Friday, 30 September 2016

Markets mixed amid concern over Deutsche Bank

Markets were mixed on Thursday.

US stocks fell, with the S&P 500 declinig 0.9 percent, but the STOXX Europe 600 was flat after being up earlier in the session.

Oil rose, with West Texas Intermediate oil rising 1.7 percent.

Stocks were hit after Bloomberg News reported that about 10 hedge funds that do business with Deutsche Bank have moved to reduce their financial exposure.

“The Deutsche Bank situation is major,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management.

Ed Al-Hussainy, senior global interest-rate analyst at Columbia Threadneedle Investments, said that Deutsche Bank’s solvency is not a critical risk yet, but “if it does start to happen, it happens pretty quickly”.

Thursday, 29 September 2016

Stocks rise, oil jumps on prospect of production cut

Markets were mostly up on Wednesday.

US energy stocks jumped 4.3 percent to help drive a 0.5 percent rise in the S&P 500. The STOXX Europe 600 rose 0.7 percent.

US crude oil surged 5.3 percent after the Organization of the Petroleum Exporting Countries agreed on the need for a cut in production of crude oil.

“The cut is clearly bullish,” said Mike Wittner, head of oil-market research at Societe Generale SA.

Not everybody agrees.

Ian Taylor, the head of Vitol Group BV, said he “cannot see a good reason for a major increase in the price of oil” since the market remains “way oversupplied”.

While the jump in oil helped boost most stock markets, the Nikkei 225 fell 1.3 percent.

In bond markets, the yield on the US 10-year Treasury note rose to 1.567 percent from 1.556 percent on Tuesday.

Wednesday, 28 September 2016

Stocks rise, may see increased volatility

Stocks rose on Tuesday.

The MSCI world index rose 0.3 percent. The S&P 500 rose 0.6 percent while the STOXX Europe 600 Index added less than 0.1 percent.

The yield on the US 10-year Treasury note fell three basis points to 1.56 percent.

West Texas Intermediate oil fell 2.7 percent.

Oppenheimer technical analyst Ari Wald thinks that stocks are likely to continue to rise.

"We're not seeing the type of euphoria that you typically see at a major top in the market," Wald said on CNBC on Monday.

In contrast, Kathy Lien, a macro strategist and currency trader at BK Asset Management, told CNBC that there could be "a deeper correction in stocks", including a "Christmas collapse".

In any case, with the approach of October, volatility in the stock market could rise.

A CNBC report noted that October has been a volatile month for stocks during an election year. Since 1992, the CBOE Volatility Index has risen in each of the six presidential-year Octobers, spiking an average 21 percent.

Tuesday, 27 September 2016

Stocks fall, US corporate earnings expected to decline again in third quarter

Stock markets fell on Monday.

The S&P 500 fell 0.9 percent, the STOXX Europe plunged 1.6 percent and the Nikkei 225 tumbled 1.3 percent.

The declines were led by bank stocks amid concerns Deutsche Bank will need to raise capital following an anticipated legal settlement with the US Justice Department.

US stocks may continue to struggle after the latest poll by FactSet showed that companies in the S&P 500 are now expected to report an earnings decline again in the third quarter, the sixth consecutive quarter of declines.

The energy sector of the S&P 500 had the largest downward earnings revision for the third quarter, with earnings now expected to decline 66 percent, the largest among all sectors.

However, US crude jumped 3.3 percent on Monday, providing investors some hope that earnings may turn around soon.

“The market is anticipating we’re going to see a resumption of earnings growth, and I think that’s the right perspective,” said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas.

Monday, 26 September 2016

US stock market "vulnerable" to higher rates

The US stock market is turning into a bubble, according to one economist.

In a research note last week, Lombard Street Research chief economist Charles Dumas wrote that money and credit growth in the US is encouraging another bubble in stock markets.

"The Fed has put market sentiment before the economy yet again. It is doing U.S. stocks no favors by provoking an unnecessary bubble with its certain subsequent burst," wrote Dumas.

"When the Fed gets real and makes the necessary increases, this market could prove much more vulnerable than is traditional in the early stages of a rate-hike cycle," he added.

Black Swan investor Mark Spitznagel said as much.

In an interview with CNBC the previous week, Spitznagel said that low rates and high valuation add up to a stock market that is "extraordinarily sensitive to changes in rates".

And to emphasise how high market valuation is, John Hussman wrote today that on normalized profit margins, the cyclically-adjusted market P/E would be at 36.

Saturday, 24 September 2016

Markets fall, economic indices "rolling over"

Markets fell on Friday.

The S&P 500 fell 0.6 percent, the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 fell 0.3 percent.

US crude oil fell 4 percent.

Some think the decline willl be short-lived.

Peter Tuchman, a floor broker at the New York Stock Exchange for Quattro M Securities, said the decline on Friday was just a breather after “a big move the last two days”.

“Businesses are still growing revenues, expanding margins, improving productivity and raising dividends, and at the end of the day that determines stock prices,” said Doug Foreman, chief investment officer of Kayne Anderson Rudnick Investment Management.

However, Dan Suzuki, Bank of America Merrill Lynch's senior US equity investment strategist, is cautious on stocks. He told CNBC on Friday that indices that track surprises in economic data “have been rolling over pretty hard since” last July.

Friday, 23 September 2016

Stocks rise as central banks maintain monetary support

Markets rose on Thursday.

The S&P 500 rose 0.76 percent, the STOXX Europe 600 jumped 1.6 percent and the Shanghai Composite Index gained 0.5 percent.

The yield on the US 10-year Treasury note fell to 1.630 percent from 1.668 percent on Wednesday.

US crude oil rose 2.2 percent.

“The market has come to the conclusion that everything is fine: central banks are still there, supporting equity markets and keeping yields low,” said Daniel Morris, an investment strategist at BNP Paribas Investment Partners.

“Crossing Wall Street” blog editor Eddy Elfenbein told CNBC that the Federal Reserve keeping rates low “really favors stocks right now”.

However, Chantico Global founder Gina Sanchez thinks that “the market's not really pricing for” a December hike and that investors “should really think about taking some profits”.

Fidelity Investment's director of global macro Jurrien Timmer said on CNBC that, in any case, investors should not expect a significant rally until earnings growth returns.

However, a return of earnings growth is exactly what Wells Capital Management's Jim Paulsen expects. He told CNBC that he expects earnings growth to return in the second half of this year. “I think the market can handle rate increases as long as earnings return,” he added.

Thursday, 22 September 2016

Markets rise as BoJ and Fed maintain easy monetary policies

Markets rallied on Wednesday.

The S&P 500 rose 1.1 percent, the STOXX Europe 600 rose 0.4 percent and the Nikkei 225 jumped 1.9 percent.

US crude jumped 2.9 percent.

The US 10-year Treasury yield fell to 1.668 percent from 1.687 percent on Tuesday.

Markets rose after investors were encouraged by central bank decisions on Wednesday.

The Bank of Japan abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero percent.

Later on Wednesday, the Federal Reserve left its policy interest rate unchanged.

The Federal Open Market Committee said in its statement after the decision: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”

While analysts still see a probable rate hike later this year, Bob Doll, senior portfolio manager at Nuveen Asset Management, said that “the stock market’s breathing a sigh of relief that we’ve got a few more months before we have to worry about an increase”.

Wednesday, 21 September 2016

Markets wait for central bank decisions but BoJ running out of options

Markets were little changed on Tuesday.

The S&P 500 was flat, the STOXX Europe 600 fell 0.1 percent and the Nikkei 225 fell 0.2 percent.

“No one is prepared to take on too much risk ahead of the Bank of Japan and the Fed Open Market Committee meetings,” said Chris Weston, chief market analyst in Melbourne at IG Ltd.

The BoJ's task looks particularly difficult after a report today showed that Japan's exports fell 9.6 percent in August, an 11th consecutive month of decline.

Indeed, Bruce Einhorn at Bloomberg suggested that the BoJ may be running out of options.

“Not even sub-zero interest rates have helped weaken the yen,” he wrote, noting that the yen is up 18 percent against the dollar since the start of the year despite negative interest rates.

Einhorn quoted Tom Murphy, managing partner of Family Office Research and Management in Sydney, as saying that Kuroda's quantitative easing “is losing its firepower”. Marcel Thieliant, Japan economist with Capital Economics in Singapore, said: “They are near the limits of what they can do.”

HSBC economists led by Frederic Neumann wrote: “Short of more radical options like helicopter money and foreign bond purchases, which both seem unlikely for now due to legal and political reasons, officials have few options left to ease policy meaningfully.”

A report last year by Jacob M Schlesinger had already warned as much. “Key policy makers argued Japan’s demography determined its economic destiny, that a contracting population inevitably dictated the country’s deflationary decline,” he wrote.

One of those policy makers was former BoJ governor Masaaki Shirakawa. In May 2012, Shirakawa delivered a speech where he cited global evidence that “the population growth rate and inflation correlate positively”, in “sharp contrast with the recently waning correlation between money growth and inflation.”

Tuesday, 20 September 2016

Chinese stocks rise but surge in credit and house prices reminds of Japanese bubble

Markets were mixed on Monday.

The S&P 500 was little changed but the STOXX Europe 600 rose 1.0 percent and the Shanghai Composite Index rose 0.8 percent.

China's stock market rose despite a report from the Bank for International Settlements that showed that China's credit-to-GDP gap hit 30.1 in the first quarter of 2016, up from 25.4 a year ago and way above the 10 threshold considered to be a sign of potential danger.

Among other things, the surge in credit in China has fuelled what many think is a housing bubble.

“The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,” Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a report last week.

Indeed, China needs to beware of the lesson from Japan's bubble in the 1980s, dubbed the greatest bubble of all time by Ben Carlson.

Carlson wrote that from 1956 to 1986, land prices increased 5000 percent. In the 1980s, share prices increased 3x faster than corporate profits for Japanese corporations.

However, over the next decade, the Japanese stock market lost roughly 80 percent of its value and the economy has been struggling ever since.

Monday, 19 September 2016

US stocks could fall but bull run likely intact

Stock markets were mixed last week.

The S&P 500 rose 0.5 percent but the STOXX Europe 600 fell 2.2 percent and the MSCI All-Country Asia Pacific Index fell 2.3 percent.

While the S&P 500 rose marginally last week, Richard Suttmeier thinks that US stocks are likely to fall in the next few days.

However, Charles Schwab's chief investment strategist Liz Ann Sonders thinks the bull run is still intact.

"Just digesting the fact that central banks are not omnipotent and that we may have to move to other sources of opportunity for both the market and the economy I think is something the market has to digest, but I don't think it kills the bull market," she told CNBC on Friday.

Saturday, 17 September 2016

Markets fall, former Fed official argues for rate cut

Markets mostly fell on Friday.

The S&P 500 fell 0.4 percent and the STOXX Europe 600 fell 0.7 percent. However, the MSCI Asia Pacific Index rose 0.6 percent.

The yield on the US 10-year Treasury note was little changed but US crude fell 2 percent.

“When the Fed starts pulling liquidity back, that increases volatility which will be heightened in the next six to nine months,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company.

Former president of the Federal Reserve Bank of Minneapolis Narayana Kocherlakota thinks that the Federal Reserve should instead add stimulus by cutting interest rates a quarter percentage point at its meeting next week.

In an article for Bloomberg, Kocherlakota pointed out that inflation remains below the Fed's 2-percent target, with markets apparently losing confidence that the Fed will ever reach its target. The Fed is also falling short of its goal of "maximum" employment.

Friday, 16 September 2016

Markets higher but "will be lower"

Markets mostly rose on Thursday.

The S&P 500 rose 1.0 percent and the STOXX Europe 600 rose 0.6 percent.

However, the Nikkei 225 fell 1.3 percent.

Oil prices rose, with US crude rising 0.8 percent.

The yield on the US 10-year Treasury note rose to 1.703 percent from 1.689 percent on Wednesday.

While stocks were mostly positive on Thursday, some analysts see a risk of renewed declines ahead.

"I think we're at a point in time where the path of least resistance in this market is certainly lower and will be lower," Wunderlich Securities' chief market strategist, Art Hogan, told CNBC.

Thursday, 15 September 2016

Markets fall, stocks at risk of correction

Markets mostly fell on Wednesday.

The S&P 500 and the STOXX Europe 600 fell 0.1 percent while the Shanghai Composite fell 0.7 percent.

West Texas Intermediate crude fell 2.9 percent despite a report on Wednesday showing a surprise drop in US inventories.

However, government bonds mostly rose, with 10-year yields falling three basis points in the US and five basis points in Germany.

Japan's 30-year yield rose six basis points though amid speculation that the Bank of Japan will concentrate its bond-buying on short-term securities.

While the fall in stock markets on Wednesday were mild, some see more declines ahead.

UBS technical analysts Michael Riesner and Marc Müller wrote on Tuesday that there is a risk of an 8 to 10 percent correction into late October/early November.

Barbara Kollmeyer at MarketWatch wrote that “we’re working toward a pullback for the S&P 500”.

Wednesday, 14 September 2016

Markets fall as stocks and bonds look overvalued, oil glut to persist

Markets fell on Tuesday.

The S&P 500 fell 1.5 percent while the STOXX Europe 600 fell 1 percent.

US 10-year Treasury yields rose six basis points to 1.73 percent while 10-year German bund yields rose three basis points to 0.07 percent.

Stocks and bonds are vulnerable because fund managers think both are overvalued, based on a survey by Bank of America Merrill Lynch.

Oil also declined on Tuesday. West Texas Intermediate crude fell 3 percent after the International Energy Agency said that world stockpiles of oil will continue to accumulate through 2017, a fourth consecutive year of oversupply.

Tuesday, 13 September 2016

Stocks rebound with Fed divided on rates

Markets rebounded on Monday.

The S&P 500 rose 1.5 percent after Federal Reserve Governor Lael Brainard recommended “prudence in the removal of policy accommodation” in a speech in Chicago.

The STOXX Europe 600 fell 1 percent, cutting an earlier loss of 2 percent.

Earlier, the MSCI Asia Pacific Index fell 1.9 percent.

After the speech by Brainard, the Wall Street Journal concluded that the Fed lacks a strong consensus for action at the coming meeting and is likely to wait until late in the year before raising interest rates.

However, it looks like bankers have had enough of low rates.

“Let’s just raise rates,” JPMorgan Chase Chief Executive Officer Jamie Dimon said on Monday at a discussion at the Economic Club of Washington DC. “You don’t want to be behind the eight ball on this one, and I think it’s time to raise rates.”

Monday, 12 September 2016

Cooling US economy keeps lid on Fed rate hike expectations

Markets fell sharply on Friday on concerns that the Federal Reserve may be about to raise interest rates.

However, Jeffry Bartash at MarketWatch reminds us that economic growth in the United States has not been great.

“A slew of evidence suggests that key segments of the economy such as energy and manufacturing are still struggling and that even some of the strongest sectors of growth have taken a step back,” Bartash wrote over the weekend.

“There are already growing signs the U.S. economy may be cooling down in August into September,” Scott Anderson, chief economist of Bank of the West, was quoted as saying.

“Middling economic growth and low inflation don’t seem like a sign for the Federal Reserve to raise interest rates. And most investors aren’t expecting one when the central bank meets in mid-September,” Bartash concluded.

Saturday, 10 September 2016

Markets fall as interest rates seen rising

Markets fell sharply on Friday.

The MSCI All-Country World Index fell 2.1 percent. The S&P 500 plunged 2.5 percent while the STOXX Europe 600 fell 1.1 percent.

Bonds also fell, with the 30-year yield rising 10 basis points to 0.60 percent in Germany and seven basis points to 2.38 percent in the US.

Markets were shaken after Boston Fed President Eric Rosengren said he supported gradual interest rate hikes. He said on Friday that if rate hikes were delayed, there is a risk that some asset markets like commercial real estate may “become too ebullient”.

This comes a day after DoubleLine Capital Chief Investment Officer Jeffrey Gundlach said “interest rates have bottomed” and told investors to be defensive.

Earlier on Friday, most Asian markets also fell after North Korea conducted another nuclear test. The KOSPI was predictably the worst hit, falling 1.3 percent.

Friday, 9 September 2016

Markets fall as ECB leaves rates unchanged

Markets were mostly lower on Thursday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.3 percent after the European Central Bank left interest rates unchanged at its monetary policy meeting on Thursday.

Earlier, Asian markets were mixed. The Nikkei 225 fell 0.3 percent but the Shanghai Composite rose 0.1 percent after a report showed that Chinese imports rose in August for the first time in almost two years.

German bund yields and the euro rose on Thursday after the ECB announced its decision but economists Simon MacAdam and John Higgins at Capital Economics think the euro will weaken in due course.

“First, we don’t think it will be long before the ECB extends its asset purchase program, which is on track to expire in March 2017. Second, we expect the Fed to hike U.S. rates significantly,” they wrote in a note.

However, ECB President Mario Draghi himself did not hint at an extension of its asset purchases at the news conference following the monetary policy meeting.

Indeed, some analysts worry that extending asset purchases risks distorting market prices. Bloomberg cites analysts at Bank of America “who argue that the ECB's Corporate Sector Purchase Programme (CSPP) could lower company borrowing costs to levels that would spark a wave of leveraged buyouts (LBOs), creating volatility in credit spreads that could shake investors' faith in the central bank and confidence in the market”.

The BofA analysts wrote that that “would be a very challenging type of event risk for the ECB to manage and could sap their enthusiasm for continuing with CSPP”.

Thursday, 8 September 2016

Markets mixed as German industrial production falls

Markets were mixed on Wednesday.

The S&P 500 fell less than 0.1 percent and the Nikkei 225 fell 0.4 percent but the STOXX Europe 600 rose 0.3 percent.

The European Central Bank meets on monetary policy on Thursday. Despite Germany reporting on Wednesday that its industrial production fell 1.5 percent in July, the most in almost two years, analysts had low expectations for action from the ECB.

“There’s every indication they should ease further, but no indication they will at this point,” said Megan Greene, chief economist at Manulife Asset Management.

Wednesday, 7 September 2016

Markets rise as Fed rate hike expectations recede further

Markets were mostly higher on Tuesday.

The S&P 500 rose 0.3 percent, the Nikkei 225 rose 0.3 percent and the Shanghai Composite rose 0.6 percent.

However, the STOXX Europe 600 fell 0.3 percent.

A report from the Institute for Supply Management showing that its US nonmanufacturing index fell to 51.4 last month, its lowest reading since February 2010, boosted stocks by lowering expectations for a Federal Reserve rate hike soon.

The yield on the US 10-year Treasury note fell to 1.544 percent from 1.597 percent on Friday while the US dollar fell.

“Much like its manufacturing cousin, the non-manufacturing ISM poured cold water on expectations for a Fed rate hike later this month, and also called into question the strength of the economy heading into the fall,” said Jennifer Lee, a senior economist at BMO Capital Markets.

Tuesday, 6 September 2016

Russian stocks hit record as oil rises

Markets rose on Monday.

Stocks rose on the back of cooling US rate hike expectations. The Nikkei 225 rose 0.7 percent as Bank of Japan Governor Haruhiko Kuroda signalled its already massive stimulus programme would continue.

Russia's Micex Index also gained 0.7 percent, hitting a second consecutive record high, as oil prices rose after Saudi Arabia and Russia agreed to cooperate in world oil markets.

"Freezing production is one of the preferred possibilities, but it does not have to happen specifically today," Saudi Energy Minister Khalid al-Falih said.

Monday, 5 September 2016

Volatility a buy as markets look vulnerable

As markets become expensive, some investors are buying volatility instead.

From Bloomberg:

With the global hunt for yield getting increasingly difficult as stock market valuations rise, investors are trying to protect their returns while limiting how much risk they take on. That has led the DNB team to go underweight stocks and global bonds, buy CBOE VIX October contracts and boost cash holdings.

“It’s vulnerable,” Varran said in an interview at his office in Oslo. “We see much more that can drag the market down than we see positive surprises. We can’t see where they could come from.”

Saturday, 3 September 2016

Stocks rise as Fed seen less likely to raise rates after US August jobs report

Markets were mostly up on Friday.

The S&P 500 rose 0.4 percent, the STOXX Europe 600 jumped 2 percent and the MSCI Emerging Markets Index climbed 1 percent.

US 10-year Treasury yields rose three basis points to 1.60 percent.

However, US employment rose by 151,000 in August, less than forecast and a 275,000 gain in July.

Bill Gross, manager of the Janus Global Unconstrained Bond Fund, said a Federal Reserve rate hike in September “is on” but Mariann Montagne, a senior investment analyst at Gradient Investments Group, said the latest economic data “indicate the Fed is less likely to raise rates” and Scott Mather, chief investment officer of US core strategies and a managing director at Pimco, said that “September is very unlikely”.

Traders lowered the probability of a Fed rate hike in September to 32 percent on Friday from 34 percent before the jobs data.

Friday, 2 September 2016

Markets mixed as US manufacturing contracts but Chinese manufacturing rebounds

Global markets saw another mixed performance on Thursday.

Both the S&P 500 and STOXX Europe 600 were flat while Asian markets were mixed.

Economic data on Thursday were also mixed.

In the US, the Institute for Supply Management said its index of manufacturing activity fell to 49.4 in August from 52.6 in July, indicating contraction.

However, China reported that its manufacturing PMI hit 50.4 last month, its highest level since October 2014.

Thursday, 1 September 2016

Markets mixed amid falling oil and rising rate hike expectations

Markets were mixed again on Wednesday.

The S&P 500 fell 0.2 percent to end August with a 0.1 percent decline.

The STOXX Europe 600 fell 0.4 percent to end August with a 0.5 percent gain.

The Nikkei 225 jumped 1 percent to end August with a 1.9 percent gain.

While falling oil prices and rising expectations for interest rate hikes have been giving the stock market hiccups, Oppenheimer's head of technical analysis Ari Wald is bullish on stocks.

"The technical setup is very strong here," Wald told CNBC on Tuesday.