After yesterday's algo-driven mad dash to close the S&P green both for the day and for the year following Fed minutes that came in shocking hawkish, the selling has continued overnight, led by the commodity complex as rate hike fears have pushed oil back down some 2% from yesterday's 7 month highs, which in turn has dragged global stocks lower to a six-week low, while pushing bond yields higher across developed nations as the market suddenly reprices the probability of a June/July rate hike.
Here is why US yields are, if anything, set to decline more: on the other hand, the US accounts for almost 60% of all positive yielding debt and 89% of the positive yielding debt which has a tenor less than 1YR (Figure 4). Also, US debt accounts for 74% of the positive yielding G10 debt in the 1 – 5YR sector.
For Japan, the post "Shanghai Summit" world is turning ugly, fast, because as a result of the sliding dollar, a key demand of China which has been delighted by the recent dovish words and actions of Janet Yellen, both Japan's and Europe's stock markets have been sacrificed at the whims of their suddenly soaring currencies. Which is why when Japanese stocks tumbled the most in 7 weeks, sinking 3.5%, to a one month low of 16,164 (after the Yen continued strengthening and the Tankan confidence index plunged to a 3 year low) it was anything but an April fool's joke to both local traders.
Bears Exit Hibernation As Rally Fizzles On Dismal Chinese Trade Data; Commodities Slide; Gold HigherSubmitted by Tyler Durden on 03/08/2016 07:49 -0400
Those algos who scrambled to paint yesterday's closing tape with that last second VIX slam sending the S&P back over 2,000, forgot one thing - the same thing that China also ignored - central bankers can not print trade, something we have repeated since 2011. The world got a harsh reminder of this last night when China reported the third largest drop in exports in history, which crashed by over 25%, the third biggest drop on record, and no, it was not just the base effect from last February's spike, as otherwise the combined January-February data would offset each other, instead it was a joint disaster, meaning one can't blame the Lunar New Year either. In short, one can't really blame anything aside from the real culprit: despite all the lipstick that has been put on it, global trade is grinding to a halt.
In the aftermath of last week's disappointing G-20 Shanghai summit, there was much riding on this weekend's start of the China's People's Congress, and specifically what if any stimulus announcement Beijing will make; sadly for stimulus addicts China mostly disappointed and after the unimaginative scope of growth proposals, it is hardly surprising that European stocks and US equity futures have taken a leg lower.
As DB's Jim Reid points out, it was definitely not the easiest start to the year with many global equity markets suffering from their worst January in a post-Lehman world.
Futures Jump After Friday Drubbing, Despite Brent Sliding To Fresh 11 Year Lows, Spanish Political UncertaintySubmitted by Tyler Durden on 12/21/2015 07:55 -0400
In a weekend of very little macro newsflow facilitated by the release of the latest Star Wars sequel, the biggest political and economic event was the Spanish general election which confirmed the end of the PP-PSOE political duopoly at national level. As a result, there was some early underperformance in SPGBs and initial equity weakness across European stocks, which however was promptly offset and at last check the Stoxx 600 was up 0.4% to 363, with US equity futures up nearly 1% after Friday's oversold drubbing. In other key news, the commodity slide continues with Brent Oil dropping to a fresh 11-year low as futures fell as much as 2.2% in London after a 2.8% drop last week.
Heading into the Fed's first "dovish" rate hike in nearly a decade, the consensus was two-fold: as a result of relentless telegraphing of the Fed's intentions, the hike is priced in, and it will be a "dovish" hike, with the Fed lowering its forecast for the number of hikes over the next year. Consensus was once again wrong on both accounts: first the rate hike was far more hawkish than most had expected (see previous post), and - judging by the surge in Asian, European stocks and US equity futures - the "market" simply is enamored with such hawkish hikes which will soon soak up trillions in liquidity from the financial system.
As a result of the global commodity weakness, global stocks have fallen for the first time in six days as the sell-off in commodities continued, dragging both US equity futures and European stocks lower. However, putting this in context, last week the MSCI All Country World Index posted its biggest weekly gain in six weeks: alas, without a coincident rebound in commodity prices, it will be merely the latest dead cat bounce.
After yesterday's dramatic late day market rout catalyzed by the tumble in the biotech sector in general, and Valeant in particular, and foreseen in its entirety by Gartman who went bullish just hours before, this morning US equity futures and European stocks have recouped some losses on the recursive, and traditional, hope that Mario Draghi will say something to push risk higher when he speaks in 2 hours at the ECB's press conference in Malta. And yet, just like Yellen a month ago, Draghi faces the paradox of reflexivity that after years of being ignored, is the "new thing" in town: how does he intervene and demonstrate he is readier than ever to set up stimulus, without panicking investors over euro area’s health.
The best headline to summarize what happened in the early part of the overnight session was the following from Bloomberg: "Asian stocks extend global rally on stimulus bets." And following the abysmal data releases from the past three days confirming that the latest centrally-planned attempt to kickstart the global economy has failed, overnight we got even more bad data, first in the form of Australia's trade deficit, and then Germany's factory orders which bombed, and which as Goldman said "seems to reflect genuine weakness in China and emerging markets in general and this will weigh on the German manufacturing sector."