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Selloff Resumes As "Risk Off" Sentiment Refuses To Leave

Tyler Durden's picture




 

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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Fri, 03/23/2012 - 08:09 | 2282886 Boilermaker
Boilermaker's picture

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.

Fri, 03/23/2012 - 08:19 | 2282908 slaughterer
slaughterer's picture

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. 

Fri, 03/23/2012 - 08:52 | 2283003 r00t61
r00t61's picture

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.

Fri, 03/23/2012 - 09:50 | 2283158 SheepDog-One
SheepDog-One's picture

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.

Fri, 03/23/2012 - 10:04 | 2283198 Pinto Currency
Pinto Currency's picture

 

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

Fri, 03/23/2012 - 11:58 | 2283757 Xkwisetly Paneful
Xkwisetly Paneful's picture

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.

Fri, 03/23/2012 - 08:23 | 2282917 GetZeeGold
GetZeeGold's picture

 

 

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.

 

Fri, 03/23/2012 - 08:48 | 2282985 Boilermaker
Boilermaker's picture

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.

Fri, 03/23/2012 - 08:11 | 2282889 the not so migh...
the not so mighty maximiza's picture

They lured enough bagholders?

Fri, 03/23/2012 - 09:51 | 2283162 SheepDog-One
SheepDog-One's picture

Maybe they threw a stock market euphoria party and no one showed up because everyone is broke.

Fri, 03/23/2012 - 08:11 | 2282890 HelluvaEngineer
HelluvaEngineer's picture

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.

Fri, 03/23/2012 - 08:16 | 2282902 fonzannoon
fonzannoon's picture

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.

Fri, 03/23/2012 - 08:12 | 2282892 LongSoupLine
LongSoupLine's picture

Huge miss in home builder earnings...huge!

Fri, 03/23/2012 - 08:14 | 2282897 HelluvaEngineer
HelluvaEngineer's picture

So you mean that if you build it, they won't come?  I'm confused.

Fri, 03/23/2012 - 08:24 | 2282924 LongSoupLine
LongSoupLine's picture

 

 

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. 

Fri, 03/23/2012 - 08:55 | 2283007 mendigo
mendigo's picture

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.

Fri, 03/23/2012 - 09:51 | 2283159 astoriajoe
astoriajoe's picture

I, for one, look forward to building my own tumbleweed, or something like that. 

http://www.tumbleweedhouses.com/

Fri, 03/23/2012 - 10:16 | 2283223 Jake88
Jake88's picture

ipods are built buy child slaves to make apple wealthy and provide bling for vain americans

Fri, 03/23/2012 - 08:20 | 2282912 Boilermaker
Boilermaker's picture

REITs sure to soar to new record highs and triple digit multiples.

Fri, 03/23/2012 - 08:14 | 2282894 fonzannoon
fonzannoon's picture

I am assuming we are done with the guest posts telling us how cheap the vix is from here on out.

 - still angry

Fri, 03/23/2012 - 08:15 | 2282899 gjp
gjp's picture

I see qqq Nasdaq 100 up more than 0.5%. I guess that constitutes a sell-off in brave new america.

Fri, 03/23/2012 - 08:19 | 2282910 Bugman82
Bugman82's picture

Color blindness is rough on traders sometimes?

http://www.bloomberg.com/markets/stocks_v2/futures/

Fri, 03/23/2012 - 08:25 | 2282928 gjp
gjp's picture

Yeah that was a rogue quote, but it's still up. Look at per-market trading in qqq

Fri, 03/23/2012 - 08:19 | 2282909 realtick
realtick's picture

Just pile into the extraterrestrial NDX 100 & you'll be fine:

http://chart.ly/w8ynjtm

 

Fri, 03/23/2012 - 08:20 | 2282913 RunningMan
RunningMan's picture

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.

Fri, 03/23/2012 - 08:25 | 2282925 GetZeeGold
GetZeeGold's picture

 

 

Just add duct tape and superglue.......and you can hold damn near anything together.

 

Fri, 03/23/2012 - 08:24 | 2282919 AU5K
AU5K's picture

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. 

Fri, 03/23/2012 - 08:26 | 2282921 i-dog
i-dog's picture

 

"the European team forecasts Spain returning to positive growth in 2014"

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?

Fri, 03/23/2012 - 08:29 | 2282935 TradingJoe
TradingJoe's picture

There will be a ramp into window dressing next week! Trade as you wish!

Fri, 03/23/2012 - 09:23 | 2283086 Boilermaker
Boilermaker's picture

That's not only unethical it's illegal.  The SEC will be all over that shit like a hillbilly on a welfare check.

Fri, 03/23/2012 - 08:31 | 2282937 disabledvet
disabledvet's picture

HELLOOOOO TAR BABY!

Fri, 03/23/2012 - 09:22 | 2283083 Boilermaker
Boilermaker's picture

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?

Fri, 03/23/2012 - 09:26 | 2283092 GMadScientist
GMadScientist's picture

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?"

Fri, 03/23/2012 - 09:49 | 2283156 Stuck on Zero
Stuck on Zero's picture

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. 

Fri, 03/23/2012 - 09:57 | 2283179 ekm
ekm's picture

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?

Fri, 03/23/2012 - 11:36 | 2283624 Clowns on Acid
Clowns on Acid's picture

I am buying now ....front running Timmy Geithner.

Sat, 03/24/2012 - 04:10 | 2286181 Grand Supercycle
Grand Supercycle's picture

The Wile E. Coyote scenario continues...

SPX daily chart with rising wedge enclosed by substantial megaphone pattern.

http://stks.co/31QM

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