Bank of America
If it sounds like history repeating itself, it most surely is. The coming recession will again obliterate the sell side hockey sticks, which this time started last spring at $135 per share for 2016 and are already being reduced at a lickety-split rate not seen since the fall of 2008. But this time there is one thing that decisively different, and it will make all the difference in the world. As will be reinforced once again by the post-meeting contretemps on Wednesday, the Fed has painted itself into a deathly corner and is utterly out of dry powder. It has nothing left but to hint at the prospect of negative interest rates. And that will be usher in its thundering demise.
The Biggest Threat To The S&P In The Next Month: "Only Buyer Keeping This Market Alive" Stops BuyingSubmitted by Tyler Durden on 03/15/2016 15:45 -0400
The biggest danger to the S&P500 over the short-term has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being put into a state of forced hibernation
"Last week, during which the S&P 500 climbed 1.1%, BofAML clients were net sellers of US stocks for the seventh consecutive week. Net sales of $3.7bn were the largest since September and led by institutional clients where net sales by this group were the second-largest in our data history."
Over the past month, as expected, the CLO rout has gone from bad to worse, and according to the latest Morgan Stanley CLO tracker, as of the end of February, the median US CLO 2.0 equity NAV stood at -1.99 with the number of CLO 2.0 deals’ equity tranches currently having NAV below zero soaring by 30% from 348 to 453.
In a far less exuberant note than last week, Bloomberg's Lu Wang - author of the original article - writes that "while past deviations haven’t spelled doom for equities, the impact has rarely been as stark as in the last two months, when American shares lurched to the worst start to a year on record as companies stepped away from the market while reporting earnings. Those results raise another question about the sustainability of repurchases, as profits declined for a third straight quarter, the longest streak in six years."
"While investors focus on oil and the ECB, they overlook the largest current macro market risk – and opportunity – which centers on the Fed. Although our economists expect rates will remain unchanged, a credible argument can be made for the FOMC to proceed with the “flight path” it had previously outlined.... The market’s eventual acceptance of the Fed tightening path will spur some parts of the momentum trade to resume and others to unwind."
"Risk assets about to top: ultimately markets about "rates" and "earnings", little else; central banks have played “rates card” as aggressively as they can; ECB done, BoJ has nothing in the tank, and any US macro strength will elicit Fed rate hike expectations (the Fed wants to tighten); EPS momentum simply not strong enough near-term to overwhelm Q2 risks of Brexit, BoJ failure, US politics, China debt deflation."
The world financial system is booby-trapped with unprecedented anomalies, deformations and contradictions. It’s not remotely stable or safe at any speed, and most certainly not at the rate at which today’s robo-machines and fast money traders pivot, whirl, reverse and retrace. Indeed, every day there are new ructions in the casino that warn investors to get out of harm’s way with all deliberate speed. And last night’s eruption in the Japanese bond market was a doozy.
- Rivals rip Trump but promise support if he is the nominee (Reuters)
- Employment gains seen accelerating in February (Reuters)
- Brazil's Lula Targeted in Police Raid Into Corruption Scandal (BBG)
- Economist: For The ECB, It's No Longer About Oil (BBG)
- China's premier says economy faces greater difficulties in 2016 (Reuters)
- Copper Stockpiles in China Surge to Record as Metal Flows East (BBG)
There is an odd feeling of Deja QEu this morning, when with two hours to go until the February payrolls, global stocks are modestly higher, US equity futures are likewise slightly higher on the back of a weaker dollar (or perhaps stronger Euro following a Market News report according to which the ECB may disappoint, more on that shortly), but it is gold that is breaking out, and after entering a bull market yesterday when it rallied 20% from its December lows gold has continued to surge, rising as high as @1,274 in early trading a price last seen in January 2015.
Goldman plans to eliminate more than 5% of traders and salespeople in its fixed-income business, cutting deeper into those operations than an annual companywide cull that has already begun. Furthermore, according to a notice filed on the DOL's WARN website, Goldman announced that it would terminate 43 workers, with the layoffs set to occur between May 9, and July 1.
While revised modestly higher from preliminary levels, US non-farm productivity plunged 2.2% in Q4 2015 - the biggest drop since Q1 2014. Economists are gnashing their teeth to explain this "plunging productivity paradox" - we think it is rather simple...
As A Frenzied Wall Street Buys Shale Equity Offering At A Record Pace, Exxon's CEO Has A Stark WarningSubmitted by Tyler Durden on 03/02/2016 13:23 -0400
Investors have pumped a whopping $9.2 billion in new equity into energy companies year to date, the most since Bloomberg records began in 1999. The euphoria won't last, and the equity issuance window is already closing: confirmation of this comes from none other than Exxon CEO Rex Tillerson who moments ago said that the "wave of oil equity issuances is destroying value", adding that "global economic conditions are not inspiring", that "demand won't solve it quickly" and that "we're still oversupplying the market."
Someone Isn't "Buying" This Rally: The "Smart Money" Sells For Five Consecutive Weeks As Buybacks SoarSubmitted by Tyler Durden on 03/01/2016 14:39 -0400
No matter what unleashed today's algo buying spree, one thing is clear: someone has to be buying and someone has to be selling into what, Investech yesterday explained, is the latest bear market rally. Thanks to Bank of America we know the answer to both.
"We expect the10y JGB auction on the 1st to be a new issue with a 0.1% coupon, but auction yields are likely to go into negative territory. We do not expect the bank sector to buy, and demand from dealers and foreign investors is unlikely to provide sufficient support. We expect the auction to be turbulent given investors are also unlikely to short futures and the possibility of a tail. "