Wednesday, 10 February 2016

Japanese stocks plunge, bond yields fall below zero

Japanese stocks plunged on Tuesday as the yen surged to the highest level against the dollar in more than a year.

The Topix index sank 5.5 percent while the Nikkei 225 lost 5.4 percent, its biggest decline since June 2013.

However, US stocks finished flat after a volatile session while the STOXX Europe 600 fell 1.6 percent, its seventh consecutive decline.

There were signs of stress in other markets.

US oil futures plunged 5.9 percent.

Japan’s 10-year bond yield fell as low as minus 0.035 percent, its lowest ever.

Indeed, about 29 percent of the debt in the Bloomberg Global Developed Sovereign Bond Index yields less than zero.

Tuesday, 9 February 2016

US and European stocks fall

China's stock market was closed on Monday as investors enjoyed a week-long break to celebrate the Lunar New Year.

However, for investors in the West, there was no respite from the market slide. The S&P 500 fell 1.4 percent and the STOXX Europe 600 plunged 3.5 percent.

Oil also fell on Monday, with WTI crude plunging 3.88 percent.

Monday, 8 February 2016

Earnings falling despite continuing monetary stimulus

Bloomberg reports that the formula for investing in Japanese stocks that had previously worked is starting to fail.

That formula involved central bank stimulus combined with a weakening yen to create rising profits and a stock market rally.

However, while that worked back in August, it is no longer working.

Earnings in the Japanese stock market are expected to retreat more than 20 percent this quarter, and the yen just staged its biggest weekly rally since 2009 even though the Bank of Japan has cut interest rates to below zero.

But Japan is not the only country with weakening corporate earnings. In the US, Standard & Poor’s 500 Index companies are about to report the third consecutive quarter of declining income. In Europe, bank stocks are near a 3 1/2 year low as measures of risk in credit markets reach the highest since 2013.

Indeed, John Hussman wrote in his latest article that he thinks that European banks are the “most likely crisis from left field”.

And Hussman is not among those surprised that central bank stimulus is no longer supportng stocks.

"When market internals are favorable, monetary easing reliably supports speculation," he wrote. "In contrast, once a steeply overvalued market is joined by unfavorable market internals, even persistent and aggressive Fed easing is associated with market losses, on average."

Saturday, 6 February 2016

US tech stocks plunge, European financial stocks at "frightening" levels

US stocks fell on Friday, led by a rout in technology stocks.

The S&P 500 fell 1.8 percent while the Nasdaq Composite Index plunged 3.2 percent.

Elsewhere, the STOXX Europe 600 fell 0.9 percent, the Nikkei 225 fell 1.3 percent and the Shanghai Composite Index fell 0.6 percent.

While US tech stocks saw the worst declines on Friday, Jeffrey Gundlach is concerned about European financial stocks.

“We see the price of major financial stocks, particularly in Europe, which are truly frightening,” Gundlach said at a conference on Friday. He noted that both Credit Suisse and Deutsche Bank are priced lower than during the depths of the financial crisis in 2009.

Friday, 5 February 2016

Stocks rise in US but recovery in Japan may take time

Markets were relatively calm on Thursday.

The S&P 500 rose 0.2 percent even though US crude fell 1.7 percent.

However, the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 fell 0.9 percent.

The latter faces yet more declines, if history is anything to go by.

From Bloomberg:

Since the Nikkei 225 Stock Average tumbled more than 20 percent from a peak last month, Japanese equities have made several attempts at rallies, only to falter...

History supports the view that the recovery will take time. Wiping out a bear market takes seven and a half months on average, according to an analysis of the index’s 14 occurrences since 1989. Worse, shares tend to fall further after the initial 20 percent drop -- the Nikkei has slid an additional 18 percent on average, according to the data that include steep selloffs in the early 1990s, the Asian financial crisis, the dot-com bubble and the global financial crisis.

Thursday, 4 February 2016

US dollar falls, US stocks and oil rise

A fall in the US dollar helped US stocks rebound on Wednesday after a global market selloff earlier in the session.

The US dollar fell 1.7 percent against the euro while the S&P 500 rose 0.5 percent.

Earlier, the STOXX Europe 600 had fallen 1.5 percent while the MSCI Asia Pacific Index had fallen 1.6 percent.

Also boosted by the fall in the US dollar was oil. WTI crude jumped 8 percent on Wednesday.