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Overnight Sentiment - Run And Hide

Tyler Durden's picture




 

Just in case early morning traders are confused by that odd shade of red on their monitors this morning, here is Bank of America's summary of what has happened in the last 48 hours as reality has finally come back with a vengance.

From Bank of America

In focus

Market sentiment seems to have converged on this April's FOMC meeting being relatively uneventful, with Fed officials in "watch-and-wait" mode. We would agree. Nonetheless, there does appear to be an undercurrent of anticipation that the Fed may make a significant revelation about the future path of policy. We worry that the market could misread a hawkish intent into the information the FOMC will release on Wednesday. We thus caution investors to be wary of another such "Fed fake." Bernanke will set the tone for policy in his post-meeting press conference, where we expect him to keep the Fed's options open.

Market action

Our equity Bloomberg screens are bright red, as equity markets sell off across the globe. Several reasons are contributing to the market selloff: 1) several firms in Asia posted weaker-than-expected earnings, 2) worries that Europe's debt crisis still threatens global growth, 3) the French elections, and 4) a breakdown of budget talks in the Netherlands.

Overnight, in Asia, the MSCI Asia Pacific Index fell 0.5%. The worst-performing regional markets were the Hang Seng and the Indian Sensex, which both finished 1.8% lower. The Shanghai Composite rounded out the bottom three, falling 0.8%. Japan's Nikkei lost 0.2%, while the Korean Kospi fell 0.1%.

In Europe, equities are down 2% in the aggregate. Blue chips are underperforming, down 2.3%, and the German DAX is 2.8% lower. In London, shares are off 1.6% and, in France, listed companies are down 1.9%. At home, futures are pointing to a sharp sell-off later today, with the S&P 500 set to open 1.0% lower.

In bondland, Treasuries are bid as investors flock to their safety. The 10-year and long bond yields are both down 4bp, to 1.96% and 3.08%, respectively. In Europe, the collapse of the budget talks in the Netherlands is driving yields 7bp higher on the 10-year, to 2.38%. Spain's borrowing costs are rising as well, up 3bps, to 5.93%, while German and UK government debt are rallying 4bp.

Just like Treasuries, the dollar is benefiting from its safe-haven status. The DXY index is up 0.3%. The stronger dollar is driving commodity prices lower. WTI crude oil is 77 cents lower, to $103.11 a barrel, and gold is down $9.28 an ounce, to $1,633.53.

Overseas data wrap-up

After seven weeks of negotiations, the Dutch government failed to reach an agreement on budget savings of €10-15bn. That is needed to reduce the budget deficit from 4.6% in 2011 to the maximum 3% deficit rule for Europe by the end of 2013. Failure to reach agreement on reining in the budget deficit would be marginally pro-growth; however, it raises the risk that the country loses its AAA credit rating. Failure to pass fiscal austerity measures is also likely to result in higher borrowing costs for the Dutch government; we are already seeing yields on the country's debt trade higher. To read more, take a look at today's European Economic Daily.

On Sunday, France held its first round of Presidential elections. The second round takes place on 6 May, to be followed by Parliamentary elections on 10 and 17 June. Given the results of the Presidential first round, the most likely scenario would be for Mr Hollande to win: he would then get into power within 10 days of the election, i.e., 15 May at the latest, and form a government. To read more about yesterday's result see: France Macro Watch, 23 April 2012 and for implications for the markets and the Euro area crisis, see: France Macro Watch, 13 April 2012.

Economic activity slowed in the Euro area, according to the preliminary April PMI composite report. The decline from 49.1 to 47.4 took conditions to their weakest since November last year, and notably below market expectations of a tick-up to 49.3. Looking at the detail of the report, the slowdown was in both the manufacturing and services sectors.

The HSBC flash manufacturing PMI for China remained in contractionary territory, at 49.1, in April. In March, the index stood at 48.3, indicating that the pace of contraction was slowing. Markets tend to focus less on the HSBC flash PMI report and give more weight to the official release issued later, on the first of every month. The official measure remains firmly in expansion territory, at 53.1.

The week's events

Fed officials are unlikely to make any significant changes to their outlook or policy at the FOMC meeting on Wednesday. Instead, Chairman Bernanke's comments during the post-meeting press conference may clarify what conditions would warrant a change in Fed policy. This week's other big event is the 1Q GDP release on Friday. We expect it will show that the economy grew at a 2.3% annual rate and we expect most of the growth to come from final demand, with inventories contributing 0.3ppts to the headline.

 

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Mon, 04/23/2012 - 07:17 | 2366195 hedgeless_horseman
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Budget?  Budget?  We don't need no stinkin' budget.

Mon, 04/23/2012 - 07:19 | 2366200 maxmad
maxmad's picture

-500 today!  The dow is about to get crushed!

Mon, 04/23/2012 - 07:21 | 2366205 spiral_eyes
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qe3 biyatches!

Mon, 04/23/2012 - 07:26 | 2366214 Oh regional Indian
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Kate MiddleTON.....FTW...

zehctiB!!!!!!!

ori

 

 

 

Mon, 04/23/2012 - 07:31 | 2366229 battle axe
battle axe's picture

Wait there is a problem in Europe, but ECB IMF ETC ETC, solved all that....sarc

Mon, 04/23/2012 - 07:19 | 2366199 Slope of Hope
Slope of Hope's picture

Set Algobots to stun

Mon, 04/23/2012 - 07:27 | 2366218 Oh regional Indian
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Set Expectaciones de publica to HOPE!

ori

Mon, 04/23/2012 - 07:19 | 2366202 zilverreiger
zilverreiger's picture

gold sales to compensate?

Mon, 04/23/2012 - 07:29 | 2366223 achmachat
achmachat's picture

lately there's been a lot of reports by respected financial advisors about the fact that physical possession of precious metals actually is the safest place to be in times of uncertainty.

the "smaller" paper investors can't and don't take physical delivery of their paper metals. Hence there's going to be (and it has most certainly started) a lot of selling of paper metals, in order to cash in and buy the real thing.

 

Mon, 04/23/2012 - 07:21 | 2366204 TooBearish
TooBearish's picture

Let me be first to say- BTFD you sheep!!! Ben will save the day by trashing the USD on Wednesday with QE#3 and other solar system saving money printing strategies...

Mon, 04/23/2012 - 07:26 | 2366210 wang (not verified)
wang's picture

The good news Quinn and Hayes gone at noon on BBG radio

The very very bad news Betty Liu with her new mid day radio program Mid-Day in the Liu

and in the promo for her show this AM  her first guest will be Wilbur Ross whom she says will be sniffing things out

Mon, 04/23/2012 - 07:25 | 2366211 rebelscum1967
rebelscum1967's picture

time to stack whilst PM's on sale...need more silver.

Mon, 04/23/2012 - 07:26 | 2366216 PaperBear
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Ron Paul is on CNBC kicking butt.

Mon, 04/23/2012 - 07:27 | 2366217 jaanp444
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Relationships are among of the most mothers day facebook status convoluted aspects of our lives, peculiarly motivational status long-term relationships specified as wedding.

Mon, 04/23/2012 - 07:28 | 2366221 Oquities
Oquities's picture

steven roach = insultative jackass!

Mon, 04/23/2012 - 07:30 | 2366226 Josephine29
Josephine29's picture

France is in the firing line today with it CAC40 index down more than 2%. On top of the election news there was some very bad news for her economy today.

Today’s Purchasing Manager’s Index

The Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, posted 46.8, down from 48.7 in March. The latest reading was the lowest in six months.

If we remember that 50 is the benchmark for such measures we can see that France’s economy weakened further in April. The weakness was most marked in the service sector but as we can see below all areas fell.

 

Manufacturers and service providers both reported lower intakes of new work, with the former registering the sharper decline

 

http://www.mindfulmoney.co.uk/wp/shaun-richards/frances-combination-of-an-economy-slowing-fast-and-further-austerity-means-she-faces-a-difficult-2012/

 

Allez les Frances.....and I liked this reminder of a quote from Sarkozy.

 

I want the world to see the victory of the European model, which has nothing to do with the excesses of financial capitalism.

Mon, 04/23/2012 - 07:34 | 2366233 navy62802
navy62802's picture

Rule 48 this morning??

Mon, 04/23/2012 - 08:10 | 2366294 sessinpo
sessinpo's picture

They should have made it rule 68.

You suck my dick and I owe you one (never to be paid off of course!). That would be the true corrupt bankers and front running market makers way.

Mon, 04/23/2012 - 07:35 | 2366236 kita27
kita27's picture

And tomorrow the bad news will be forgotten and the market will rally again.  Yawn!

Mon, 04/23/2012 - 07:37 | 2366240 westboundnup
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Will they pull the trigger this time?

Mon, 04/23/2012 - 07:41 | 2366248 Muppet Pimp
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Line in Sand = 1360 

It will be defended

Mon, 04/23/2012 - 07:51 | 2366261 JustObserving
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"Run and Hde"

But not in precious metals - Gold down 0.86% and silver down 2.2%

They are hammering precious metals.  

The markets are so manipulated that they make no sense anymore.

 

Mon, 04/23/2012 - 08:13 | 2366307 sessinpo
sessinpo's picture

JustObserving                    2366261

"Run and Hde"

But not in precious metals - Gold down 0.86% and silver down 2.2%

They are hammering precious metals.  

The markets are so manipulated that they make no sense anymore.

 

Comment:

I have just the opposite view. When PMs are down, buy. Buy the dips, sell the highs. Buy low, sell high.

 

 

 

Mon, 04/23/2012 - 08:11 | 2366301 barkingbill
barkingbill's picture

im not so sure its always market manipulation. everytime the market goes down....the PMs go down with it. where is the big surprise there? 

Mon, 04/23/2012 - 08:35 | 2366329 sessinpo
sessinpo's picture

barkingbill                      2366301

im not so sure its always market manipulation. everytime the market goes down....the PMs go down with it. where is the big surprise there?

 

Comment:

This is actually a very good observation. Most markets are liquidity driven. Thus they flow according to how much money people are willing to speculate or bet on that market. As JustObserving commented, "The markets are so manipulated that they make no sense anymore." They actually do make sense. The change on how the traders view things is what changes. At some point, which isn't yet since the US isn't near default and loss of currency reserve status, PMs may soar in value when that view point is accepted by the market makers. Before then though, I expect a sell off in most markets to raise dollars to cover debts. That is still months ahead of us and will cause a dollar rally until markets realize that the US can't cover its debts. Then it is PMs until the US backs its monetary system with something.

 

Comment added 8:29:

I wanted to add that if I just went into the futures market and bought contracts of gold or silver. Guess what. I have just manipulated the market. Market manipulation, that term is misused a lot these days. People can understand the idea of such things as price caps or floors. And in true free markets, those caps and floors get blown up. We all manipulate markets we participate in. Now if you want to debate or argue that the markets are corrupted by illegal things, that is a different matter and I have no argument against you. When I traded Comex metals years ago and Coffee in NY, I often felt I was getting shafted by front running. So I'll probably agree with you.

Mon, 04/23/2012 - 08:22 | 2366331 JustObserving
JustObserving's picture

Precious metals are safe haven investments.  With fiat currencies in trouble, precious  metals should be going up.

All the silver bullion available in the world is only a billion ounces worth $31 billion.  US debts and unfunded liabilities grow by $22.3 billion a day. So silver which has been considered money in most of human history seems very cheap in comparison.

All the gold bullion available is about 2 billion ounces worth $3.3 trillion.  Real estate in the world is worth nearly $400- $500 trillion. So gold seems quite cheap in comparison.

If you read the history of the Fed, they have always worked to cap the prices of precious metals - to enhance the desirability of paper currency.

So when gold and silver fall sharply under times of financial stress, it reeks of manipulation to me.

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