Friday, 7 December 2018

The stock market rises after the plunge protection team is called in

Stocks battered by Wall Street, fears of US slowdown

7 December, 2018


Global stocks have fallen, plagued by a flattening yield curve that sparked concerns about an economic slowdown in the United States and weakening expectations of a lasting US-China trade truce, while the dollar steadied.

The numbers are displayed after the closing bell of the Dow Industrial Average at the New York Stock Exchange on October 10, 2018 in New York. Photo: AFP
 
US markets were closed to mark former President George H.W. Bush's death, but the effect of Wall Street's turmoil in the previous session, when New York-listed shares tumbled more than three percent, was felt in Asia and Europe.
The MSCI's all-country index shed 0.5 percent.

Tuesday's (Wednesday NZ time) markets chaos came a day after equities boomed on optimism that China and the US had temporarily called a tariff ceasefire to sort out their trade dispute. But doubts began soon after along with President Donald Trump threatening "major tariffs" on Chinese imports if his administration failed to reach an effective trade deal with Beijing.

"As I look into next year, most expectations for further gains have been pared back. Investors have gone from extended bullishness at the start of the year on equities to an uncomfortable neutrality," said Paul O'Connor, head of multi-asset at Janus Henderson.

Trump's comments, alongside the drop in US stocks and bond yields, pushed Asian shares outside Japan 1.4 percent lower. The pan-European STOXX 600 index lost 1.16 percent.

Markets across the world have been rattled by recession fears, exemplified by the flattening US Treasury yield curve.

The benchmark Treasury 10-year yield fell to its lowest point since mid-September on Tuesday, while the spread between the 10-year yield over its two-year counterpart also shrank to the smallest since the start of the financial crisis in January 2008. That signalled to some investors an approaching US economic slowdown.

The flattening of the curve gained momentum after last week's signal by the Federal Reserve that it may be nearing an end to its three-year rate-increase cycle.

The dollar steadied on Wednesday after it took a hard hit in the early reaction to recession concerns and the initial thaw in trade tensions between Washington and Beijing sapped demand for the safe-haven greenback.

The greenback rose 0.32 percent against the Japanese yen and the euro gave up all its early gains to trade down 0.04 percent against the dollar.

Gold, which moves inversely with the dollar, slipped on expectations of more rate hikes following remarks from a US Federal Reserve official and as some investors booked profits after prices climbed to their highest in more than five weeks.

Palladium, on the other hand, surpassed the bullion for the first time in about 16 years, to hit a record high of $US1,263.56 per ounce as higher speculative interest and larger supply deficit boosted the auto-catalyst metal.

Markets are also bracing for more news on Brexit. British Prime Minister Theresa May suffered embarrassing defeats on Tuesday, the start of five days of parliamentary debate over her plans to leave the European Union.

The pound rose off 17-month lows of $US1.2659 hit on Tuesday to around $US1.2751, up 0.3 percent on the day, amid creeping optimism that Britain could opt to stay in the EU after all.

The threat of slowing economic activity also weighed on oil prices, but oil prices went higher on Wednesday ahead of a meeting of the world's biggest exporters who will discuss cutting output to help shore up prices and curb excess supply.
Brent crude futures rose US39 cents to $US62.47 a barrel. US West Texas Intermediate (WTI) crude futures rose US37 cents to $US53.62 a barrel.
- Reuters



Plunge Protection Team Saves Stocks But Credit, Crude, Cryptos Collapse


6 December, 2018

800 Dow points - !!!! Remain calm! No wonder The PPT was called in...
*  *  *
But, but, but... the US economy is extremely strong (ignore the 4.4% crash in durable goods orders and collapse in housing), this weakness in stocks (remember the stock market is not the economy - when the former goes down) is all exogenous - blame them!:
Blame China - Huawei exec arrested at a particularly inopportune time for the trade truce
Blame Russia - Not acquiescing to OPEC's or Trump's demands to cut crude production
Blame Britain - Just get it done Theresa!! Forget what the people want!
Blame Italy - Why don't the democratically-elected leaders just fold, slash their deficits, and maintain their nation's march into oblivion?
But definitely don't blame The Fed for tightening financial conditions into a slowdown (as they desperately tried to keep the delusional shell game of "well they wouldn't be hiking rates if everything wasn't awesome").

China stocks did not like US arrest of Huawei exec...

And while initially slow on the uptake, Offshore yuan tumbled too...

Europe was a bloodbath...
DAX tumbled back below 11,000 - its lowest in two years (erasing the post-Trump gains)...
And Italian bond yields surged...

US Equities crashed at the re-open (after the Bush funeral holiday) last night and saw no bid at the cash market open... but once Europe closed, algos went vertical... and reaccelerated into the close... (from Tuesday's cash close)

Stocks ended well "Off The Lows" thanks to a well-placed WSJ article suggesting The Fed could hold in December.
A 1600 points swing in Dow futures
Nasdaq was the only index which manage to get green however...
Did not hear many people screaming about the algos panic-buying stocks into the close?
S&P and Dow ramped back into the green for 2018...

And the moment Europe closed a short-squeeze was engineered..."Most Shorted" stocks surged...

Be careful getting to excited - relative volume crashed as stocks soared - not the kind of ramp to support follow-through.

FANG Stocks opened down large but were bid aggressively into the green...

S&P Financials plunged to its lowest since Sept 2017...

The S&P 500's Put/Call ratio has plunged to 2018 lows...

52 week lows are surging as it seems the Hindenburg Omen that hit in September was quite prophetic this time...

The VIX Term Structure inverted once again...

As equity protection (VIX) played catch up to credit protection (IG/HY CDX)...as IG spreads blow out to new cycle wides...

Stocks caught down to bonds reality once again...

Treasury yields tumbled once again - down around 4bps across the curve...

10Y Yield broke down to 2.82% intraday

Back to its lowest since August...

The yield curve remains inverted from 2s to 5s..

10Y Inflation Breakevens (following crude's collapse) fell to their lowest since Dec 2017...

The Dollar did its usual trend reversal intraday - this time from positive to negative...


Cryptos dumped further with Bitcoin Cash now crashing 33% on the week!!

PMs remain positive on the week but crude and copper have dumped...


WTI closed lower but oscillate around the $50/51 level all day as OPEC headlines jockeyed with inventory data...

Gold tagged $1250 intraday - highest since October 28th...

Notably Silver is back a key level of support relative to gold (85x ratio)...

Finally, during tonight's business channel infomercials... expect to hear this...
But maybe - in the back of your mind - remember this - The market has entirely given up on The Fed's rate-hike trajectory (half a hike in 2019, and a rate cut in 2020) suggesting serious economic trouble ahead...
So, to be clear, the market spikes higher on an engineered short-squeeze at the EU close and a well-timed WSJ report that the Fed is turning dovish BUT the market has already priced in less than 1 rate hike in 2019.

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