Bubblevision’s Scott Wapner nearly split a neck vessel today denouncing the US stock market sell-off. It was completely unwarranted, he thundered, because China don’t have nothin’ to do with anything. The collapse of red capitalism in China is exporting gale force deflation to the global economy, meaning that the already evident rollover of world trade is just beginning its descent. So S&P profits are not immune, not by a longshot. One of these days, perhaps soon, even Scott Wapner will get the memo.
While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
June was a bad month for most hedge funds. With China crashing, oil prices resuming their slide, volatility returning, and even momo favorite biotechs no longer rising at their conservative 10% monthly clip, few looked forward to writing their monthly investor letters, and nowhere was the carnage more indicative than in our favorite named hedge fund, the Tulip Trend Fund, which after soaring earlier in the year tumbled 15% in June and is now down almost 20% for the year.
Trannies touched unchanged and instantly reversed but Dow Industrials only managed a modest bounce of opening lows. However, the momo did not last and there's no Nike to save the day today - The Dow is now down over 200 points and has tumbled back into the red for 2015.
While there was a disturbance earlier around the DOE data, crude and copper are now getting clubbed like a baby seal off the day's highs... It appears between Icahn's bubble comments and The Fed's reported impatience, momo trades are being unwound.
It wouldn't be the new normal without a "Greek deal imminent" rumor/headline and so after overnight China-based strength gave way to selling pressure, another twitter-based rumor of "chatter" of a Greek accord (which given yesterday's comments seems extremely unlikely anyway) sparked a malt-up in EURUSD and US Equity futures. However, as is always the case, Virtu's algos as usual forgot to sell when the official denial occurred just a few minutes later.
Between escalating Grexit concerns and Podemos 'victory' in Spain, European bond and stock markets shuddered somewhat today. EURUSD continues to close lower - back below 1.1000. All major bourses across Europe are in the red with Greece and Spain worst (ASE -3%) but the most notable shift is a collapse in Poruguese bonds. Illiquidity has always been an issue for PORTUG bonds but today's near 4 point collapse in 10Y bond prices (and 48bps spike in spreads) is dramatic to say the least. Bond yields and spreads are now higher than before Draghi announced Q€ in January and dramatically higher since bond-buying began. If EU leaders proclaim they can see no contagion from Greece, show them these charts. Finally, despite cash markets being closed, US equity futures also suffered (despite an exuberant BTFD rip higher in China overnight).
Last Thursday, it was Avon that was cheated higher after a fake takeover filing provided just enough momo juice for the machines to destroy any and every short in the stock instantly. Today, it was Quest Diagnostics turn to be manipulated.
Record highs in stocks....thanks to the illegal miracle of spoofing.
A gentle reminder from the minutes that many seemed to have missed: "some indicators suggested that valuations remained stretched for some asset classes."
Bond yields are leaking higher, The USDollar is flat (but noisy), but with no macro data to spark a momo run, US equities have tumbled out of the gate... especially Dow Transports. Dow & S&P are back to unchanged on the week...
Over the years many have wondered how it was possible that a hedge fund could exist that did nothing more than ride momentum and heatmaps higher or lower without almost any insight into the fundamentals of the underlying corporations. That hedge funds, of course, is John A. Thaler's JAT Capital, which did nothing but buy the most talked about, "storied" momo stocks and ride them higher. Or lower, as the case may be. Because the hedge fund which only managed $3.7 billion as of March 31 just because it was a Tiger Management spin off, is no more.