No Fed Cat Bounce After Furious Overnight Selloff

Tyler Durden's picture

After a selloff as violent as that of last night, usually the overnight liftathon crew does a great job of recovering a substantial portion of the losses. Not this time, which coupled with the sudden and quite furious breakdown on market structure, leads us to believe that something has changed rather dramatically if preserving investor confidence is not the paramount issue on the mind of the NY Fed trading desk.

Nikkei 225 (-2.38%) suffered its worst week since March'11 amid broad based risk off sentiment following on from a lower close on Wall St. where the Nasdaq Biotech index suffered its largest intra-day decline since August 2011. Negative sentiment carried over into European session, with stocks lower across the board (Eurostoxx50 -1.17%) and tech under performing in a continuation of the recent sector weakness seen in the US. JP Morgan (JPM) due to report earnings at 7:00AM EDT and Wells Fargo (WFC) at 8:00Am EDT.

Market Recap via Bloomberg

European shares remain close to intraday lows with the tech and travel & leisure sectors underperforming and food & beverage, utilities outperforming.
The Spanish and German markets are the worst-performing larger bourses, the Italian the best. The euro is little changed against the dollar. Greek 10yr bond yields rise; Italian yields increase. Commodities decline, with soybeans, natural gas underperforming and nickel outperforming. U.S. Michigan confidence, PPI due later.

  • S&P 500 futures little changed at 1826.6
  • Stoxx 600 down 1.3% to 328.9
  • US 10Yr yield little changed at 2.64%
  • German 10Yr yield up 1bps to 1.53%
  • MSCI Asia Pacific down 0.9% to 138
  • Gold spot up 0.3% to $1322.9/oz

Overnight Headline Summary

  • Treasuries head for weekly gain, led by 5Y and 7Y notes, as technology and biotechs lead decline in global stock markets; markets also focused on China growth outlook and potential for higher fed funds next year.
  • China’s central bank chief said the nation needs only minor policy adjustments when growth is within a normal range, adding to signals that the government will avoid taking broader action to counter a slowdown
  • After building a reputation as a nay-sayer on the ECB, Bundesbank president Jens Weidmann’s tentative backing of QE will shore up its credibility as officials  debate whether they need to implement it
  • Italy’s 3Y yield dropped to a record low at an auction of 2016 debt today
  • Consumer inflation in China remained below the government’s target in March while factory-gate deflation deepened
  • China’s Ministry of Finance failed to sell all of the bonds offered at an auction today for the first time in 10 months amid speculation short-term interest rates will climb as corporate tax payments tie up funds
  • Obama will this morning announce the resignation of HHS secretary Kathleen Sebelius and the nomination of OMB director Sylvia Burwell to replace her, officials said; confirmation hearings will give GOP days of media exposure for their criticism of Obamacare, which remains unpopular
  • Ukraine acting PM Yatsenyuk told reporters today in Donetsk, where pro-Russian protesters have seized the local- government headquarters, that his administration wants to give greater powers to the regions and to resolve the crisis that’s gripping the country as soon as possible
  • Sovereign yields mixed. Asian stocks slide, Nikkei -2.4%, Shanghai -2%. European equity markets U.S. stock futures fall. WTI crude lower, gold little changed, copper higher



All 19 Stoxx 600 sectors fall; food & beverage, utilities outperform, tech, travel & leisure underperform

4.5% of Stoxx 600 members gain, 95.2% decline

Top Stoxx 600 gainers: Banca Monte dei Paschi di Sien +2.2%, Vienna Insurance Group +2%, WM Morrison Supermarkets PLC +1.3%, Danone SA +1.1%, Axel Springer SE +1.1%, Bollore SA +1%, Swedish Match AB +1%, Metso OYJ +0.9%, Croda International PLC +0.8%, Gjensidige Forsikring ASA +0.7%

Top Stoxx 600 decliners: Hargreaves Lansdown PLC -5.4%, Ocado Group PLC -5.4%, ARM Holdings PLC -4.7%, Thales SA -4.6%, Ashtead Group PLC -4.4%, Suedzucker AG -4.3%, GAM Holding AG -4.3%, International Consolidated Air -4.1%, Societe Television Francaise 1 -4%, Sports Direct International -4%


Asian stocks fall with the Shanghai Composite outperforming and the Nikkei underperforming.

MSCI Asia Pacific down 0.9% to 138

Nikkei 225 down 2.4%, Hang Seng down 0.8%, Kospi down 0.6%, Shanghai Composite down 0.2%, ASX down 1%, Sensex down 0.4%

1 out of 10 sectors rise with utilities, energy outperforming and health care, tech underperforming

Gainers: Echo Entertainment Group Ltd +12%, Hong Kong Exchanges and Clearing +11.5%, TPK Holding Co Ltd +6.9%, Piramal Enterprises Ltd +6.2%, Adaro Energy Tbk PT +5.8%, Astra Agro Lestari Tbk PT +5.3%, Surya Citra Media Tbk PT +5.2%, NWS Holdings Ltd +4.8%, Zijin Mining Group Co Ltd +4.8%

Decliners: Coca-Cola Amatil Ltd -14.6%, Fast Retailing Co Ltd -7.9%, Anhui Conch Cement Co Ltd -7.2%, Adani Enterprises Ltd -6.8%, Tencent Holdings Ltd -6.7%, CITIC Securities Co Ltd -6.2%, Inc -5.9%, Hermes Microvision Inc -5.8%, China Life Insurance Co Ltd -5.3%, Seiko Epson Corp -5.2%


EU & UK Headlines

Bunds recovered off the lowest levels of the session, supported by lower stocks as concerns over equity valuation on both sides of the pond continued to mount. Peripheral bond yield spreads traded mixed, with Finnish bonds under performing after S&P revised outlook to negative from stable, at the same time, Portuguese bonds benefiting from Fitch’s decision to revise its outlook to positive from negative. This morning lacked any major tier 1 data releases, with focus on reports that the BoE and ECB are expected to formalise their calls for a reinvigoration of the asset backed securities (ABS).

US Headlines

JP Morgan will be the first financial heavyweight to report earnings at 1200BST/0600CDT, followed by Wells Fargo at 1300BST/0700CDT. Analysts are not expecting too many shocks from JPM's earnings release today as capital plans were approved by the Fed stress tests last month, however net interest margins (NIM) will be in focus, although is expected to be relatively stable. Headline EPS exp. at USD 1.46 and Exp. revenue USD 24.49bln.


Risk averse sentiment dominated the price action since the open, with tech underperforming and credit spreads widening the most in a continuation of the recent sector weakness seen in the US. The recent sell off in stocks is being linked to pricing concerns, with no value buyers able to establish a bottom ahead of earnings season. - Goldman Sachs cite the S&P 500's P/E ratio as evidence of over-valuation: "The S&P 500's forward P/E ratio up 33% to 16x at the beginning of 2014 from the beginning of 2012. The S&P 500 rose 45% over that period, suggesting 75% of the index's returns are from valuation expansion rather than better earnings expectations."


EUR/USD and GBP/USD traded range bound this morning, with implied vols at lowest since mid-07 and Dec-12 respectively, amid light news flow and absence of any tier 1 macroeconomic data releases. Elsewhere, softer USTs supported USD/JPY via favourable interest rate differential flows, which also saw the spot rate recover off overnight lows. Despite the slide by the spot rate this week, 3m R/R is little changed on the week, capped by low vols and JPY call supply which has encouraged cash hedge of deeper spot decline.


Heading into the North American open, WTI and Brent Crude futures are seen lower, albeit marginally, as risk averse sentiment weighs on prices. This morning, the IEA said that overall forecast for the increase in oil demand this year was cut by 100,000 barrels a day to 1.3 million barrels a day. The agency also noted that Saudi Arabian oil production fell 285,000 barrels a day to 9.57 million barrels a day last month, its lowest level in almost a year.

* * *

DB's Jim Reid concludes the overnight recap

The yo-yo year continues as the S&P 500 last night sold off sharply (-2.09%) to yet again cross into negative territory for the year. We can't help thinking that as it becomes ever clearer that the Fed is pretty much fixed in its determination to stop QE late this year, the oxygen that has fuelled the 5 year bull market is slowly draining out of the market. Clearly the Fed is still buying a significant amount of bonds and thus providing a lot of liquidity but clearly only  for a few more months. We think this is creating a lot more two-way tension in equity markets. Supporting this argument is the fact that those sectors that have done best since the bull market/high liquidity period started are suffering in the recent correction. If we define the beginning of the bull market as having started on the 9th of March 2009 when stocks hit their financial crisis-lows, the NASDAQ Technology and Biotech indices have gained 254% and 281% respectively. The S&P 500 homebuilders index has gained 256% over the same period. For comparison, the S&P 500 has gained “only” 177%. Tech, biotech and homebuilders are now down 5%, 19% and 12% from their YTD peaks. This compares with 3.1% retracement in the S&P 500 from the record highs posted in early April this year. So it does seems that sectors that have benefited the most from easy policy are those that are selling off the most right now.

We're still overweight credit but as we published in our Q2 outlook we're getting more nervous about the second half as the end of US QE will then be weeks and not months away. The ECB and BoJ still have the ability to soften the blow and the Fed can also help by being more dovish on expected future interest rate policy. On the Fed there does seem to be confusion at the moment as to these expectations, especially after the release of the FOMC minutes on Wednesday. It’s a confusing message they have delivered in recent weeks but at the end of the day policy will be data led so this is the most important factor determining monetary policy. The rest is noise, albeit potentially large trading noise.

Second guessing the ECB is also a fun pursuit at the moment and interestingly the Euro continues to bounce back from the ECB press conference of last week. It does seem that the FX markets want more action than words at the moment with EURUSD rallying 1.2% since Draghi’s press conference last week(1.3895 as we type) after initially falling. ECB Vice President Constancio, one of the more dovish members on the Board, weighed further into the debate yesterday. Constancio commented that the ECB “will do something, because inflation is too low” and that April’s advanced inflation reading will be important “to establish if inflation is low in a more permanent way”. So it seems that next Wednesday’s Eurozone CPI inflation will be key as will all the regional numbers in the next few weeks. Ahead of that, the ECB is seeking to loosen the capital charges and regulations for asset-backed securities collateralised by loans in an effort to make it easier for European banks to hold the securities. The ECB and BoE will jointly put forward a statement on this issue at the IMF meetings this weekend, hoping to jump start the ABS market as a way of increasing the flow of loans to the corporate sector. Some are noting that this may increase the size of the ABS market in advance of a potential private-market QE program from the ECB.

Turning to Asia this morning, we’re seeing a continuation of the selldown in equities with the Nikkei down 2.3% and Hang Seng down 0.4%. There hasn’t been much of bounce in risk assets since the S&P500 closed at the lows yesterday. The Nikkei is poised to close below 14,000 for the first time since October last year. Japanese equities have been spooked by a profit warning from the country’s largest clothing retailer, Fast Retailing Co, whose founder said today that he was pessimistic about the outlook for consumption in Japan. The BoJ’s March 11th meeting minutes contained very little surprises, and USDJPY is unchanged at 101.50. China’s March CPI came in pretty much in line with expectations with CPI up 2.4% YoY (in line) and PPI down 2.3% YoY (vs -2.2% expected). The next set of Chinese data to watch will be Retail sales and Industrial production on Wednesday, which should give a better picture of economic activity, free from the distortions which affected yesterday’s trade numbers. The boost from yesterday’s news that Shanghai and HK’s stock exchanges would link their markets is proving shortlived with the Shanghai Composite down 0.6%. Indonesian equities (+0.5%) are bouncing back from yesterday’s election-driven selloff, but the rupiah is still weaker against the USD (-0.9%).

Yesterday’s data flow was fairly light with US initial jobless claims for the week ending April 5 falling 32k to 316k, the lowest level since May 12, 2007. DB’s economics team notes that the 4-week moving average is down -5k to 316k, the lowest level since Sep 28, 2013 which was artificially low due to a processing backlog of claims in California (omitting this reading we are at a post recession low for the 4-week moving average). US treasury yields edged higher following the data, but this was overwhelmed shortly after by the selloff in equities and tech stocks. All in all, it was a classic risk off day with gold (+0.55%) higher, 10yr yields lower (-4bp) but in saying that DM credit and EM assets did surprisingly well in context. Indeed, the iBoxx USD Corporate  index is still within 0.5bp of its cyclical lows.

Despite the relative resilience in EM, there were a few negative EM headlines over the last 24 hours. Firstly, Moody’s changed the outlook on Turkey’s Baa3 rating to negative from stable. The announcement came around 1am London time. Moody’s said that there is “growing uncertainty about the medium-term growth trend because the prospects for growth-enhancing structural reforms may be diminished in the more uncertain policy environment that is accompanying the domestic political turbulence”. The lira is 0.6% weaker in Asian trading. Coming back to China, there’s a report doing the rounds that some Chinese importers have defaulted on at least 500,000 tonnes of US and Brazilian soybean cargoes worth $300m, as buyers struggle to credit (Reuters).

The article says that there are around five to six panamax vessels which are unable to be unloaded at Chinese ports because buyers cannot get letters of credit. Chicago Soybean futures are down close to 2% (-0.6% today) and the story reminds us of the fears of Chinese commodity-finance unwinds earlier this year. Elsewhere in EM, Russia threatened to cut supplies of gas to Ukraine, and indirectly to Europe, unless Kiev immediately took action to pay outstanding bills. NATO warned on Thursday that Russian forces across the Ukrainian border number about 40,000 across 100 sites with “high readiness”
to invade Ukraine. The G7 warned over further sanctions against Russia yesterday.

Turning to the day ahead, we get the final German and Spanish CPIs today in Europe. Following that, JPMorgan Chase and Wells Fargo will start off the US bank earnings season for Q1. Heading into the weekend, the focus will turn to the IMF and World Bank spring meetings in Washington DC and there are speeches scheduled from a number of central bankers including Draghi over the weekend. Stateside, the latest Univ of Michigan consumer sentiment reading will be published together with March PPI.

Then on Sunday we have Liverpool vs Man City in what could end up being a title decided. I did casually look at how I might be able to get tickets. I was slightly shocked to see them changing hands at north of 5k. Sadly my sofa is a much cheaper option. Expect the mood of Monday's EMR to be determined  by the result of this game!

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maxmad's picture

Maybe they are letting it go this time?

Arius's picture

"the investors" have already lost all what they could afford to lose ... cant squeeze blood from a stone

kliguy38's picture

muppet stew now being served....

Pool Shark's picture



Uh, oh...

JPM just missed estimates; that's not going to help the market.

Time to pile in on the short side?...


Pool Shark's picture



Oh, dear, futures accelerating to the downside...

Black Friday anyone?


Manthong's picture

“investor confidence”

Now I am confused.. what is the difference between that term and "drunken stupor"’?”

Tabarnaque's picture

Sell off bitchez!

Eh, gold is holding up pretty well despite the overnight smashing attempt.

Wahooo's picture

JPM just announced an atrocious quarter. Maybe they should let the mega-bank/government matrix shrink. Plenty other stronger banks waiting in the wings that actually conduct loan/deposit business.

25or6to4's picture

Maybe that's why so many bankers have been "suicided" lately.

Cattender's picture

Rat Farts? Dude, Caddy Shack came out when i was barely starting high school... Jeez.

HRamos_3's picture

Who cares, bullish!

A_Nejad's picture

Well good morning America.  Just a quick note: Get your battle shit ready cause it's a murder out there...Europe's been bleeding, And I'm not touching this market anymore today, so here's bloody mary (Nr. 2) and a bag of  pop corn of course.... 

Silverhog's picture

 Feds plunge protection team has it's work cut out for it today. Bet they try for a tiny green close to restore investor confidence over the weekend, while talking heads will have time to do their bogus repairs. 

Charles Nelson Reilly's picture

I'm like a fucking vampire at the bloodbath...

FJ's picture

Blood Rave, just like in the Blade Movie...

new game's picture

blood in the st. looky there charles flying away leaving a trail of blood spatters. lol

Cattender's picture

no worries people.. the Fed's GOT THIS.. (just watch)

Offthebeach's picture

Financial Stockholm Syndrome.

Who knows whatside of the made up psycho bed our Keynsian terrorists masters woke up on.

buzzsaw99's picture

the only question on bank earnings is how big the loan loss reserve bonuses will be

NuYawkFrankie's picture

Calm down - Maria says there's "money on the sidelines".


25or6to4's picture

Ahh yeess, who could forget about all that sideline cash waiting for the right buying opportunity ? BTFD!

new game's picture

and when is that? 2017? lotta room for error-timing is a bitch...

optimator's picture

And there will be even more money on the sidelines after today.

AdvancingTime's picture

We may be reaching the turning point I wrote about way back in September. This bull market market has gotten long in the tooth and exceeded the average length they normally run, caution would be in order.

Forget all the hocus-pocus from the media and clowns about what historically is the best and worst months for the market or how well the market does when a certain team or party wins this or that. It might not be a good time to go double or nothing. The article below looks into why we may be running into a wall of reality.

25or6to4's picture

Whaaaa? Reality? What the heck is that in this economy ?

AdvancingTime's picture

The economic recovery that the media and talking heads have been bantering around does not exist and is just a myth. A manipulated stock market distorted by recent economic policy hides and mask the real truth, in many ways it is ground zero in the war to convince us all is well. Fact is if QE or the massive government deficit spending that props up our economy is removed it will fold like a cheap umbrella.

Offthebeach's picture

You wrote, ".....A manipulated stock market distorted by recent economic policy hides...."


The whole, admitted goal and purpose of the 1913 Federal Reserve/Income Tax act WAS MANIPULATION!

There is no, and hasn't been a un-manipulated stock, financial, money market or any type for 100 years.

Socialism with a market face.

bigkahuna's picture

this bull market was always -and still is- a mirage :)

headhunt's picture

A political left bull market.

Prop up the puppets to make the muppets smile.

bigkahuna's picture

Yawn! Show me a at least a 10 percent drop followed by the breaker triggering, then there MAY be the start of a normal market returning. (you remember, the one we used to invest in sometimes)

This casino needs to get under 6k to get rid of all the fed sugar and THEN it can find it's floor.

the not so mighty maximiza's picture

yeah 10,000 drop is what is needed

Aussie V's picture

So, the market DOES go down sometimes??

Winston Churchill's picture

Looks like the PPT has orders to strengthen the dollar from the overnight.

Stawks are going down.From watching this market over the last few years its

clear they can only levitate one or the other,not both at once.

db51's picture

You can bet your sweet ass the usual suspects were positioned to make a killing on this little roller coaster ride.   We'll all be seeing green by nightfall....and the talking heads on Saturday Morning Shows will be having the time of their lives.  This is anything but a bloodbath.  This is an orchestrated event, perfectly executed.


Corn and Soybeans holding steady.   hmmmm....I'm a farmer, and I can tell you forthright the USDA and their minions are worried about not enough corn being planted...can't let that collapse just yet....however we're already down  50% from highs.   Just wait until the truth about carry over supplies comes think hamburger is high now?  Just wait till those EBT cards will only buy 1 Happy Meal a month.

headhunt's picture

'Corn down 50% from highs' is that corn for ethanol or corn for food consumption?

db51's picture

Corn for everything.  Doesn't make any difference what it is used for.  Cost of Production is more than it's worth now.  Thank you Monsatan and the rest of the Fertilizer and Equipment Cabal.  FYI....the DDG's fed from ethanol production is the same thing as feeding straight corn.  The Food For Fuel argument is about as silly as Global Warming.

headhunt's picture

Yeah - never understood the ethanol thing.

Politiocs is the opnly reason, like global warming BS..

headhunt's picture

The Fed has an additional problem to consider these days with Russia threatening to banish the buck. While this would not happen any time soon, they must consider the possibility and how long it takes to put the buck back in a defensive position. That is, the Fed will lose some of their mystical power if they do not act now for the long unwind. Failure to do so only strengthens Russia's and China's hand.

But then again it is the Fed, they have a tendency to use not so much a mystical but political wand these days.


disabledvet's picture

Meh . The dollar is still very weak...and the euro far too strong.

Outside of Sweden it's hard to see how they can compete with the Us on either price or quality right now.

We'll see jus how "full throated" the deflation is over there. That can end quickly should NATO actually confront Russia relative to Ukraine.

The European Settlers can become European Soldiers very quickly.

db51's picture

Europeanm Soldiers?   lmao.   They're all Frenchmen now.

db51's picture

This selloff isn't even mentioned in the "News".   I mean, it's 24/7 Instant Replay of Hillary ducking that shoe...a staged event to prove the wrinkled old hag still has reflexes. You'd think on $ 500M/Year she could have SOMETHING done.  That face isn't even suitable for munching carpet.  Don't even want to think about what is hiding under that pantsuit.