If this chart of exports is anything to go by, it’s hard to see how the US would become unwell:
On Monday, the US did the playground equivalent of kicking sand in Europe’s face, picking up all the toys, and then running away laughing.
After some rather glum manufacturing PMI figures were released for the eurozone for March, it was revealed that the February unemployment rate had inched up to 10.8 per cent. As usual, the headline figures hid sharp divergences between core and peripheral economies. Read more
Exhibit a) the euro versus the dollar:
Traders’ focus turned from the eurozone to China, where GDP data and government efforts to bolster the stock market triggered a 4 per cent surge in Shanghai and a broad rally across Asia, the FT reports. The FTSE All-World equity index was up 0.9 per cent and gold gained 1.3 per cent to $1,665 an ounce. European bourses joined in the fun, with the FTSE Eurofirst 300 adding 0.8 per cent. US equity futures suggested Wall Street’s S&P 500 would greet the opening bell with a 1.1 per cent pop, taking the benchmark above the 1,300 level for the first time since August. There was a broad “risk-on” mindset sweeping dealing desks. Assets that tend to display a high beta to global growth hopes were seeing demand, with the Australian dollar was up 0.9 per cent and copper surged 3 per cent to $3.74 a pound. Read more
Better news out of Europe sparked a rally in growth-focused assets as trading started to thin ahead of the holiday season, reports the FT. The FTSE All-World equity index was up about 2 per cent, with risk appetite building as shown by a 0.9 per cent fall for the dollar index and sturdy buying in the commodity space, where copper was up 2 per cent to $3.37 a pound. Gold, which has been trading of late with a close correlation to stocks, rose over 1 per cent to $1,613 an ounce. Much was made of the bullion’s drop below the 200-day moving average last week, so traders are eyeing that technical indicator again as it now becomes potential resistance at $1,621. Wall Street’s S&P 500 rebounded and jumped over 3 per cent, more than overcoming Monday’s losses, which came after Bank of America’s share price slipped below $5 for the first time this year, triggering heavy selling of financials. A report on Tuesday that showed US home building starts at a one-and-a-half year high in November added to evidence the struggling housing market may be gaining traction, further buoying investors. The mood was calmer early on in the session, with Asian markets recouping some of Monday’s losses as tensions surrounding the transition of power in North Korea eased a touch. Sentiment also improved in Europe after the Ifo survey of German business confidence defied the gloom-mongers by rising sharply in December. This was followed by a well-received €5.6bn auction of Spanish short-term debt, which reduced fears about sovereign funding difficulties across the eurozone. Read more
In December of last year, we read a few posts suggesting 2011 would see above average returns for the S&P 500 since it was the third year of a presidential term, which has historically proved lucrative for equity investors (chart from Credit Suisse):
Stocks were struggling for traction and the euro remains under pressure as investors continued to express concern about the eurozone fiscal crisis, the FT reports. The FTSE All-World index was down 0.2 per cent and industrial commodities saw little buying interest after Monday’s sharp sell-off, with copper down another 0.5 per cent to $3.44 a pound. But S&P 500 futures suggested Wall Street would open fractionally higher, and this was supporting the mood in Europe, where the FTSE Eurofirst 300 had started the day with a gain of 0.2 per cent. Still, the pervading anxiety was clear. The euro was down 0.1 per cent to $1.3171, sitting just above a two-month low as traders fretted about the prospects for a slew of credit rating downgrades for the eurozone. Investor sentiment soured further in overnight trading after Fitch Ratings predicted a “significant” economic downturn in Europe and added that the region’s sovereign debt crisis was likely to continue throughout next year. This followed comments from peer Moody’s, which said the crisis remained in a “critical and volatile stage.” Read more
Global stocks are down for the 10th session in a row as buyers retreat in exasperation at the lingering eurozone fiscal trauma, concerned it is having a damaging impact on worldwide growth, according to the FT’s Global Market Overview. The FTSE All-World index is off 0.5 per cent, taking its slide to 9 per cent since its miserable run started. The FTSE Eurofirst 300 is lower by 0.4 per cent – its worst level since the start of October – and S&P 500 futures suggest Wall Street will shed 0.6 per cent at the opening bell. Trading is thin. With Wall Street following Thursday’s Thanksgiving break with only a half-day on Friday, some traders are using this as an excuse for sitting on the sidelines. Read more
Back in October, iShares, the world’s leading exchange traded fund provider, decided to set an important transparency example for the ETF industry. The ETF provider began providing the market with details of its securities lending operations. Such operations are a key part of the of the business for iShares since most of its ETFs are done through “replication” where the cash instruments are held, rather than the exposures of the funds being created by derivatives, i.e. “synthetically”.
And some interesting themes have started to emerge with regards to the collateral it holds to support those loans. Read more
Renewed worries about the eurozone debt crisis and, to a lesser extent, another pulse of fretting about global growth, were encouraging traders to pare back racier bets following October’s strong rally, the FT reports. The FTSE All-World equity index was down 1.7 per cent, commodity prices were slipping, while “risk off” was flavouring currencies as the dollar index added 0.8 per cent. S&P 500 futures pointed to Wall Street losing another 1.5 per cent after Monday’s 2.5 per cent slump. The FTSE Eurofirst 300 tracked a poor session out of Asia by delivering a fall of 2.7 per cent as the banking sub-index sheds 5 per cent on revived sovereign debt exposure fears. The sour mood derives from the return of the market’s recent bêtes noires. Carrying greater heft was the eurozone. Risk assets had added to gains last week as investors greeted with relief news that the European Union had agreed a deal in Brussels designed to contain the bloc’s fiscal difficulties, shoring up the banking system and arranging the terms for a second Greek bail-out. Many investors now think that deal has been thrown into question after Greece’s prime minister George Papandreou pledged on Monday to hold a referendum on the package presented to Athens. A “no” vote could throw the process back into the air and possibly lead to a messy Greek default, argue the pessimists. The least it does is deliver many weeks of uncertainty. Read more
Global risk assets continued to be buoyed by hopes the eurozone was getting on top of the bloc’s sovereign debt crisis and that central banks remained committed to providing targeted largesse in order to support the financial system and bolster growth. The FTSE All-World equity index was up for the third day in a row, gaining 0.7 per cent, commodities were firmer and “core” bond prices were mildly mixed. The FTSE Eurofirst 300 was up 0.4 per cent, and S&P 500 futures were pointing to a flat open for Wall Street. But, as is so often the case on the first Friday of the month, trading was cautious ahead of the eagerly-anticipated US official jobs data for September, due at 1330 BST. Investors need the numbers to support the recently formed thesis that the world’s second biggest economy is not in danger of succumbing to a double dip recession. That nascent optimism on the US, combined with a building sense that the European Union’s moves to recapitalise the region’s banks should help contain the fallout from any potential Greek default, has helped stock markets and other growth-focused assets rally strongly over the past few days. Read more
It requires a bit of head-tilting, but this chart from UBS is worth a look given the advent of third quarter earnings season in the US:
Arbitrary worry gauge alert! The S&P 500 has now fallen over 20 per cent since its April 29 high:
Tuesday, October 04, 2011 9:32:10 AM RTRS – S&P 500 .SPX ENTERS BEAR MARKET, DOWN MORE THAN 20 PCT FROM 2011 INTRADAY HIGH.DJI.IXIC.SPX Read more
For someone who hasn’t got much to add about the current state of the market, Bob Janjuah still manages to crank out 1,500 words in his latest piece for Nomura.
Bob firmly believes we are in a third stage of a secular bear market, which is about to get nasty. Read more
After his brief experiment with technical analysis (well, Killer Waves) uber bear Albert Edwards returns to more familiar ground in his latest Global Strategy Weekly.
Jeremy Grantham of GMO says this is “no market for young men”. Maybe now I am over 50 it is my time! Yet my forecast of the S&P bottoming at 400 is still met with utter derision. I have been underweight global equities since the end of 1996 and overweight government bonds. Meanwhile US 10y bond yields have fallen from 7% to 1¾%, a hair’s breadth from our longstanding 1½% target. Similarly, in my very humble opinion, S&P at 400 is almost inevitable. Read more
Talks are taking place that could see the Dow Jones Industrial Average come under the same umbrella as the S&P 500 index, the FT reports, citing three people familiar with the discussions. Spokespeople for McGraw-Hill, owner of Standard & Poor’s, and CME, the Chicago derivatives exchange owner which bought 90 per cent of Dow Jones Indexes in 2010, declined to comment. Dow Jones, the News Corp subsidiary that owns 10 per cent of Dow Jones Indexes, and Dow Jones Indexes itself also declined to comment. The discussions were first reported by News Corp’s WSJ, also citing unnamed sources familiar with the situation. The FT’s sources cautioned that the talks had been going on for about a year and could change or fall apart. However, they added that the plan under discussion would see McGraw-Hill own almost 75 per cent of the joint venture, which would be housed in McGraw-Hill Markets, the financial services company that is to be formed when the media conglomerate spins off its education business next year. CME would have almost 25 per cent of the joint venture, with Dow Jones retaining a small stake. Read more
Hopes that China might be considering buying Italian debt provided only brief respite from risk asset selling and emphasised how sensitive traders are to developments in the eurozone fiscal crisis, the FT reports. An initially positive tone inherited from the Asian session evaporated, with traders once again paring positions in growth-focused products. S&P 500 futures pointed to New York falling 1 per cent and the FTSE All World was down 0.3 per cent. The FTSE Eurofirst 300 had opened with a gain of more than 1 per cent as investors priced in Wall Street’s late rally on Monday and initially welcomed a report by the Financial Times that Beijing was in discussion with the Italian government regarding the purchase of Rome’s bonds. The Italian Treasury confirmed that a meeting took place. Traders liked the idea that one of the world’s biggest sovereign wealth funds stands ready to invest in fiscally-struggling European nations. It is seen as providing an antidote for contagion and takes the weight off Germany’s position as putative backstop. In fact, investors like it so much that it has been a regular feature of the debt crisis, able to pop up intermittently to ease the market’s stresses. Read more
Whatever it is Merrill Lynch’s David Bianco is smoking we’d like some of it…
Investors were paring positions in growth-focused assets as worries about the US economy and the eurozone debt crisis continued to hit sentiment, the FT reports. The FTSE All-World equity index was down 1.3 per cent, following a rotten session in Asia and a rough start for Europe. There was broad softness in commodities, where copper was off 1 per cent to $4.07 a pound and Brent crude was lower by 1.3 per cent to $110.85 a barrel. Gold was little changed at $1,884 an ounce. Wall Street was closed on Monday for the labour day vacation, but in electronic trading the S&P 500 futures contract was down 0.8 per cent. The action at the start of the week is primarily focused on two themes: the hangover from an extremely disappointing US jobs report on Friday and nervousness ahead of a week of eurozone fiscal and political wrangling. The former was one of the main reasons why the S&P 500 finished the previous session down 2.5 per cent as investors fretted that the world’s biggest economy was at risk of dipping back into recession. Read more
Global stock markets continued to rally on hopes that the US Federal Reserve may still unveil a third dose of quantitative easing, after minutes released from the last Fed board meeting indicated that several policymakers backed further monetary easing to support economic growth, the FT reports. However, gains and volumes also continued to be light, as traders marked time ahead of a speech next week by US president Barack Obama, billed as a major policy address, and the US jobs report on Friday. While expectations may not have changed, traders are for the moment unwilling to bet on any worsening in economic or sentiment conditions. The S&P 500 was up 0.4 per cent at midday, paring gains of more than 1 per cent earlier, though the Dow Jones Industrial Average has inched into positive territory on the year by adding 0.4 per cent on Wednesday. “Investor cyclical fears may have gone too far, too fast,” said Lena Komileva, global head of G-10 strategy at Brown Brothers Harriman. “But it is unclear if this corrective drift…can be extrapolated into the final months of the year and early 2012, and this uncertainty about the macro-economic outlook may serve as a self-reinforcing drag on business, consumer and investor activity into the year end.” Read more
European bourses opened the session on the front foot, but gains were relatively muted as the rationale behind Wall Street’s latest surge was lost on Asian markets, which also had to cope with a sentiment-sapping downgrade of Japan’s credit rating. The FTSE Eurofirst was up 0.2 per cent, though it is clear from the caution across asset classes that a new bullish consensus is remote. The FTSE All-World equity index was flat after Asia fell 0.9 per cent, hobbled by the news on Japan and as the region’s wariness about global growth prospects overcame the initial boost provided by New York’s 3 per cent pop on Tuesday. The problem for stock optimists was that frazzled traders have seen it all before. Wild lurches have been far from uncommon during the summer turmoil, both up and down. The Vix index, a measure of equity volatility, fell 15 per cent on Tuesday, but on 36 remains at levels synonymous with heightened anxiety. Sure enough, S&P 500 futures suggested Wall Street would open with a fall of 0.9 per cent, leaving the benchmark down 14 per cent over the past month. Clearly, traders were not convinced the latest US bounce presaged the start of a sustained rally given the headwinds that caused the recent wobble are still present – namely, global growth worries, exacerbated by eurozone fiscal difficulties. Read more
(That’s 2:55 pm, London time.)
The emergency Markets Live circuit breakers are tripping on Thursday. Read more
We aren’t big fans of technical analysis, but a lot of people are — which is why the following is generating a lot of interest in the City.
Monday’s WSJ gives lengthy treatment to the scramble among analysts to work out whether stocks are cheap considering the uncertainty about the path of US corporate earnings.
There’s plenty of disagreement among the sell-siders and cheapness is itself a hazy concept. Using the Shiller-based P/E ratio of comparing prices against historical earnings going back ten years, stocks would appear to be, if not too expensive, then nothing like a bargain either. But shift to projected earnings and ratios still look mighty appetising — though of course, much will depend on whether the “projected” bit turns out to be accurate. Read more
Strange, fast, markets. The S&P 500 closed at 1,172.53, up 53 points, or 4.74 per cent. That’s the biggest one day rise since 20 October, 2008. 10-year Treasury yields touched crisis lows. And the US dollar… don’t even ask.
As the Vix and More blog duly noted last Friday, not only has spot Vix been spiking in its own right (last print seen around the 40 mark on Monday), the entire Vix term structure has flipped into backwardation over the last 10 trading days:
A long, strange, volatile day. Charted: