Thursday, 31 December 2015

Markets fall as oil plunges

Markets fell on Wednesday.

The S&P 500 fell 0.7 percent while the STOXX Europe 600 fell 0.5 percent.

Earlier in Asia, markets had been more positive. The Nikkei 225 and the Shanghai Composite Index both rose 0.3 percent.

Stocks fell later though as oil prices declined. US crude oil prices fell 3.4 percent on Wednesday, helping to push energy stocks in the S&P 500 down 1.5 percent.

According to Guggenheim’s Subash Chandra and Marshall Coltrain, however, these stocks could fare a lot better in 2016.

Wednesday, 30 December 2015

Stocks rebound on oil, sharp gains possible ahead

After mostly falling on Monday, stock markets rebounded on Tuesday.

In particular, the S&P 500 jumped 1.1 percent, helped by a 2.9 percent surge in US crude oil.

“Most of the gains on Wall Street are linked to oil price moves and it looks likely that the trend of tight correlation between stocks and oil will continue in early 2016,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.

That correlation could turn out to be a positive for stocks in 2016.

According to Chris Kimble, historically, crude oil tends to trade sharply positive after a big plunge. “I really think, looking at 30-year and 40-year charts, that commodities are at an important threshold,” he told MarketWatch.

Tuesday, 29 December 2015

Chinese stocks plunge, US may already be entering recession

Markets were mostly down on Monday, led by Chinese stocks.

The Shanghai Composite Index plunged 2.6 percent after data released on Sunday showed that profits at Chinese industrial companies fell 1.4 percent in November from a year earlier, marking a sixth consecutive month of decline.

Most other Asian stocks also fell but Japanese stocks showed resilience as the Topix index rose 0.9 percent on Monday even though a report early that day showed that the nation’s industrial output fell 1 percent in November from a month earlier.

In the West, the STOXX Europe 600 fell 0.5 percent and the S&P 500 slipped 0.2 percent as US crude prices fell 3.4 percent.

“We’re just following the price of oil,” said Peter Cardillo, chief market economist at brokerage First Standard Financial.

Or maybe there is more to the fall in US stocks.

In an interview with Bloomberg on Monday, Marc Faber said that “I believe that we’re already entering a recession in the United States” and US stocks will fall in 2016.

Monday, 28 December 2015

Markets go nowhere in 2015

2015 has been a difficult year for investors, with most markets going nowhere, as Bloomberg notes:

In fact, if you judge the past year by which U.S. investment class generated the largest return, a case can be made it was the worst for asset-allocating bulls in almost 80 years, according to data compiled by Bianco Research LLC and Bloomberg. With three days left, the Standard & Poor’s 500 Index has gained 2.2 percent with dividends, cash is up less, while bonds and commodities are showing losses.

Wednesday, 23 December 2015

Markets mixed but junk bond stabilisation could provide lift to stocks

Markets were mixed on Tuesday.

The S&P 500 rose 0.9 percent, the STOXX Europe 600 fell 0.1 percent and the Shanghai Composite Index gained 0.3 percent.

US stocks were boosted by higher oil prices. US oil prices rose 0.9 percent on Tuesday.

Junk bonds also mostly rose. The iShares iBoxx $ High Yield Corporate Bond ETF rose 1.2 percent.

Indeed, Chris Kimble sees "signs that Junk bonds are trying to get up off the mat", and that "would likely provide a lift to stocks as well".

Tuesday, 22 December 2015

Markets mixed but analysts see positive 2016 for US stocks

Markets were mixed on Monday.

The S&P 500 rose 0.8 percent but the STOXX Europe 600 fell 1.1 percent.

In Asia, the Nikkei 225 fell 0.3 percent but the Shanghai Composite Index jumped 1.7 percent.

Oil fell, WTI futures for February delivery declining 0.7 percent, but gold rose 1.5 percent.

Whether stocks can mount a sustained rally in the remaining days of the year remains a question mark.

“It is difficult to have meaningful rallies when there is so much volatility,” said Colin Cieszynski, chief market strategist at CMC Markets.

“Historically, a Santa rally starts about now and continues until the first few days of January,” said Jeffrey Saut, chief investment strategist at Raymond James.

However, analysts expect next year to be positive. Market professionals surveyed by CNNMoney estimate the S&P 500 will end 2016 at 2,194, up 9 percent from the latest close.

Monday, 21 December 2015

BoJ plans purchase of ETFs that don't exist

The Bank of Japan unveiled new measures to stimulate the Japanese economy on Friday.

The measures include lengthening the average maturities of Japanese government bonds it buys to seven to 12 years from seven to 10 years currently, establishing a new programme to buy 300 billion yen in ETFs that target companies investing “proactively in physical and human capital”, and increasing the maximum amount of real-estate investment trusts it can buy to 10 percent of each issue from five percent currently.

Investors were not too impressed by the move. While the Nikkei 225 initially climbed as much as 2.7 percent after the announcement, it subsequently reversed course to close down 1.9 percent.

Indeed, as a Bloomberg article noted:

Markets were roiled Friday after the Bank of Japan unveiled measures including purchasing exchange-traded funds that track companies which are “proactively making investment in physical and human capital”...

The only problem is such ETFs have never been made in Japan...

Realistically, trying to encourage more capital investment is always going to be a tall order for Japan. Such investments primarily work by leveraging the workforce. The problem is that Japan's labour force is shrinking and the country is ageing rapidly.

According to the National Institute of Population and Social Security Research, Japan’s population is set to drop by more than 700,000 a year on average between 2020 and 2030, by which time almost a third of the population will be 65 or older.

Saturday, 19 December 2015

Stocks tumble, risk of debt defaults remains low near-term

Stocks ended the week with sharp falls.

The S&P 500 plunged 1.8 percent, the STOXX Europe 600 fell 1 percent and the Nikkei 225 sank 1.9 percent.

The yield on the US 10-year Treasury note fell to 2.197 percent from 2.236 percent.

Oil fell, US crude falling 0.6 percent and Brent falling 0.5 percent.

“I think it’s a relative safety trade going into the weekend,” said Weston Boone, managing director of institutional trading at Stifel Nicolaus.

However, there may not be a need to rush to safety just yet.

While falling commodity prices have triggered a widening of junk bond spreads on concern over the ability of companies to service their debt, credit strategists at Société Générale think that default rates in the US high yield market will remain less than 4 percent next year.

"The U.S. energy and mining companies have extended the life of their debt, and face only $5 billion worth of bond redemptions this year (concentrated in the second-half)," the strategists wrote. "However, redemptions rise quite sharply in 2017, 2018 and 2019, so the sector will need refinancing over this period."

Friday, 18 December 2015

US stocks reverse gains, falling oil prices a risk to credit markets

US stocks fell on Thursday. The S&P 500 sank 1.5 percent, giving up its gains from Wednesday.

Stocks elsewhere were somewhat more positive. The STOXX Europe 600 jumped 1.2 percent while the MSCI Asia Pacific Index rose 0.7 percent.

However, other markets mostly followed the US stock market down.

Oil fell, West Texas Intermediate oil futures sliding 1.6 percent.

Gold and industrial metals also fell. Gold futures for February delivery plunged 2.5 percent.

As risk assets fell, US Treasuries rose. The 10-year yield dropped seven basis points to 2.23 percent.

Goldman Sachs expects oil prices to fall further, which could in turn further strain credit markets.

"In our view, oil prices remain the epicenter of both credit risk and credit risk sentiment," wrote Charles Himmelberg, chief credit strategist at Goldman Sachs.

While Himmelberg noted that "corporate leverage has risen over the past 4-5 years to levels that have not prevailed since the 1990s", low interest rates mean that servicing the debt is not overly onerous.

Indeed, Goldman economist Zach Pandl said: "For the broader economy, while developments in credit markets bear close monitoring, we do not yet see a case for a more far-reaching credit crunch."

Thursday, 17 December 2015

Fed hikes rates, stocks rise but oil companies at risk

The Federal Reserve raised interest rates for the first time in almost a decade on Wednesday. Bloomberg reports:

The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.

Treasuries fell on Wednesday. The yield on the two-year note in particular reached a 5-year high of 1.021 percent.

However, stock investors reacted positively. The S&P 500 rose 1.5 percent.

Gold, silver and copper also rose but oil fell after US crude inventories were reported to have risen to the highest level for this time of year since 1930.

Indeed, Nick Cunningham thinks the Fed rate hike "couldn’t come at a worse time for the oil and gas industry".

He said that "the oil boom was fueled by loose money from the Fed".

Higher interest rates will raise the cost of money and make borrowing more expensive.

"If that means more drillers lose their access to finance, or are unable to tap finance at reasonable rates, more companies could go bankrupt," he wrote.

Also, higher interest rates will strengthen the US dollar, and with crude oil priced in dollars, the Fed hike "could put downward pressure on oil prices".

Wednesday, 16 December 2015

Stocks, junk bond funds rally

Markets rallied on Tuesday.

The S&P 500 rose 1.1 percent and the STOXX Europe 600 jumped 2.6 percent.

Oil rose. West Texas Intermediate crude jumped 2.9 percent while Brent crude gained 1.4 percent.

US Treasuries and German bonds fell but junk-bond funds rallied. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF and SPDR Barclays High Yield Bond ETF both advanced for the first time in four days.

The risk premium on the Markit CDX North American High Yield Index narrowed the most since October.

Views on the outlook for high-yield debt are mixed. From Bloomberg:

Jim Reid, a strategist at Deutsche Bank AG, wrote Monday that this month’s turmoil, including Third Avenue Management’s suspension of cash redemptions from a mutual fund that invested in high-yield debt, may be a harbinger of things to come. Berwyn Income Fund’s George Cipolloni said the similarities between markets now and those before the financial crisis are too big to ignore...

“I don’t see any systemic risks out of this,” said Fred Cannon, a KBW Inc. bank analyst...

Five years after the Dodd-Frank Act, banks are better-capitalized and have smaller inventories of thinly traded debt, and the firms wouldn’t be materially affected by any contagion from declines in high-yield bonds, according to market participants.

Tuesday, 15 December 2015

Stocks mixed, oil rebounds as investors see great buying opportunity ahead

Markets finished mixed on Monday.

The S&P 500 ended up 0.5 percent as US oil prices rose 1.9 percent.

However, the STOXX Europe 600 plunged 1.8 percent.

In Asia, the Nikkei 225 fell 1.8 percent but the Shanghai Composite Index jumped 2.5 percent.

While oil ended up on Monday, Business Insider reports that many investors remain wary.

Oaktree Capital cofounder Howard Marks said last week at the Goldman Sachs Financial Services Conference in New York that there is “nothing intelligent to be said about the future of the price of oil”.

“There will be more pain in that area,” Blackstone co-CEO and cofounder Steve Schwarzman said at the same event.

However, investors also recognize a buying opportunity.

David Rubenstein, co-CEO of the Carlyle Group, said last week that “the greatest energy investing opportunities we’ve ever seen” could lie ahead.

Monday, 14 December 2015

Stocks fall, limited gains seen next year

Stock markets fell sharply last week.

The S&P 500 fell 3.8 percent, the STOXX Europe 600 fell 4 percent and the MSCI Asia Pacific Index fell 2 percent.

The decline last week left the S&P 500 down 2 percent for the year so far and analysts think that next year will be little better for stocks.

From WSJ's MoneyBeat blog:

Stock prognosticators by nature are an optimistic bunch, but not now.

Their forecasts for 2016 are downright gloomy, with many warning clients to expect more volatility and limited gains.

Saturday, 12 December 2015

Markets tumble as hits keep coming with no where to hide

Markets fell sharply on Friday.

Oil continued its relentless decline. Brent plunged 4.5 percent to its lowest level since 2008. West Texas Intermediate fell 3.1 percent.

"The hits keep on coming," said John Kilduff, a partner at hedge fund Again Capital. "There’s no end in sight for the global glut."

And the hits to oil pushed stocks sharply lower on Friday. The S&P 500 fell 1.9 percent, the STOXX Europe 600 tumbled 2.0 percent and the MSCI Emerging Markets Index plunged 2.2 percent.

The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund tumbled 2.7 percent. “The meltdown in High Yield is just beginning," wrote billionaire investor Carl Icahn.

Indeed, Kevin Kelly, chief investment officer at Recon Capital Partners, told Bloomberg: “There’s no where to hide”.

Friday, 11 December 2015

US stocks rise but fall in oil could have severe consequences

US stocks rose on Thursday. The S&P 500 edged up 0.2 percent.

Other markets continued to fall, however.

The STOXX Europe 600 fell 0.3 percent, its third consecutive decline.

Asia also saw losses, with the Nikkei 225 in particular tumbling 1.3 percent. The Shanghai Composite Index fell 0.5 percent.

There was also no respite for oil. US crude oil fell 1.1 percent.

With oil prices now at the lowest since 2009, Henrik Drusebjerg, chief strategist at Carnegie Investment Bank thinks there will be “severe consequences” for energy companies.

Thursday, 10 December 2015

Stocks fall, debt burden worsens for oil firms

Stocks fell again on Wednesday.

The S&P 500 fell 0.8 percent, pushing the index into negative territory for the year.

Reports of a possible merger between DuPont and Dow Chemical helped the energy sector rise 1.3 percent on Wednesday but there is little doubt that the sector as a whole remains under distress.

From Bloomberg:

As crude plunged to the lowest in more than six years, the average yield on the debt of speculative-grade oil and gas borrowers climbed to 13.4 percent, the highest since the waning days of the global financial crisis in 2009 and the widest divergence ever relative to the broader U.S. junk bond market, Bank of America Merrill Lynch index data show. That’s likely to push more companies to ask their bondholders to restructure debt to avoid bankruptcy, according to corporate-turnaround adviser Stroock & Stroock & Lavan LLP.

Wednesday, 9 December 2015

Markets fall but drop in oil prices may boost economy

Markets fell on Tuesday, again weighed down by weak commodity prices.

The S&P 500 fell 0.7 percent, with the energy sector in particular falling 1.5 percent.

The STOXX Europe 600 fell 1.8 percent. Some of Europe’s biggest miners were hit especially hard. Glencore tumbled 6.9 percent, Anglo American plunged 12 percent and Rio Tinto dropped 8.4 percent.

In Asia, the Shanghai Composite Index sank 1.9 percent while the Nikkei 225 fell 1 percent.

Oil continued its decline on Tuesday. Brent crude fell 1.2 percent while US crude oil fell 0.4 percent.

Some economists, though, think that lower oil prices will boost the economy.

Peter Dixon, an economist at Commerzbank, said that the drop in oil prices “does help to stimulate demand by leaving a little bit of money in the pocket and providing a feel-good factor”.

Michala Marcussen, global head of economics at Societe Generale, estimates that since 2014, the world has enjoyed a windfall equivalent to 2 percent of gross domestic product it would otherwise have spent on crude.

Tuesday, 8 December 2015

US stocks dragged down by oil

US stocks fell on Monday. The S&P 500 declined 0.7 percent, dragged down by energy stocks after oil prices fell to the lowest in almost seven years.

Crude-oil futures in New York fell 5.8 percent after a meeting of the Organization of the Petroleum Exporting Countries ended last week with no agreement to cut production.

The STOXX Europe 600 gave up gains of over 1 percent during the session on Monday to close up 0.5 percent.

In Asia, the Nikkei 225 rose 1 percent while the Shanghai Composite Index gained 0.3 percent.

While oil prices have been tumbling for much of this year, some see a bottom next year. From Bloomberg:

Crude prices will start to recover in 2016 as output from the U.S. and other non-OPEC producers declines, according to the heads of ConocoPhillips and Saudi Arabian Oil Co., the world’s largest oil exporter.

Monday, 7 December 2015

Tighter US labour market may put pressure on corporate margins

The strong US employment report last Friday sent stocks surging but Citigroup may have a different perspective.

From Zerohedge:

First it was Goldman, then JPM, then Credit Suisse, and now it is Citi's turn to turn decidedly downbeat on stocks for next year and just cut its weighing on global equities to neutral. The main reason for Citi's bearishness...: margin sustainability, and rather the dramatic drop in corporate profits in recent months.

Quoting Citi:

Corporate profits as a share of GDP have been at all-time highs, which is just another way of saying the rewards to labour have been at all-time lows. But change may be afoot in the form of modest labour market tightening in the US... Modest nominal wage acceleration combined with global disinflation (price taking by US firms) and lack of productivity growth may mean margins come under pressure from labour costs...

Given the surge back towards the all-time highs in the S&P 500, we think that the best might be over for US equities and that indices might range trade more in 2016. We have downgraded US equities to neutral. This takes our overall equity weighting down to neutral, in many respects an extension of what we’ve been doing for most of this year as richer and richer asset markets, against a global background of economic risks, have made us more cautious.

Saturday, 5 December 2015

US stocks surge after strong employment report but economy may have seen its best

US stocks surged on Friday.

The S&P 500 jumped 2.1 percent after a report showed that the US economy added 211,000 jobs in November, more than economists had forecasted.

Other stock markets did not perform as well on Friday. The STOXX Europe 600 fell 0.4 percent while China’s stocks fell for the first time in five days, with the Shanghai Composite Index retreating 1.7 percent.

Despite the unexpectedly strong jobs data, the US 10-year Treasury yield fell four basis points to 2.27 percent.

That perhaps did not surprise Marios Maratheftis, Standard Chartered’s chief economist. After raising its interest rate this month for the first time since 2006, he thinks that the Federal Reserve will be cutting again before the end of 2016.

“We’ve seen the best for the U.S. economy,” Maratheftis told Bloomberg Television this week. “The Fed will actually be forced to cut.”

In contrast, the median expectation of economists polled by Bloomberg is for the Fed to raise its benchmark rate to 1.25 percent from near zero by the end of next year.

Friday, 4 December 2015

Markets fall after ECB disappoints

Markets tumbled on Thursday.

The S&P 500 fell 1.4 percent while the STOXX Europe 600 plunged 3.1percent.

Government bonds fell, pushing US 10-year Treasury yields up 14 basis points to 2.32 percent and yields on 10-year German notes up 20 basis points.

Markets sold off after the European Central Bank disappointed investors with the scale of additional stimulus following its monetary policy meeting.

“There were huge expectations for Mr. Draghi and the ECB to provide further stimulus at today’s meeting and in the market’s mind they fell short of those expectations,” said Ryan Larson, head of equity trading at RBC Global Asset Management US Inc.

Thursday, 3 December 2015

Stocks fall but holidays could bring more upbeat mood

US stocks fell on Wednesday. The S&P 500 fell 1.1 percent, giving up its gains from Tuesday.

Elsewhere, the STOXX Europe 600 slipped less than 0.1 percent while the MSCI Asia Pacific Index fell 0.2 percent. The Shanghai Composite Index, though, ended up 2.3 percent after a volatile session.

Yields on the US 10-year Treasury note climbed four basis points to 2.18 percent but yields on Spanish and Finnish debt fell to record lows.

West Texas Intermediate crude futures plunged 4.5 percent.

Wednesday's decline notwithstanding, this is the beginning of December, a period which historically has been good for stocks.

According to Mark Hulbert, the average recommended equity exposure among short-term stock market timers monitored by the Hulbert Financial Digest during December is 50.7 percent, markedly higher than the 44.3 percent average across all 12 months of the year.

Hulbert also noted that year-end seasonal strength in stocks became more pronounced in the UK and US around the times that Christmas in the respective countries became public holidays.

Hulbert concluded that "Wall Street’s mood during December is more upbeat than it is in the rest of the year" and that "it’s the holidays that deserve at least some of the credit".

Wednesday, 2 December 2015

US manufacturing shrinks, stocks jump

US manufacturing contracted in November. The Institute for Supply Management reported on Tuesday that its manufacturing index fell to 48.6, the lowest level since June 2009, from 50.1 in October.

The negative news for the economy, however, was shrugged off by US investors. Indeed, the S&P 500 jumped 1.1 percent on Tuesday, its biggest gain since 18 November.

In contrast, the STOXX Europe 600 fell 0.3 percent on Tuesday even though the eurozone manufacturing purchasing managers index rose to 52.8 in November from 52.3 the previous month.

Earlier in Asia, the Shanghai Composite Index edged up 0.3 percent while the Nikkei 225 surged 1.3 percent.

Tuesday, 1 December 2015

Markets mixed, Asia could see better returns in 2016

Markets were mixed on Monday.

The S&P 500 fell 0.5 percent to trim its gain for November to just 0.05 percent.

The STOXX Europe 600 rose 0.5 percent on Monday to finish November with a gain of 2.7 percent.

In Asia, the Shanghai Composite Index rose 0.3 percent on Monday after a volatile session to finish the month with a gain of 1.9 percent while Japan’s Nikkei Stock Average fell 0.7 percent on Monday but gained 3.5 percent for the month.

Asian markets' gains are likely to continue in 2016, according to Credit Suisse strategists Sakthi Siva and Kin Nang Chik.

They say that after the expected impending rate hike by the Federal Reserve, Asian equities could rally as they did in the six months after the first US tightening in 1994 and 2004.

They also say that Asian equities have become cheap and return on equity may be bottoming.