Price Action

There has been some confusion overnight whether Goldman, in a note released overnight, is calling for a new "bull market" in oil and commodities in general. Goldman did not call for a bull market. This is what it did say, and it is not good news for US banks.

Yesterday, when looking at the market's "Bullard 2.0" moment, which in many ways was a carbon copy of the market's response to Bullard's "QE4" comments from October 17, 2014 until just a few minutes before the market close when suddenly selling pressure appeared, we said that either the S&P would soar - as it did in 2014 - hitting all time highs just a few months later, or the "Fed is now shooting VWAP blanks." Judging by what has happened since, in what may come as a very unpleasant surprise to the "the market is very oversold" bulls, it appears to have been the latter.

JPMorgan's 2016 Outlook for the S&P 500 Index favored a continuation of a broad and volatile range into the first half of the year, below 2,100 and above 1,820-1,870 longer-term range support. While the unexpected early-January weakness has not violated the Oct 2014 and Aug 2015 lows and other support parameters near that area, the nature of the current decline raises some concern for what has been a constructive longer-term view.

Having been abandoned by equity analysts, perhaps investors could find some solace in the Treasury analyst community. Alas no: as Bloomberg notes this morning, citing independent Treasury strategist Marty Mitchell, "our concern is that things will only get worse (effects of commodity super-cycle, bankruptcies, debt defaults, hedge fund redemption/failures, global economic slowdown, equity weakness, global debt deleveraging, etc, etc) before they get better."

European shares tumbled, wiping out gains from a two-day rally, Asian stocks slid and the cost of insuring corporate debt rose as investor concern over global growth prospects resurfaced. U.S. equity-index futures pared gains of as much as 0.9 percent. Government bonds rose, with yields falling to records in Japan and China amid anxiety over the world economy. U.S. crude prices stabilized after dropping below $30 a barrel on Tuesday to touch the lowest since 2003 as Iran moved closer to boosting exports.

With China now "murdering" Yuan shorts, markets are content that the Chinese debacle seems to be contained if only for a while, and so the attention of both traders and algos alike has focused on oil, which earlier in the session dragged global equities lower as it dropped by 3%, just shy of the $30 level, a new 11 year low, before staging another dramatic rebound in minutes, wiping out all losses in the aftermath of what appears to have been a deadly suicide bomber terrorist explosion on a square the middle of Istanbul's historic district.

"Shorter-term traders will feel that many moves have gone a long way very quickly and hence appear ripe for a brief rebound. The catalyst is that, in the height of a market panic, prices can become dislocated from fundamental valuations, as margin stops get triggered and “weaker” positions get cleaned out. The counter-argument is that distortions caused by the extraordinary monetary policies of global central banks mean markets might have been disconnected from traditional fundamentals for several years."

We used to have notions of ‘proprietary programmed code’ but the Investment Banks learned that they could make their life a lot easier by working together instead of cross purposes.

The half-life of the latest "market supporting" intervention by the Chinese government: just about 12 hours.

Before we go into details of the overnight carnage, this is where we stand currently: S&P futures now down 33 points or 1.63% while 2Y Treasury rallies pushing its yield back below 1% as EU stocks extend their drop after China weakened its currency, North Korea says it tested a hydrogen bomb; Brent crude falls to lowest level since 2004.

We have reduced our estimate of Q4 real GDP growth by one full percentage point to 0.5%, and this still might be too high in light of what could be much larger inventory liquidation than what we have assumed.

The last two years rents have been rising primarily due to supply and demand issues.

Imagine if Casinos told you in advance what the next card from the deck in a game of Blackjack was going to be?