Friday, 9 October 2015

World stocks rise amid calls to maintain monetary stimulus

World stocks rose on Thursday after the release of the minutes of the last Federal Reserve monetary policy meeting showed that it wanted to wait for evidence that a global economic slowdown was not seriously affecting the US economy before raising interest rates.

The cautious stance of central banks appears to be pervasive. From Reuters:

Central banks have little room for error in a low-growth world in which over-leveraged and commodity-dependent emerging economies and a slowing China are major risks, top international financiers told the International Monetary Fund's meeting.

Despite $7 trillion in quantitative easing from banks in industrial nations since the global financial crisis, the world is stuck in a "new mediocre" growth pattern, IMF chief Christine Lagarde said on Thursday.

Maintaining loose monetary seems to be the preferred stance.

The IMF has urged the Fed and the Japanese and European central banks to wait for more signs of recovery before tightening. Lagarde on Thursday repeated her plea to Yellen to stay her hand.

This is despite the seemingly never-ending series of bubbles pervading the global financial landscape. Bloomberg reports possibly the latest one in China:

As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.

So says Commerzbank AG, which puts the chance of a crash by year-end at 20 percent, up from almost zero in June. Industrial Securities Co. and Huachuang Securities Co. are warning of an unsustainable rally after bond prices climbed to six-year highs and issuance jumped to a record.

Thursday, 8 October 2015

Global markets rally on US rebound

Global markets rallied on Wednesday as US stocks rebounded from the previous day's fall.

The MSCI All-Country World Index jumped 1 percent for a sixth day of gains, the S&P 500 rose 0.8 percent, the STOXX Europe 600 edged up 0.1 percent and the MSCI Asia Pacific Index jumped 2.1 percent.

The Bloomberg Commodity Index fell 0.2 percent though as oil fell.

Yields on US 10-year Treasuries increased four basis points to 2.07 percent.

Wednesday, 7 October 2015

US stocks end rally, IMF cuts global growth outlook

The US stock market ended its 5-day rally on Wednesday. The S&P 500 fell 0.4 percent with biotechnology stocks in particular being hit hard over concerns with drug pricing and company earnings.

Commodities escaped the falls though. Indeed, the Bloomberg Commodity Index rose 1.7 percent to its highest level since 31 August. West Texas Intermediate crude oil jumped 4.9 percent.

Still, the fall in commodity prices earlier on may already be hurting emerging economies, according to the International Monetary Fund. From Bloomberg:

A slowdown in emerging markets driven by weak commodity prices forced the International Monetary Fund to cut its outlook for global growth this year to 3.1 percent from a July forecast of 3.3 percent. Next year the world economy will expand 3.6 percent, less than the 3.8 percent projected in July.

Tuesday, 6 October 2015

Markets rise, Fed rate hike delay seen critical

Global markets rose again on Monday.

The S&P 500 climbed 1.8 percent, the STOXX Europe 600 rose 3.0 percent and the MSCI Emerging Markets Index jumped 2.1 percent.

Commodities also rose, with copper rising 1.5 percent and oil gaining 1.6 percent.

The gains in markets were mostly attributed to the view that the Federal Reserve will keep interest rates lower for longer.

“The Fed pushing out interest-rate hike expectations to next year has been critical,” Michael Purves, chief global strategist at Weeden & Co.

That view did not help US Treasuries on Monday though. Ten-year Treasuries ended five days of gains as yields rose six basis points to 2.06 percent.

Monday, 5 October 2015

Growing risk of recession as central banks lose credibility

John Hussman wrote in his latest article that the US economy is close to a recession.

"On Friday, the Bureau of Labor Statistics reported that non-farm payrolls for September grew by 142,000, versus a consensus that expected over 200,000 new jobs," he wrote. "At the same time, August job growth was revised lower from 173,000 to 136,000 jobs. All of this is very much in line with the deterioration that we’ve observed for months in leading measures of economic activity."

"With a clear breakdown in market internals, and leading economic measures deteriorating, we should be aware of the growing potential for a recession," he opined.

Hussman also said that while investors might view weaker economic prospects as a good thing because of the likelihood that the Federal Reserve will refrain from raising interest rates or even initiate another round of quantitative easing, he warned: "An about-face by the Fed driven by economic weakness would more likely – after a brief celebration – contribute to panic that the Fed had lost credibility and control. We believe the Fed already has neither."

Indeed, a Bloomberg article suggested that not just the Fed but the world's central banks are losing credibility.

"Even after hundreds of interest-rate cuts and trillions of dollars in quantitative easing, the bond market’s outlook for inflation worldwide is approaching lows last seen during the financial crisis," the article said.

“There’s a lack of faith in monetary policy -- you’ve thrown the kitchen sink at it, you’ve cut rates to zero, you’re printing money -- and still inflation is lower,” Lee Ferridge, the head of macro strategy for North America at State Street Corp, was quoted as saying. “It leads to a risk-off environment.”

Saturday, 3 October 2015

Investors lose faith in oil but Jim Rogers sees sign of rebound

Bloomberg reports that oil bulls are losing faith in its recovery.

Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.

While US crude output is down 514,000 barrels a day from a four-decade high reached in June, Russia’s production of crude and condensate rose to 10.74 million barrels a day last month, 1 percent more than a year earlier and breaking a record set in June.

"The US producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, said.

Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management, told Bloomberg by phone: "The managed money has been positive about the market but things look grim. We’re at a tough time for oil on a seasonal basis as well."

Amid the widespread pessimism, though, West Texas Intermediate crude futures have, after plunging to $37.75 a barrel on 24 August 24, averaged $44.99 after that, staying above $44 since the start of September. Jim Rogers sees this as a sign of a possible rebound.

“When there’s bad news and something doesn’t decline, it usually means it’s at a bottom and will be turning,” Rogers said in an interview on Thursday. “Whether we’re at a turning point or not, I don’t know yet, and I’m watching this very closely.”

Rogers also sees opportunities for investors in other raw materials, particularly agriculture.