- Welcome to the recovery:
- Oil Extends Retreat With European Stocks as Dollar Gains (BBG)
- California police, protesters clash again after 'chokehold' death (Reuters)
- Ruble’s Rout Is Tale of Failed Threats, Missteps (BBG), not to be confused with "Yen's Rout Is Tale Of Keynesian Success, Prosperity"
- Uber banned from operating in Indian capital after driver rape (Reuters)
High-yield credit markets saw spreads widen 12bps on the week and high-yield bond prices fell notably as energy stocks faded after Monday's exuberant dead-cat-bounce. Trannies tumbled today off early exuberance gains, ending the week the biggest loser despite lower oil prices. Today's jobs data sparked initial "good news is bad news" weakness, was ramped to Europe's close then faded with Nasdaq and S&P red post-Payrolls. Treasury yields rose on the day (and week) with dramatic flattening as 2Y-7Y maturities up 17-20bps on the week and 30Y only 7bps higher. 2Y yields exploded 17bps for the worst week since Feb 2011 to Apr 2011 highs. The USDollar closed higher today (up 1.25% on the week) led by dramatic JPY weakness (and EUR fading). Despite USD strength, gold gained 2% on the week and silver +5.4% (best week in 6mo) even as oil lost 0.75% for its lowest close since July 2009. VIX tested down to an 11 handle but closed peeking back into a 12 handle, lower on the week. For the 3rd day of the last 4, internals created a Hindenburg Omen cluster.
Once again the internals of the market (advancers vs decliners, new highs vs new lows and trends) triggered a Hindenburg Omen as today's dump-and-pump on the European close and Draghi 'mis-characterization and clarification' headlines left stock green with an hour to go. Then came headlines from Die Welt that appeared to show Draghi has no majority and stocks tumbled into the close (with a small bounce late to get S&P green on the week). For the 2nd day in a row, Treasury yields fell 1-4bps (short to long-end), notably decoupling from stocks after Europe closed. HY Credit also pressed to wider wides after Europe closed even as stocks surged. The USD lost ground as EUR strengthened giving back half the week's gains (USDJPY broke 120 early but faded). Copper and Silver gained modestly, gold was flat, but oil prices slipped 1% lower back below $67. VIX briefly tested below 12.2 but ended the day barely higher at 12.6.
A little over a year ago, we presented a "Yellow" asset, which was "the best performer of the past year." It wasn't gold: it was yellow cab medallions. As we wrote then, "the best returning asset class traded in the NY Metro area is yellow but doesn't change hands on Wall Street.... over the last 12 months New York City taxi medallions have risen 49% in price, besting the relatively humdrum returns of the S&P 500 (up 21%), the NASDAQ (22%) and the Dow (18%). Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record." In retrospect it was also the perfect time to cash out on the "yellow" euphoria. According to the NYT, "the average price of an individual New York City taxi medallion fell to $872,000 in October, down 17 percent from a peak reached in the spring of 2013, according to an analysis of sales data. Previous figures published by the city’s Taxi and Limousine Commission — showing flat prices — appear to have been incorrect, and the commission removed them from its website after an inquiry from The New York Times."
A look at the global capital markets as if analysis matters.
- Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale (BBG)
- Alberta Producers With World’s Cheapest Oil Face Cascading Woes (BBG)
- Bundesbank’s Weidmann Rejects Calls for German Stimulus Plan (WSJ)
- Google Should Be Broken Up, Say Euro MPs (BBC)
- Calm comes to troubled Ferguson; protests dwindle across U.S. (Reuters)
- Russia’s Banks Feel Capital Squeeze in Grip of Sanctions (BBG)
- Italian Unemployment Rate Rises to Record, Above Forecasts (BBG)
Recently we posted the following article commenting on the impact of USD appreciation and dollar circulation among oil exporters, as well as how the collapsing price of oil is set to reverberate across the entire oil-exporting world, where sticky high oil prices were a key reason for social stability. Following today's shocking OPEC announcement and the epic collapse in crude prices, it is time to repost it now that everyone is desperate to become a bear market oil expert, if only on Twitter...
The S&P 500 closed at new record-er-est highs (a record 29th day above the 5DMA) providing just the right amount of confidence-inspiring 'wealth creation' to ensure you spend, spend, spend this weekend all those gas price savings (despite 9 of 9 macro data misses today). Dow and Trannies underperformed today as Nasdaq surged on AAPL strength. The USDollar fell for the 3rd day (first time in a month) and Treasury yields tumbled (down 5-8bps on the week) near 18 month closing lows. VIX traded briefly with an 11 handle and lost its inversion (1st day in 6). Gold prices flatlined for the 3rd day (as EURCHF fell) ahead of the Swiss gold referendum this weekend. Oil tumbled to fresh 4-year lows as OPEC hinted at no cuts and copper slipped to fresh 4 year closing lows. Late-day shenanigans sent stocks ripping higher... in a totally rational manner. Turkey prices are at $1.67/lb and have been remarkably stable over the past few years.
"The time to liquidate a given position is now seven times as long as in 2008, reflecting much smaller trade sizes in fixed income markets. In part the current liquidity illusion is a product of the risk asymmetries implied by the zero lower bound on interest rates, excess reserves in the system, and perceived central bank reaction functions. However, interest rates in advanced economies won’t remain this low forever. Once the process of normalization begins, or perhaps if market perceptions shift, and it is expected to begin, a re-pricing can be expected. The orderliness of that transition is an open question."
A few points the "stocks are cheap" crowd should consider.
The last few weeks have been the strongest and most consistent rallies in US equity market history. US equity markets have traded above their 5-day moving average for 27 days - the longest such streak since March 1928 (h/t MKM's John Krinsky) and all amid GDP downgrades, missed PMIs, and downward earnings outlook revisions. Given the holiday week, it is hardly surprising volume was weak today. Stocks were very mixed today with Russell 2000 and Nasdaq leading the way (along with Trannies) as Dow and S&P showed very small gains - to record highs though. Bonds were also bid with a strong 2Y auction extending the drops in yields (0-2bps) led by 7Y. The USDollar fell 0.4% - led by EUR strength - as JPY, CAD, and AUD all weakened. Despite USD weakness, oil (big drop intraday), copper, and gold also dropped on the day with silver ending +0.25%. VIX dropped to 12.66 - its lowest close in over 2 months.
As you can see by this view of the NQ, this massively bullish news has not, as of yet, represented any kind of sea-change in the markets. Before the day was even out (again, in some, not all markets), the entire move up was reversed.
Despite the knee-trembling awesomeness of a double-whammy promise of liquidity, US equity markets ended the week on a decidedly down note. The realization that Draghi's all talk (no impact on US stocks) and PBOC's move is not a liquidity surge and has limited impact on the economy left stocks tumbling once the opening OPEX levels had printed. The USD rose notably on the day after EUR plunged under 1.24 on Draghi (USD +0.9% on the week). Despite USD strength, gold rose 1% (as did Silver) on the week, rising for the 3rd week in a row for the first time in 4 months (and the 3rd Friday surge in a row). Oil rose 1% on the week, breaking an 8-week losing streak but Copper prices fell around 0.3% on the week, having given back the kneejerk gains post-PBOC today. Treasury yields dropped after kneejerking higher on PBOC. 30Y at 3.01% had its 2nd lowest weekly close since May 2013. VIX melted down into the close to 13.01. Late-day buying panic lifts stocks off their lows leaving Dow & S&P at all-time recordest highs of all-time ever in history (as small caps closed red).
From its lowest 5-day range in history and near-longest streak of closes above its short-term average, the S&P 500 broke to new record highs today (as did the Dow) above 2,050, leaving every other asset class in the dust (besides USDJPY of course). The incessant push for the stops above 117.00 dragged the S&P higher on no catalyst whatsoever. Treasury yields traded 2-3bps lower on the day (and HY credit spreads widened) in the face of equity exuberance. The USD faded on the day back to unchanged on the week on the back of EUR strength (post-Germany). Gold rallied to $1195 (+0.5% on the week) and silver rose modestly but the USD weakness did nothing for the rest of the commodity complex. Copper was whacked (after China housing data) but the big story is WTI Crude plunged again (-2% on the week) closing just shy of 4-year lows. Russell 2000 and Trannies close in the red for the week. In summary: Stocks Up, Gold Up, Bonds Up... USD Down, Oil Down, Copper Down ahead of Fed Minutes tomorrow (credit and stocks protected).