal support in 2019, ratcheting up the targeted stimulus of 2018. Oil drifted as some OPEC members pledged to deepen output cuts.

The Bloomberg Dollar Spot Index dropped as Treasury Secretary Steven Mnuchin moved to reassure financial markets over Jerome Powell’s role as Fed chairman. Trading was subdued at the start of a holiday-shortened week, with Japan closed Monday.

The pound and euro both edged higher after Theresa May’s allies made plans that would keep her in office for more than two years after Brexit, the Sunday Times reported, citing a cabinet official it didn’t name AUD/USD snaps 3-day losing streak as leveraged funds buy the Aussie amid a rally in U.S. stock futures.

Treasuries rose along with U.K. gilts, while euro-area bond markets were closed.  JGBs and cash Treasuries closed in Asia due to Japan holiday.

In commodities, Brent (-0.1%) and WTI (-0.4%) prices have remained in a slim USD 1 range amidst holiday thinned conditions. Over the weekend, UAE Energy Minister Mazrouei stated that if a 1.2mln BPD production cut is insufficient, then an extraordinary meeting will be called where we will do what is necessary to balance the market. Mazrouei also added that a OPEC+ monitoring committee would meet late February or early March in Baku. Separately, ongoing concerns over oversupply were exacerbated by Friday’s Baker Hughes rig count which showed the number of active oil rigs increased by 10.

Expected economic events include the Chicago Fed activity index. No major companies are reporting.

Market Snapshot

  • S&P 500 futures down 0.4% to 2,402.00
  • STOXX Europe 600 down 0.5% to 335.09
  • MXAP down 0.2% to 144.79
  • MXAPJ down 0.4% to 470.62
  • Nikkei down 1.1% to 20,166.19
  • Topix down 1.9% to 1,488.19
  • Hang Seng Index down 0.4% to 25,651.38
  • Shanghai Composite up 0.4% to 2,527.01
  • Sensex down 0.8% to 35,458.78
  • Australia S&P/ASX 200 up 0.5% to 5,493.80
  • Kospi down 0.3% to 2,055.01
  • German 10Y yield rose 2.2 bps to 0.25%
  • Euro up 0.3% to $1.1400
  • Brent Futures down 0.4% to $53.61/bbl
  • Italian 10Y yield rose 9.2 bps to 2.471%
  • Spanish 10Y yield rose 2.7 bps to 1.401%
  • Brent Futures down 0.2% to $53.69/bbl
  • Gold spot up 0.4% to $1,262.47
  • U.S. Dollar Index down 0.2% to 96.78

Top Overnight News

  • Treasury Secretary Steve Mnuchin looked to quash big-bank worries over plunging stock markets and reports that Trump might move on his Fed chief by reassuring the financial community that market liquidity is in good shape
  • President Donald Trump directed Defense Secretary James Mattis to depart his administration by Jan. 1, two months earlier than planned, and will replace him with the Pentagon’s second-ranking official Patrick Shanahan
  • White House Budget Director Mick Mulvaney said Sunday the government shutdown may last into 2019, as Republicans and Democrats remain at an impasse over President Trump’s demand for billions of dollars in border-wall funding
  • OPEC hasn’t even started implementing its new six-month agreement to cut output, and already members responsible for most of the reductions have pledged to extend or even deepen it
  • Euronext NV is making a 625 million-euro ($712 million) cash tender offer for Oslo Bors VPS, the Norwegian Stock Exchange, as consolidation among trading exchanges accelerates

Asia-Pac bourses traded mixed in holiday-thinned liquidity following the downbeat lead from Wall St. on Friday, where the S&P notched a weekly loss of 7%, Nasdaq closed in bear market and the Dow posted its worst week since the 2008 financial crisis. ASX 200 (+0.5%) and Shanghai Comp. (+0.4%) nursed opening losses with the former aided by IT and material names amid positive comments from China’s MOFCOM over the weekend that US and China have “made new progress” on trade and IP issues. Meanwhile, trade optimism also led Mainland China higher as most sectors moved into the green with telecom, healthcare and tech leading the gains, however, upside was capped after the PBoC’s liquidity efforts amounted to a net daily drain of CNY 140bln. Finally, Hang Seng (-0.4%) came off intra-day lows but ultimately underperformed after the Hong Kong Finance Chief stated there will be “fewer sweeteners” in the FY19/20 budget and as such, almost all sectors were in the red with hardware names leading the decline. Over in Japan, Nikkei 225 was closed as participants observe the Emperor’s day public holiday.

Top Asian News

  • China Cuts Tariffs on More Than 700 Goods Amid Open-Trade Drive
  • Thin Trading and Slew of Weekend News Leave Asia Stocks Mixed
  • Nissan Asks Staff to Avoid Contacting Ghosn, Kelly Amid Probe
  • Top Fund Proves Value Investing Works in China With 159% Return

Major European Indices are in the red [FTSE 100 -0.6%; CAC 40 -1.0%] despite Asian bourses trading mostly higher and as
several European markets are closed ahead of the festive season. Sectors are similarly in the red. In terms of notable movers JustEat (-2.5%) are in the red as shareholder rebellion gathers momentum following two of the Co’s largest investors gave support to Cat Rock Capital, which have attacked the flawed metrics surrounding executive bonuses.

Top European News

  • OPEC Is in ‘Whatever It Takes’ Moment to Prop Up Oil Prices
  • Euronext Makes $712 Million Takeover Offer for Oslo Bourse
  • London’s Streets No Longer Paved With Gold as Miners Struggle
  • Telefonica Chairman Takes No Chances as Activist Stalks Europe

In FX, AUD/NZD was the major beneficiary of latest US-China trade developments, and reports about fresh progress on certain issues ahead of official negotiations set for early 2019, while Beijing has also announced a series of import tariffs to be implemented on January 1st at concessionary levels. Aud/Usd and Nzd/Usd have subsequently rebounded relatively firmly of recent and new ytd lows to 0.7050+ and towards 0.6750 respectively, with the former eyeing resistance around 0.7073 ahead of 0.7085-90 and Kiwi looking to breach its 50 DMA at 0.6741 convincingly, as the Aud/Nzd cross slips back under 1.0500.

  • EUR/GBP - Also prospering at the Greenback’s expense, as Eur/Usd climbs above a cloud base to retest 1.1400+ levels, while Cable is pivoting 1.2650 and Eur/Gbp hovers around 0.9000. A distinct lack of independent drivers as much of mainland Europe enjoys a full Xmas Eve holiday and UK markets are only open until midday or 12.30GMT, though weekend Brexit news appears marginally supportive for the Pound as PM May’s allies are said to be more confident that Parliament will decide in favour of the draft withdrawal agreement.
  • CAD/JPY - Both mildly firmer vs the Buck, with the Loonie deriving some traction from comparative stability in crude prices to pare worst losses from yet another new 2018 low just under 1.3600, while the Jpy is consolidating recent hefty gains within a tight  range around 111.00 having tested, but not breaching the 200 DMA (circa 110.94).

In commodities, Brent (-0.1%) and WTI (-0.4%) prices have remained in a slim USD 1 range amidst holiday thinned conditions.   Over the weekend, UAE Energy Minister Mazrouei stated that if a 1.2mln BPD production cut is insufficient, then an extraordinary meeting will be called where we will do what is necessary to balance the market. Mazrouei also added that a OPEC+ monitoring committee would meet late February or early March in Baku. Separately, ongoing concerns over oversupply were exacerbated by Friday’s Baker Hughes rig count which showed the number of active oil rigs increased by 10. Gold has risen to over USD 1262/oz which is just under a 6-month high. The yellow metal is benefiting from US political uncertainty as a partial government shutdown has begun alongside continued dollar weakness. Separately, a subsidiary of China Minmetals Corp has begun the initial phase of a new battery raw materials project in Tangshan; with the project being part of China’s push to safeguard new resources as demand for batteries continues to rise.

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, est. 0.2, prior 0.2
Published:12/24/2018 6:50:40 AM
[Markets] U.S. Stock Futures Rise as Mnuchin Reassures on Fed Autonomy Contracts on the S&P 500 advanced 0.6 percent at 10:56 a.m. in Hong Kong, erasing an earlier decline, on track to halt the longest slide in a year. Dow Jones Industrial Average futures gained 0.5 percent, while Nasdaq 100 contracts climbed 0.4 percent. Treasury Secretary Steven Mnuchin reassured markets over the weekend that President Donald Trump does not intend to oust Federal Reserve Chairman Jerome Powell, a report that shook Wall Street already perturbed by the trade war, rising interest rates and the government shutdown. Published:12/23/2018 9:03:26 PM
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