Value stocks handily outperformed Growth stocks by the end of Q1 but the window-dressing pump of the last 2 days rescued all but the blue-chip Dow from ending the quarter in the red. This is the worst quarterly performance for stocks since 2012. Despite disconnects all over the place today, stocks managed to hold onto gains today. Thanks to some dovosh comments by Yellen (that apparently "some time" is interpreted as more than 6 months), bonds and stocks ripped today leaving long-bonds best quarter since Q2 2012. Gold is the best performing asset of the quarter and HY bonds worst as the USD ended unchanged.
After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.
'Growth' continues to underperform 'Value' as once again today's early gains - used by many to indicate that the worst is over - were decimated rather quickly especially in the Biotechs (new cycle lows) and momos (NFLX & FB ugly). KING's failed IPO persists (-4% today) and now down over 17% from its IPO day highs. The S&P held miraculously above the red-line year-to-date but Nasdaq, and Russell joined the Dow in negative territory as growth is now underperforming for the year. The USD index ended the week unchanged (with weakness in JPY offset by strength in AUD and CAD) but the JPY-carry trade decoupled from stocks in the late-day today rather ominously. Bonds flattened on the week (30y -6bps, 5Y +3.5bps) with some profit-taking on flatteners today. 'Growth' commodities rallied with oil and copper up 2 and 3% respectively as PMs dropped 3% as Emerging Markets had their best week in almost 7 months.
Presented with little comment aside to ask... sustainable? Every string will be pulled today to ensure that the S&P 500 closes in the green for Q1, this is just the beginning salvo...
Over the past month, we have explained in detail not only how the Chinese credit collapse and massive carry unwind will look like in theory, but shown various instances how, in practice, the world's greatest debt bubble is starting to burst. One thing we have not commented on was how actual trade pathways - far more critical to offshore counterparts than merely credit tremors within the mainland - would be impacted once the nascent liquidity crisis spread. Today, we find the answer courtesy of the WSJ which reports that for the first time in the current Chinese liquidity crunch, Chinese importers, for now just those of soybeans and rubber but soon most other products, "are backing out of deals, adding to a wide range of evidence showing rising financial stress in the world's second-biggest economy."
The major US equity indices all pushed into negative YTD territory today in yet another pump-dump-and-small-ramp deja vu day. Early strength gave way quicker today as Biotechs bounced off an early dump (but closed back below their 100DMA for 2nd day - first time in 18 months), momo names were crushed (down 10-14% post-FOMC), Citi was banged over 5% (on extremely heavy volume post CCAR), and the NASDAQ tested down (and bounced off) its 100DMA. Treasuries were mixed once again with bear-flattening the dominant theme. The USD ended the day unch on the week with EUR weakness offset by CAD and GBP strength. AUDJPY was in chgarge of stocks most of the day-session. Copper and oil improved as gold and silver slipped more (though bounced at the close). Late-day JPY pump, VIX dump rescued the S&P back to +0.03% return for 2014.
For the 5th day in a row, US equities have levitated in the pre-open and faded away quickly soon after. Today is different though in 2 ways: the pump was de minimus and the dump is early. It seems the initial claims good news is indeed bad news for stock investors. Treasuries continue to bear flatten once again as 30Y is rallying and 5Y selling off further; gold is steady at around $1300 and the USD is rallying modestly. Copper and oil prices are rising. European stocks are also faltering with DAX giving up all its early gains.
After tumbling overnight to just around 101.80, the USDJPY managed to stage a remarkable levitating comeback, rising all the way to 102.3, which in turn succeeded in closing the Nikkei 225 at the highs, up 1% after tumbling in early trade. The Shanghai Composite was not quite as lucky and as fear continue to weigh about a collapse in China's credit pipeline, the SHCOMP was down more than 0.8% while the PBOC withdreww even more net liquidity via repos than it did last week, at CNY 98 billion vs CNY 48 billion. That said, this morning will be the fifth consecutive overnight levitation in futures, which likely will once more surge right into the US market open to intraday highs, at which point slowy at first, then rapidly, fade again as the pattern has seemingly been set into algo random access memory. Which in a market devoid of human traders is all that matters.
With copper, iron-ore, soybeans, and nickel all tough to carry when you need liquidity from your commodity-financing deals; it appears the Chinese people have turned to more spectaculr methods of moving 'wealth'. As The South China Morning Post reports, just week after a man was stopped at the China-Hong-Kong border with 4 kilograms of gold in his shoes, customs officers caught a man smuggling more than 7000 diamonds in plastic bags in his underwear. The tell, officers noticed he was walking in a pculair manner.
30Y yields are now over 10bps below post-Yellen spike highs as growth-hope-driven US equities were monkey-hammered in another pump-and-dump deja vu day - with one difference - no late-day bounce to provide solace for the bulls. The Nasdaq and Russell 2000 are down over 3.5% from Yellen; Biotechs broke to new lows (down over 14% and below the 100DMA); momo names were slammed (FB) as King IPO's and lost over 15% on the day. The Nasdaq and Russell have joined the Dow in the red year-to-date, S&P and Trannies barely positive. The USD lost ground on the day after early strength. Gold, silver, and copper fell notably. VIX jumped from 2-month lows to back over 15%. USDJPY was sin charge all day - and broke below the key 102 level into the close.
Gold prices are down 6.6% from the post-Crimea referendum highs mid-March (but remain up 9% in 2014). For the 3rd day in a row, precious metals have come under sudden selling pressure and this morning's has pushed Silver comfortably back below $20 and gold now back under $1,300. Notably copper prices are also fading on the heels of Chinese weakness overnight.
Another morning melt up after a less than impressive session in China which saw the SHCOMP drop again reversing the furious gains in the past few days driven by hopes of more PBOC easing (despite China's repeated warning not to expect much). A flurry of market topping activity overnight once again, with Candy Crush maker King Digital pricing at $22.50 or the projected midpoint of its price range, and with FaceBook using more of its epically overvalued stock as currency to purchase yet another company, this time virtual reality firm Oculus VR for $2 billion. Perhaps an appropriate purchase considering the entire economy is pushed higher on pro-forma, "virtual" output, and the Fed's capital markets are something straight out of the matrix. Despite today's pre-open ramp, which will be the 4th in a row, one wonders if biotechs will finally break the downward tractor beam they have been latched on to as the bubble has shown signs of cracking, or will the mad momo crowd come back with a vengeance - this too will be answered shortly.
When we left China last night, it was all shits and giggles that bad news is great news and a Chinese stimulus plan will be here any minute to save the day. Having realized the sad fact that is not going to happen (as we explained here most recently) and the specter of banks runs looming, this evening's session has seen property developer stocks tumble - retracing all of last night's losses - the Yuan plunges by the most in a week back above 6.2150. Copper is holding in for now at the magic $300 level but corporate bond prices are falling once again (worst run in 4 months).
Pre-open gold dump, USDJPY pump, check. Opening dump in USDJPY and stocks led by Momos and Biotechs, check. European close marks the bottom, check. EURJPY takes over and ramps stocks back up to highs, check. Fade into close, check. Today was an almost perfect echo of yesterday's market action with blue-chips benefitting from the weakness in Nasdaq and Russell high-beta honeys. Bonds were quite with very modest steepening. Gold and silver bounced off earlier lows but their losses mirror Copper's 1.7% rise on the week. The USD lost ground as Draghi's failed jawboning sparked EUR strength. VIX fell 1 vol to its lowest close in 2 weeks as a late-day VIX -slam failed to get SPX green post-FOMC.
A surprise (to some) drop in China's PMI was just enough bad news to prompt the good-news-seeking BTFD'ers into expectations of additional stimulus from China. Despite 'PBOC advisors' (implictly the mouthpiece of official policy strawmen) stating openly not to expect stimulus and confirming that China will see a "crisis" in local-government financing "but not as expolosive as the 2008 crisis", and that "China must face the moral hazrd issue", investors are buying CNY, copper, Chinese stocks, and practically everything else on the back of hopes for moar money. However, as Bloomberg's Tom Orlik explains, with the government facing conflicting pressures an abrupt about-face in policy is unlikely.