Equity prices tumbled early on - giving up all Friday's gains - before rampaging phoenix-like (thanks to an AUDJPY driven short squeeze) back to 'unch' after rumors of ceasefire discussions in Israel rolled around trading desks. Oil - it appears - was looking at the death-toll (and the fact that Hamas can only accept a deal that denies Israel's existence) and soared back towards $105 (its 2nd biggest day in over a month) notably divergent from stocks. The Russell 2000 was the laggard all day (ramped the most of the lows on the squeeze) and Trannies the leader. Since the MH17 headlines hit, the Nasdaq is the only index green, Treasury yields are -4bps, and oil up almost $4. The USD ended the day unch, 30Y Yield -2.5bps, gold, silver, and copper up modestly, and VIX up 0.5 vols at 12.7. Stocks closed on the weak side.
Just imagine how high stocks would be if more jets were shot down in Ukraine, more ground operations were unleashed in Gaza, more sanctions were placed on global growth, more European and US macro data disappointed, more job cuts at major firms, and more European banks declared bankruptcy. Today's farcical Friday surge (with the Nasdaq up 2% from its overnight lows and 30 point rip in the S&P) appears 100% based on the squeezing of "most shorted" stocks (best day in over a month) and the ramping of AUDJPY. Credit markets ignored the idiocy; Treasury markets ignored it; The USD went nowhere (after EUR dumped on Italy downgrade then recovered). Gold, Silver, and Copper all closed down 2-3% on the week (given back yesterday's gains) as Oil surged 2.2%. VIX dropped over 2 vols to close with a 12-handle (but disconnected notably from stocks at the close). It's not all ponies and unicorns though - Biotechs are down 5% from Yellen's comments and the Russell 2000 closed red for the 2nd week in a row (and still -1% year-to-date). Best Dow Friday in 5 months (up 11 in a row).
The media giant 21st Century Fox, the empire run by Rupert Murdoch, made an $80 billion takeover bid (around $86.00) in recent weeks for Time Warner Inc. but was rebuffed, people briefed on the matter said on Wednesday. As WSJ reports, The offer was first made orally in June and then with a formal letter in July. Time Warner rejected the offer curtly, after Chief Executive Jeff Bewkes took the proposal to the board. The deal - which valued Time Warner at 12.6x LTM EBITDA - was notably above even recent record high LBO multiples (and would be financed by none other than Goldman). Of course, this deal - should it ever be consummated (as the stock price suggests) would give Murdoch control of both the left and the right propoganda with CNN and Fox.
If last week's big "Risk Off" event was the acute spike in heretofore dormant Portugese bank troubles (as a reference Banco Espirito Santo has a market cap at the close last night stood at around €2.1bn ($2.9bn), contrasting to Goldman Sachs ($78.1bn) and JP Morgan ($220.5bn)), then yesterday's acceleration in the Portuguese lender's troubles which as we reported have now spread to its holding company RioForte which is set to default, were completely ignored by the market. Today this has conveniently flipped, following a Diario Economico report that Banco Espirito Santo has the potential to raise capital from private investors. No detail were given but this news alone was enough to send the stock soaring by nearly 20% higher in early trading. Still, despite the "good", if very vague news (and RioForte is still defaulting), Bunds remained bid, supported by a good Bund auction, in part also dragged higher by Gilts, which gained upside traction after the release of the latest UK jobs report reinforced the view that there is plenty of spare capacity for the economy to absorb before the BoE enact on any rate rises. Also of note, touted domestic buying resulted in SP/GE 10y yield spread narrowing, ahead of bond auctions tomorrow.
Just like your pet, tech companies like Twitter, Yelp, Bankrate, Groupon and Web.com require constant feeding in order to stay alive
It's Tuesday but not everyone had fun... Having been told by the Fed that small-caps were stretched, investors bid Trannies and Industrials into the green (well the Fed never said they were rich?) Russell and Nasdaq were sold (but only dropped around 1% as every trick in the book was found to "fight the Fed"). VIX slams, JPY ramps, Gold slams... but amid all the furore of the "Sell" momo stocks signal from the Fed, bond markets shrugged (admittedly with some noise) closing flat in 10Y (and modestly higher in yields in the short-end). Gold was monkey-hammered once again, smashed back below $1300 (but remains above June FOMC levels) with its worst 2-day drop in 10 months (breaking its 20, 50, and 100DMA). Biotechs closed worst among Yellen's shorts and Russell 2000 ends -0.65% for 2014.
Everyone knows that you "don't fight the Fed" - and sure enough, traders are selling momo, social media, and biotech stocks, sending the Russell 2000 ands Nasdaq to the lows of the day. Despite the best efforts of USDJPY momentum igniters - which has now shifted to tracking Treasury yields, pushing them modestly hgher. No bounce at all in broad US equity markets (though we expect the spin to be a rotation from growth to value once again very soon). Gold jumped on the dovishness but fell back to unch as did the USD. The S&P 500 is now in the red post-payrolls. Summing it all up - saying that these sectors are 'stretched' but the market is within 'norms' just won't cut it... Yellen is losing control and this level of specificity (and honesty) implies some degree of panic at the Fed.
Surprise... following the worst week for stocks in months (and "most-shorted" stocks biggest down week in 2 years), one is hardly surprised that someone decided the investing public needs some confidence-boosting. VIX was slammed, "most shorted" stocks squeezed higher and all on the back of a USDJPY spike and surge based on absolutely no news whatsoever... Meanwhile, as stocks surge and gold collapses, Treasury yields are up (wait for it) 1bps...
- Secret Path Revealed for Chinese Billions Overseas (BBG)
- Traders Flood U.S. With $3.4 Trillion of Bond-Auction Demand (BBG)
- Just in time to cover bad earnings in a massive $3.8 billion "one-time charge": Citi says to pay $7 billion to settle securities investigation (Reuters)
- Troubled Epirito Santo family loosens grip on Portugal's BES (Reuters)
- BES puts in place new executives after central bank push (Reuters)
- Bank of China-CCTV drama may reveal power struggle in Beijing (SCMP)
- Portugal speeds up Banco Espírito Santo management changes (FT)
- Dark pool probe builds pressure on Barclays boss (Reuters)
- Russia Vows to Respond After Shelling From Ukraine (BBG)
- Ukraine forces end rebel airport blockade (Reuters)
- Obama Contends With Arc of Instability Unseen Since '70s (WSJ)
The Russell 2000 closed down almost 4% from last Thursday's early close - its worst week in 3 months (and in the red year-to-date). The Nasdaq miraculously scrambled back to unchanged from Payrolls but all major indices closed red for the week. Away from stocks, the USD closed unchanged (with notable CAD weakness and JPY strength). Treasury yields tumbled 13bps on the week - the most in 4 months. Gold and silver rose 1.3% on the week to new 4-month highs (6th green week in a row) as WTI Crude slumped back under $101 (-3.3% on the week). VIX rose around 2 vols back above 12 as "most shorted" stocks plunged over 5% - the biggest weekly drop in 25 months! VIX was slammed lower late-on to give the impression of confidence in stocks into the weekend but credit was notably not buying it at all.
While the situation between Israel and Gaza continues to escalate, pulling the markets' attention away from the recent developments in Iraq (as for the Ukraine civil war, forget it), the big news overnight came out of Chine which reported another contraction in consumer prices, which both declined to 2.3% and missed expectations of a 2.4% print (down from 2.5%). Producer Prices had another negative print, the 28th in a row, and have remained negative since 2012. This led to the Hang Seng Index falling at the fastest rate since late June to erase all YTD gains. However, as has now become the norm, macro news hardly impacted US equity futures, which are driven exclusively by the Yen carry trade, which unlike yesterday's pounding, has traded rangebound between 101.6-101.7 keeping US equity futures just barely in the green. We expect the momentum ignition algo to kick in at some point, for absolute no fundamental reason beside the NY Fed trading desk issuing a green light, sending the USDJPY surging, taking the Spoos with them, and helping stocks forget all about the weak Asian session.
The trouble with capitalism’s guardians is that they have no respect for it. Markets have been around for at least 2,000 years. Since then they have evolved in many directions, with fancy and sophisticated techniques… and elaborate systems and complicated instruments that take a PhD to understand. But despite all the brain power put into trying to figure them out, markets still surprise, confound and puzzle everyone. You’d think Janet Yellen and other central bankers would take a step back and stand in awe. Heaven and hell are full of people who thought they could take the risk out of markets. Some went broke. Some blew their brains out... others both.
Poor algos: after they got no love on Monday from the overnight USDJPY selling team which took the all important pair back to the 200 DMA, today, inexplicably (it is a Tuesday after all, and if one can't frontrun a rigged market surging higher on Turbo Tuesday may as well throw in the towel on free money and learn about fundamental analysis) the same overnight USDJPY selling team has pushed the key carry pair to below the 200 DMA, and has dragged US equity futures lower with it for the second day in a row.
So far the 21st Century has not been especially kind to equity investors. Yes, markets usually do bounce back, but often in time frames that defy optimistic expectations. Thhe real (inflation-adjusted) purchasing power of that $1,000 is currently, over 14 years later, only $218 above break-even. That equates to a 1.39% annualized real return.
Uber Launches War Against Yellow Cabs, Cuts New York Fares By 20% As Ali-Baba Launches Chinese Uber CompetitorSubmitted by Tyler Durden on 07/07/2014 11:25 -0400
Curious what Uber is spending the record $1.2 billion in cash it raised in its most recent funding round (which valued it at a whopping $18.2 billion)? The answer: subsidies. In a page right out of Amazon's playbook, the management of Uber has found that the best use of proceeds now that it may have finally saturated addressable markets, is to use its cash on hand to fund sub-equilibrium pricing losses and in the process, hopefully, put its competition out of business. Earlier today, the Uber blog announced that UberX is "now cheaper than a New York City taxi."