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Selloff Resumes As "Risk Off" Sentiment Refuses To Leave
Yesterday we discussed extensively how the narrative of US decoupling, which has so far trumped everything else, is finally fading, is coming to an abrupt end, and with no other "plotline" to take its place, as China, Europe and corporate profits are all in the dumps, the only option is for more easy money to come soon. However, with crude sticky this will be a problem in an election year. Today, this sentiment has become even more acute as new Greek 2023 bonds have for the first time trade over 20%, with weakness spreading to all the other PIIGS, and talk of yet another LTRO already picking up pace. The question of what if any assets European banks is luckily ignored for now. So as futures turned red once more, here is Bank of America summarizing the bearish market sentiment this morning.
Market action
The vast majority of the global equity markets are selling off. In Asia, the Japanese Nikkei, the Hang Seng and the Chinese Shanghai Composite all dropped 1.1%. The sell-off was sparked by a surprise drop in profit at the Agricultural Bank of China - the country's third biggest bank. Not all Asian equity markets finished in the red, the Korean Kospi managed to finish flat, while the Indian Sensex was lifted 1.0%.
For the fifth day in a row, European equities are selling off. In the aggregate, European shares are off 0.3%. If that holds, European markets will post their largest weekly drop so far this year. Blue chip stocks are hit even harder than the broader market, down 0.7%. At home, futures are pointing to a roughly flat opening ahead of this morning's new home sales report.
In bondland, Treasuries continue to rally across the curve, as investors begin to think the recent sell-off was overdone. The sell-off was originally sparked by investors lowering their odds of QE3 later this year and moving forward their expectations of the first Fed hike from late 2014 to late 2013. In our view, the sell-off was overdone and our rates strategy team suggests a trade idea to capitalize on the recent sell-off in Treasuries.
In Europe, peripheral sovereign debts are selling off. Spain's 10-year note is up another 5bp, to yield 5.50%, while Italy's 10-year note is up 6bp, to 5.13%. Meanwhile, the UK gilt and German bund are benefiting from the risk-off trade; both notes are rallying 3bp, to 2.29% and 1.88%, respectively.
In the currency markets, the dollar is selling off, with the DXY index down 0.4%. Not surprisingly the weaker dollar is boosting commodity prices. WTI crude oil is up 41 cents, to $105.76 a barrel, and gold is trading $4.33 an ounce higher, at $1,650.23.
Overseas data wrap-up
Europe is not out of the woods yet. Overnight, our European economists published a piece on the challenges that lie ahead for Spain. In particular, Spain needs to (1) find a new growth model, where construction and real estate play a lesser role and resources move to the tradable sectors, (2) reduce leverage across sectors, including, but not restricted to, real estate-related activities, and (3) bring down the c.25% unemployment rate. The rebalancing exercise will be particularly challenging, as the economy faces contraction this year and subdued growth next year, due to the combination of a large fiscal adjustment and a credit squeeze. A positive force would be recovering exports, but these largely depend on euro-area growth.
With that in mind, our European team revised down its GDP forecast for the country. It expects GDP growth to contract by c.1.5% in 2012 and to be flat next year. Given the relatively benign profile for growth, where the European team forecasts Spain returning to positive growth in 2014, it does not project the deficit-to-GDP ratio to fall below 3% before 2014, while the debt-to-GDP ratio peaks at just below 80% of GDP before receding from 2014 onwards. To read the full report: European Macro Viewpoint, 23 March 2012
Today's events
The only thing on the economic calendar today is the release of the February new home sales report at 10:00 am. We expect new home sales to decline 3.0% in February, to 310,000. Mortgage purchase applications fell 7.3% in the month, which suggests a decline in contract signings.
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It'll have a miracle 'come back'. Bet on it. It's Friday and the masses can't coast into the weekend with bad sentiment.
Another trip of the SPX to its 20DMA (1379) seems in order. I do not think this will signal the start of a dynamic trend downwards until there is an intense macro or political shock.
Do HFT algos even care about "intense macro or political shocks"?
I thought the basic code just looked something like:
0: Buy Low
10: Sell High
20: Goto 0
REM: Programmer's note - works best on insider knowledge, front-running, and/or sub-pico-second access time to the exchange.
Yes and when the markets plunge next time it will have been designed like all the others too. Theyve gone all-in on attacking Iran, and now need something HUGE to kick it off.
Sleep tite.
The ECB is whipsawing the money stock.
The flavor of today is tighter monetary growth - problem large recent increases have led to a bubble economy dependent on easy money.
https://stats.ecb.europa.eu/stats/download/bsi_t02_03_nsa/bsi_t02_03_nsa/bsi_t02_03_nsa.pdf
Actually looked at the US treasury market lately?
Yea risk off!
In fact this whole risk on/risk off nomenclature of the Magic the Gathering crowd,
is extremely entertaining as all asset classes are basically moving lock and step with government money on/off.
Only thing green I see going into the open is oil and gold.
Well ok so is pally.......but I'm not even that crazy......I'll let the Russians handle that.
Yea, and by noon they will loose the buying bots and you'll see the normal 45 degree incline kick in through the close with perhaps a little 'kicker' in the last 30 minutes. At least, I think I've seen that once or twice before.
They lured enough bagholders?
Maybe they threw a stock market euphoria party and no one showed up because everyone is broke.
This morning disgusted IRA holders holding TVIX will "close my account" into the waiting buy to cover orders of the criminals who shanked it yesterday.
Count me as one of them. It finally hit me why billions of citizens in other countries convert their currency into hard assets as fast and as often as they can. Sucks I lost a few bucks on the way to knowledge and truth but so be it.
Huge miss in home builder earnings...huge!
So you mean that if you build it, they won't come? I'm confused.
I know, right? You'de think with all this bullish BLS job creation and NAR bullish data, people would be in cut-throat bidding wars over these homes.
Wait...unless the BLS and NAR data is a lie?....nah, that's crazy conspiracy talk, nevermind.
Builders have to build - they're not so good at making ipods.
Were becoming a renter nation which works out since jobs will be temporary and poor paying and of low skill though college degree is an advantage (primarily to colleges). Banks will now be our landlords - I believe the English are familiar with the arrangement. BOA annouces program to avoid forclosure by simply hand proprty to bank and convert to renting. Then it will be necessary that rents are supported to protect the TBTF.
I, for one, look forward to building my own tumbleweed, or something like that.
http://www.tumbleweedhouses.com/
ipods are built buy child slaves to make apple wealthy and provide bling for vain americans
REITs sure to soar to new record highs and triple digit multiples.
I am assuming we are done with the guest posts telling us how cheap the vix is from here on out.
- still angry
I see qqq Nasdaq 100 up more than 0.5%. I guess that constitutes a sell-off in brave new america.
Color blindness is rough on traders sometimes?
http://www.bloomberg.com/markets/stocks_v2/futures/
Yeah that was a rogue quote, but it's still up. Look at per-market trading in qqq
Just pile into the extraterrestrial NDX 100 & you'll be fine:
http://chart.ly/w8ynjtm
The world - especially the investing community - is afflicted with a global Stockholm syndrome. We identify with our captors, who are using every means possible to prevent a simultaneous currency crisis. Paper it over, hold it together with twigs and bailing wire, and hope for the best.
Just add duct tape and superglue.......and you can hold damn near anything together.
There is a buyer for every seller, so when you look at it that way the market action is actually ... bullish.
Also, this selloff is priced in and weather related.
It would be interesting to see the "European team" forecast of 2 years ahead from 2010 to 2012. I wonder how they did on that call?
There will be a ramp into window dressing next week! Trade as you wish!
That's not only unethical it's illegal. The SEC will be all over that shit like a hillbilly on a welfare check.
HELLOOOOO TAR BABY!
As expected, the ES has hit the 'air brakes' and is now mechanically grinding higher for a positive open.
Same as it ever was. Why stop it now?
http://money.cnn.com/2012/03/23/real_estate/bofa-mortgages-foreclosures/?iid=HP_LN
Loan Shark (to "Mark"): "Well how much have you got on ya, then?"
Ben is pursuing a New World Economy in which Americans buy loads of products from China with dollars and China buys our assets with the dollars. We get garbage products that last a year or two and then go to the land fill and China gets our mines, railroads, farmland, factories, technology, and sleazy politicians. It's a win-win situation.
In pre-trade, BAC went down to 9.42 then baaaaaaam 9.63 right now. Somebody got scared that his or her worthless BAC concentration will blow up.
Anybody remembers Bear Stearns, Lehman or MF global? They kept buying up the same shit until nobody would lend them money.
Who has bought so much worthless BAC that is so affraid of collapsing?
I am buying now ....front running Timmy Geithner.
The Wile E. Coyote scenario continues...
SPX daily chart with rising wedge enclosed by substantial megaphone pattern.
http://stks.co/31QM