The trend, despite our antipathy to it, remains upward and we have been undeniably wrong in having taken up a small bearish position via a bet on volatility rising.... We covered part of that position in the VXX last week. We covered more immediately after the news on payrolls was released, and we shall cover more today. We’ve no choice. We have to dance with TINA… There Is No Alternative…until the music stops even though we do not like the music and we do not like the band.
The key catalyst for today's spike is another convenient report by OPEC, according to which the oil exporting organization will hold informal talks at an energy conference in September. However. the biggest threat to oil's recent price decline is that, like in February, hedge funds are now massively short. In fact, according to Bloomberg, hedge funds have gone all-in on lower oil prices, counting on seasonal weakness to play out again this year. Specifically, money managers increased wagers on declining crude prices to a record as futures dropped to the lowest in more than three months.
"Fed credibility is near zero so a strong number doesn’t matter much. This Fed is not going to hike two months before an election where the Republican candidate is seen by many as unfit to lead. So NFP doesn’t matter much. This drop in Fed credibility is borne out in the price action as you have probably noticed that the market doesn’t react at all to Fed commentary anymore." - Citi
In a mostly quiet session, European and Asian stocks rose, pushed higher by financial stocks and the USDJPY which initially dipped on some hawkish comments by BOJ deputy governor Iwata, only to rebound later in the session, lifting the Nikkei 1.1%, while the Stoxx 600 rose 0.4% led higher by the banking sector. S&P futures are unchnaged after yesterday's last hour ramp. The key event is the BOE decision due in half an hour.
Yeah, but apart from oil's failure to hold its gains, US earnings confirming their downtrend, extreme low levels of complacency in VIX, US banks decoupling from rates, and Japanese government bond implosions: everything is awesome...
After 7 consecutive drops in the Dow Jones, the Industrial average is set for an 8th decline with US equity futures modestly lower in the premarket as risk-averse sentiment persists overnight. Oil’s continued slide and recent plunge into a bear market, despite some stabilization this morning just south of $40, has finally rekindled global growth concerns, and is keeping a lid on bullishness. European stocks are little changed, while Asian stocks and S&P futures fall.
The markets were following a rollercoaster night for the Japanese Yen, when after several media headlines Abe was said to have announced a stimulus package that would be more than JPY28 trillion, sending Japanese stocks higher 1.7% while the USDJPY spiked but well off overnight highs, pushing risk assets higher. Europe and US futs were also in the green on optimism from AAPL's earnings, but all eyes will be on today's FOMC announcement.
The financial and economic world in 2016 is, more than anything, a confidence game (pun intended). The year started with confidence severely shaken, so gasoline (as one real economic variable) and hiding intervention (the further hint of desperation) are more likely to have lasting negative effects than effusive but unbacked mainstream praise for the nth year in a row.
Refiners are shifting to yet another desperate attempt to delay the inevitable market equilibrium point by switching from summer to winter blend as demand for the former has disappointed. The problem is that by doing so early, stocks of winter blend will fill that much sooner, and absent some miraculous surge in demand in the winter months, the moment when the price of oil tumbles has merely been postponed for a few months while assuring that the drop - when it comes - will be much more acute.
There has been little notable market moves overnight, with the record rally in the S&P500 set to continue and European stocks climbing as German IFO business confidence proved more resilient than economists predicted in the month after Britain voted to leave the European Union, falling less than expected from 108.7 to 108.3, above the 107.5 consensus, with expectations printing at 102.2 above the 101.2 expected. Bonds fell with gold as the dollar gained before central bank meetings in the U.S. and Japan this week.
After breaking a multi-year stretch of 9 daily record highs in the Dow Jones, overnight global markets saw some early weakness with Asian stocks retreating after BOJ chief Kuroda dashed hopes for so-called helicopter money, triggering yen’s steepest rally in a month and pulling the Nikkei lower by 1.1%. This however did not last long, and around the European open the traditional ramp in the USDJPY helped European equities shrug off early downside, while US equity futures have already recovered half of yesterday's losses.
After yesterday's positive close in the Dow Jones, which hasn't had a losing day since July 7 and which took the series of consecutive green closes to 8 in a row - the longest stretch since 2013 - the index will look to lock in its 9th green day in a row with futures currently trading well in the green. It's not just the US - equities edged higher in Asia and Europe as positive earnings results from some of the world’s biggest companies countered concern the global economy is losing steam. The dollar strengthened while gold retreated.
While prices are increasing, that increase in price is coming at the expense of declining volume, providing insight to the “conviction” of participants to the advance of the market. Stocks are incredibly vulnerable. Only 28 stocks in the S&P 500 (less than 6 percent of the index) are at new highs. Less than 72 percent of the stocks in the S&P 500 are even in uptrends.