UPDATE: A little early to call yet but Fed's Rosengren quoted in FT "QE will end in October unless something dramatic happens" has knocked USDJPY and S&P lower...
More incoherent chatter from Japan about raising Japan's GPIF allocation to "more than 20%, or around 25%" on the basis of Prime Minister Shinzo Abe's 'expert views' have sent USDJPY higher out of the gate and thus S&P 500 futures are tracking - just as they did Friday afternoon - higher. Treasury futures prices are 6 ticks lower (+2.5bps yield) - retraced all the bond-short capitulation gains from Wednesday. S&P futures are 9pts higher - retracing 50% of last week's losses.
For those curious why the Russell 2000 has completely ignored this week's broader market rout and is in fact higher now than last Friday, the answer comes from a recent technical note from Bank of America which says that as of the first week of the month, the "Russell net short positioning largest since 2008 after fifth consecutive week of selling."
In a secular rally, pullbacks will inevitably arise. Market participants, though, should not view all drops in the same light. In addition to the differences in the depth of the collapse, the magnitude of the changes of critical investor sentiment statistics may differ greatly. Assessing the current retracement is a difficult prospect as we may have yet to reach its terminus. Based on the initial sentiment statistics, the current decline has more similarity to the most significant historic collapses.
Just when you think the selloff couldn’t get any scarier, it did. The last hour of trading took over 1% out of the S&P 500 in rapid fashion, reportedly on fears of an Ebola check at a major U.S. airport. Today we offer up a “Top 10” list of specific markets and indicators to watch for signs of a near term market bottom. They include the CBOE VIX Index (key levels at 26 and 32), the action in small cap stocks and crude oil, and the dollar. Less quantifiable issues – but important nonetheless – are headlines related to Ebola (probably getting worse before better), 10-year Treasury bond yields (2.0% and 1.5% possible here), and European policymakers addressing a host of difficult monetary and fiscal policy issues. Bottom line: this is unlikely to be a dramatic “V-bottom” low given the range of issues of concern to investors. Look for the majority of our “Top 10” to stop going down before calling a bottom.
With the cash bond market closed today, we get our cues from an admittedly thin Treasury futures market. Prices are up across the board with 10Y yield down 3bps at 2.25%, 30Y back under 3%, and 5Y down 4bps at 1.49%. The rates market, once again is leading stocks lower - not getting as exuberant as stocks out of the gate... The Russell 2000 is at one-year lows (Oct 9th 2013 to be exact)
Whether it is the lack of any favorable news out of China (in fact, quite the contrary), which the BTFDers on Friday were praying for, or the worsening of the global Ebola pandemic with not only a second confirmed case hitting Texas but panicky reports of Ebola infections from Boston all the way to Los Angeles, or simply the lack of any words of encouragement from the Fed, the Friday rout has continued into the early Sunday night trading, and as of moments ago, the December E-mini future dropped to 1880.5 taking out the August lows, and sliding to levels last seen in May.
"Present conditions create an urgency to examine all risk exposures. Once overvalued, overbought, overbullish extremes are joined by deterioration in market internals and trend-uniformity, one finds a narrow set comprising less than 5% of history that contains little but abrupt air-pockets, free-falls, and crashes."
One would think that after last week's market rout, the worst in years, that Goldman clients would have just one question: why just a month after you, chief Goldman strategist David Kostin said to "Buy Stocks Because Hedge Funds Suck; Also Chase Momentum And Beta", are stocks crashing? No really: this is literally what Kostin said in the first days of September: "investors should buy stocks which should benefit from a combination of beta, momentum, and popularity as funds attempt to remedy their weak YTD performance heading into late 2014." Turns out frontrunning the world's most overpaid money losers wasn't such a great strategy after all. In any event, that is not what Goldman's clients are asking. Instead as David Kostin informs us in his weekly letter to Jim Hanson's beloved creations, "every client inquiry focused on the same four topics: global growth, FX, oil, and small-caps."
Investors - at least the carbon-based variety not the vacuum tube-driven algos, assuming there are any left - are in a state of complete shock!
The S&P swung 44 points from low-to-high today as panic-buying lifted stocks vertically on the back of an utter VIXtermination (from over 18 to under 15). Nasdaq surged over 2.5% from its lows before FOMC Minutes - the biggest swing since May 2012 (and biggest daily gains in a year). 10Y Yields closed at 2.33% (2.3249% lows) - the lowest since June 2013. The TSY curve steepened dramatically post-FOMC with 5Y now -18bps on the week and 30Y -7bps. The Dollar fell for the 3rd day in a row (-1.6%) - its biggest such drop in 15 months. Initial weakness in commodities was wiped away post-FOMC leaving Silver +3.3% on the week (Gold +2.3%). Oil saw no bounce closing at April 2013 lows (WTI below $87.50). The S&P and Dow managed to get to green on the week in the last few minutes (only the S&P held it into close). So in summary: FOMC Minutes sent Stocks Up, Bonds Up, and Gold & Silver Up; VIX down, USD down, and Oil down.
Stocks close not "off the lows"
Global Equities In "Sea Of Red" After German Industrial Data Horror, Hints Japan May Give Up On Weak YenSubmitted by Tyler Durden on 10/07/2014 06:44 -0400
While the economic data, especially out of Europe, just keeps getting worse by the day, with the latest confirmation that Europe is now officially in a triple-dip recession coming out of Germany and the previously observed collapse in Industrial Production which tumbled the most since February 2009, it was once again the Dollar and especially the New Normal favorite currency, the Yen, that was in everyone's sights overnight, when it first jumped to 109.20 only to slide shortly after midnight eastern, when Abe repeated once again that a plunging Yen is hurting small companies and consumers - and to think it only took him 2 years to read what we said would happen in late 2012 - but also the BOJ minutes which did not reveal any addition easing, which apparently disappointed algos and triggered USDJPY slel programs, pushing the USDJPY 80 pips lower to 108.40.
Despite a low-volume melt-up in stocks off yesterday's European close lows, US equities closed lower on the week with small caps once again the laggards. Even as stocks closed red, the costs of protection in credit and equity markets tumbled as the last 2 days volumeless liftathon in stocks took place against the background of very modest Treasury selling - this has the stench of high-yield bond exposure being significantly reduced (and synthetic hedges being lifted) - something we saw Wednesday into the close. The USDollar rose the most in 15 months today (up for the 12th week in a row - longest streak since Bretton Woods) led by Cable and EUR weakness. Jobs data losses in bonds today were largely reversed with TSY yields ending the week down 7-9bps. Commodities were ugly with silver and oil (under $90) joined at the hip and gold closing below $1200 for first time this year. The Russell 2000 closed lower for the 5th week in a row, the worst streak since Aug 2011.