Posts Tagged ‘currencies’

Wall Street Banks Warn Winter Is Coming as Business Cycle Peaks

August 23, 2017


By Sid Verma and  Cecile Gutscher

August 22, 2017, 12:47 PM EDT August 23, 2017, 4:48 AM EDT
  • HSBC, Citigroup, Morgan Stanley say end of market boom is nigh
  • Breakdown in trading patterns is signal to get out soon
 Image result for Morgan Stanley, signage, photos

Gallo Says Investors Are Looking for Next Piece of Sugar

HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.

Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.

“Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, wrote in a note published Tuesday.

His bank’s model shows assets across the world are the least correlated in almost a decade, even after U.S. stocks joined high-yield credit in a selloff triggered this month by President Donald Trump’s political standoff with North Korea and racial violence in Virginia.

Morgan Stanley

Just like they did in the run-up to the 2007 crisis, investors are pricing assets based on the risks specific to an individual security and industry, and shrugging off broader drivers, such as the latest release of manufacturing data, the model shows. As traders look for excuses to stay bullish, traditional relationships within and between asset classes tend to break down.

“These low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07,” Sheets wrote. He recommends boosting allocations to U.S. stocks while reducing holdings of corporate debt, where consumer consumption and energy is more heavily represented.

That dynamic is also helping to keep volatility in stocks, bonds and currencies at bay, feeding risk appetite globally, according to Morgan Stanley. Despite the turbulent past two weeks, the CBOE Volatility Index remains on track to post a third year of declines.

Morgan Stanley

For Savita Subramanian, Bank of America Merrill Lynch’s head of U.S. equity and quantitative strategy, signals that investors aren’t paying much attention to earnings is another sign that the global rally may soon run out of steam. For the first time since the mid-2000s, companies that outperformed analysts’ profit and sales estimates across 11 sectors saw no reward from investors, according to her research.

“This lack of a reaction could be another late-cycle signal, suggesting expectations and positioning already more than reflect good results/guidance,” Subramanian wrote in a note earlier this month.

Zero Alpha Beats – Bank of America Corp

Oxford Economics Ltd. macro strategist Gaurav Saroliya points to another red flag for U.S. equity bulls. The gross value-added of non-financial companies after inflation — a measure of the value of goods after adjusting for the costs of production — is now negative on a year-on-year basis.

“The cycle of real corporate profits has turned enough to be a potential source of concern in the next four quarters,” he said in an interview. “That, along with the most expensive equity valuations among major markets, should worry investors in U.S. stocks.”

The thinking goes that a classic late-cycle expansion — an economy with full employment and slowing momentum — tends to see a decline in corporate profit margins. The U.S. is in the mature stage of the cycle — 80 percent of completion since the last trough — based on margin patterns going back to the 1950s, according to Societe Generale SA.

Societe Generale SA

After concluding credit markets are overheated, HSBC’s global head of fixed-income research, Steven Major, told clients to cut holdings of European corporate bonds earlier this month. Premiums fail to compensate investors for the prospect of capital losses, liquidity risks and an increase in volatility, according to Major.

HSBC Holdings Plc

Citigroup analysts also say markets are on the cusp of entering a late-cycle peak before a recession that pushes stocks and bonds into a bear market.

Spreads may widen in the coming months thanks to declining central-bank stimulus and as investors fret over elevated corporate leverage, they write. But, equities are likely to rally further partly due to buybacks, the strategists conclude.

“Bubbles are common in these aging equity bull markets,” Citigroup analysts led by Robert Buckland said in a note Friday.

— With assistance by Cecile Vannucci


U.S. stock futures edge higher as ‘Super Thursday’ arrives

June 8, 2017

Comey hearing, U.K. election and ECB meeting are all on deck Thursday

Stocks Inch Up Ahead of Comey Testimony, U.K. Election

Getty Images
Comey will testify before a Senate panel that is investigating if Russia interfered in the 2016 U.S. election



Wall Street was set for a slightly upbeat open, with markets taking a cautious tone as the “Super Thursday” of event risks finally arrived.

Futures for the Dow Jones Industrial Average YMM7, +0.14%  climbed 36 points, or 0.2%, to 21,199, while those for the S&P 500 index ESM7, +0.14%  added 3.85 points, or 0.2%, to 2,435.75. Nasdaq-100 index futures NQM7, +0.23%  gained 10.25 points, or 0.2%, to 5,890.

Investors were focusing on Thursday’s trio of events that could shake up markets: the U.K. general election, a European Central Bank policy meeting, and testimony from former Federal Bureau of Investigation Director James Comey’s on alleged Russian interference in the 2016 U.S. presidential election. Comey is scheduled to speak at 10 a.m. Eastern Time.

Read: What to watch when James Comey testifies to the Senate on Thursday

Comey’s prepared remarks to the Senate Intelligence Committee, released on Wednesday, helped stocks recover from losses late in the session. The Dow average DJIA, +0.18%  and the S&P 500 SPX, +0.16%  each ended up 0.2%, and the Nasdaq Composite Index COMP, +0.36%  closed 0.4% higher.

See: Comey’s juicy Trump account leaves some big questions unanswered

“Although Comey’s testimony has attracted most of the media headlines, we didn’t see any significant disclosures from the prepared remarks released yesterday,” said FXTM chief market strategist Hussein Sayed.
Comey’s Statement on Trump Meetings Reads Like a Screenplay

“While we cannot assume anything, a base case scenario would not be a big surprise to arise from Comey’s testimony before Congress. I think that the ECB meeting and the U.K. election are the risk events that will produce the big moves today,” he added in a note.

The ECB delivers its rate decision at 7:45 a.m. Eastern, followed by President Mario Draghi’s news conference at 8:30 a.m. Eastern. The central bank is widely expected to leave rates on hold, but is seen downgrading its inflation forecast.

Read: Why the ECB can take only ‘baby steps’ toward ending ultraloose monetary policy

In the U.K., voters headed to the polls in an election that turned out to be much more uncertain than anyone had predicted. Opinion polls are still giving Prime Minister Theresa May’s Conservative Party the lead, but the big question is whether the party will increase its majority in parliament. Polling stations close at 10 p.m. London time, or 5 p.m. Eastern, and the first exit polls will be released immediately after.

Read: U.K. election—these are the stocks and sectors to watch once the result is in

Also read: U.K. election: The worst, best and most likely scenarios for stocks world-wide

The pound GBPUSD, -0.1698%  traded at a two-week high as voting got under way, buying $1.2977, compared with $1.2960 late Wednesday in New York.

Economic news: A reading on weekly jobless claims is due at 8:30 a.m. Eastern, followed by a quarterly survey of services at 10 a.m. Eastern.

See: MarketWatch’s economic calendar

Stock movers: Shares of Yahoo! Inc. YHOO, +8.80%  climbed 8% in premarket trade. The move came after news late Wednesday that up to 1,000 layoffs are expected at the combined Yahoo and AOL companies set to be bought by Verizon Communications Inc. VZ, +0.13%

Advanced Micro Devices Inc. AMD, +2.91%  gained 1.4% ahead of the bell. The rise builds on recent days’ sharp rally following upbeat comments from Apple Inc.AAPL, +0.31%  and brokers regarding the chip maker.

Shares of Alibaba Group Holding Ltd. BABA, +11.55%  jumped 12% before the open after the Chinese e-commerce giant said revenues are expected to grow between 45% and 49% in 2018.

Other markets: Stocks in Asia closed mostly higher, although Japan’s Nikkei 225 index NIK, -0.38%  bucked the positive trend. The losses in Tokyo came after the yen jumped on reports the Bank of Japan is running simulations of exits from quantitative easing.

European stocks were little changed ahead of the ECB meeting and the U.K. election result.

Oil prices CLN7, -0.57%  rose 0.7%, rebounding after posting the biggest drop since March in Wednesday’s session. That slump followed a report of an unexpected climb in U.S. stockpiles.

Gold GCQ7, -0.67%  fell 0.4%, while the dollar DXY, +0.20%  was little changed against other major currencies.

Trump’s Currency Complaints Hit Unexpected Targets

February 17, 2017

Top-five trading partners China, Japan and Germany brush them off; Taiwan and Switzerland seem to be paying heed


Feb. 17, 2017 3:47 a.m. ET

HONG KONG—U.S. President Donald Trump’s accusations of currency manipulation appear to be reaching an audience he may not have primarily intended.

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies,…

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies , while his top trade adviser Peter Navarro has accused Germany of benefiting from what he termed the “grossly undervalued” euro .

All three countries, which rank among the U.S.’s top five trading partners, have brushed off the Trump administration’s claims.

“No one has the right to tell us that the yen is weak,” Japan’s finance minister Taro Aso told parliament on Wednesday, following last weekend’s meeting between Mr. Trump and Prime Minister Shinzo Abe . Japan hasn’t directly intervened in currency markets since 2011 following a major tsunami and resulting Fukushima nuclear disaster.

“The charge that Germany exploits the U.S. and other countries with an undervalued currency is more than absurd,” Jens Weidmann , the president of the German central bank, said earlier this month.

China hasn’t directly commented on Mr. Trump’s criticisms, but most analysts say Beijing recently has been propping up the yuan by selling foreign-currency reserves rather than looking to weaken it.

Still, some smaller economies look like they are taking notice, notably Taiwan and Switzerland. The U.S. Treasury found in October that both had engaged in persistent, one-way currency intervention, essentially by buying foreign currencies like the U.S. dollar and selling their own to maintain weak exchange rates.

Image may contain: 2 people

Analysts say the central banks of Switzerland and Taiwan are now stepping back from those activities, perhaps to avoid closer scrutiny from the Trump administration. The upshot: The Swiss franc has advanced nearly 2% against the U.S. dollar this year, while the new Taiwan dollar has surged 5.3%. Both have outperformed the euro and yen since the U.S. election in early November.

Taiwan’s central bank bought $500 million in foreign currencies in the fourth quarter, well below its quarterly average of more than $3 billion since 2012, according to Khoon Goh , head of Asia research at ANZ in Singapore, who said he suspects it is stepping back from “currency-smoothing operations.” The central bank said it doesn’t comment on currency policy.

For the first nine months of last year, the Swiss National Bank /quotes/zigman/1379668/delayed CH:SNBN +0.12% intervened heavily in currency markets to slow the franc’s rise, spending an amount roughly equivalent to its current-account surplus for the period, J.P. Morgan/quotes/zigman/272085/composite JPM -0.76% analysts note. Over the following four months, the scale dropped to around two-thirds of the surplus.

“It’s not an entirely fanciful suggestion that the SNB might be tapering intervention in order to the guard against the risk of being cited by the U.S. Treasury as a currency manipulator,” the analysts wrote in a note.

The Swiss National Bank declined to comment.

For the U.S. to label an economy a currency manipulator under the current law, it must have a large trade surplus with the U.S. and a hefty current-account surplus and persistently intervene in the currency in one direction. As of October, no economies met all three criteria.

Recent comments from officials in South Korea, which the Treasury has flagged for its hefty trade surplus with the U.S. and its current-account surplus, suggest they’re similarly eager to avoid U.S. ire, says Govinda Finn , senior analyst at Standard Life Investments in Edinburgh. The Korean won has surged 5.2% against the dollar this year.

But any gains in the Korean and Taiwanese currencies due to U.S. political pressure may not last, he said: “On a longer-term horizon, there’s a pretty strong case to say both of those currencies can and will weaken as the authorities look to support their economies.”

Jenny W. Hsu contributed to this article.

Write to Saumya Vaishampayan at

Brexit: The stock market is telling us that the British establishment will be in freefall for some time to come

June 28, 2016
There are many potential visions for the UK after Brexit

For once, the market reaction is not an exaggeration. Investors have been seriously wrongfooted by the result of the UK referendum. But the shock of City traders on Friday morning is nothing compared with the stunned response of the people who thought they ran the country.

One way or another, we know markets will find their level — dramatically so, in the case of the pound. The British establishment will be in freefall for some time to come.

David Cameron will be blamed for setting us on this course — for putting the interests of Conservative party unity ahead of the country. For business people and policymakers outside the UK, the decision to trigger all the uncertainty of a referendum has long seemed a self-inflicted and entirely unnecessary wound. But the stark regional divide in the voting underscores that there is plenty of blame to go round.

It is not only Conservative governments that have failed to rebalance Britain’s economy in recent years — failed to give the country’s post-manufacturing hinterland a stake in London’s truly global success. It should be no surprise that large numbers have now voted to put that cosmopolitan prosperity at risk.

The economic and political questions raised by this vote will not be answered for years, possibly decades. But three immediate questions present themselves for investors and the wider world.

The first is how long the “risk-off” mood now permeating markets will last, and how much damage it will do. A prolonged decline in market confidence globally would make it more difficult for the US central bank to contemplate higher interest rates in the second half of this year, particularly with the presidential election looming. It would also put pressure on central banks with safe haven currencies, such as the yen and the Swiss franc, to ease policy to prevent them rising even further. At the extreme, it could persuade investors that the next bear market is nearer than they previously thought.

Whether that happens will depend on investors’ answers to the second immediate question, which is: how much damage will this do to real economic activity in the UK and further afield.

The best estimate has been that the shock will take at least a percentage point off the UK’s growth rate over the next year. So the annualised pace of growth in gross domestic product would fall from 1.6 per cent to about 0.6 per cent in the second half of 2016, with a similar growth rate in 2017. The fall in the pound would push inflation up to 3 or 4 per cent by the end of 2017, although given the slowdown in the economy we would expect that to be temporary.

Clearly, there is huge uncertainty around those estimates, and about the likely impact on growth in the eurozone, which we reckon to be in the order of 0.4 percentage points of GDP over a similar period.

If this rough assessment is right, the Brexit vote has produced a large shock, but a local one. There will be an economic and financial impact on the rest of the world, and especially Europe, but it should be manageable. Whether the political implications will also be containable, particularly in Europe, is another matter.

Brexit: short shock or a reset in asset values?

That brings us to the third, and probably most important, question: what, exactly, will the UK leave to? There has been a lot of discussion already of the mechanics of Britain’s exit and how long it will all take. But the thorniest questions for the Leave side right now are not technical. They are profoundly philosophical.

Many leading figures in the Leave coalition want Britain to throw off the shackles of Brussels and seize the opportunities that the modern global economy presents. Yet many of the voters who chose Brexit are hoping for exactly the opposite.

There are many potential visions for the UK after Brexit — not all of them disastrous. But there is none that would allow the country to be both open and closed — both to embrace the future and to turn back time. The real indictment of the Remain campaign is that, in all these months, they never got this basic incoherence in the Leave side across.

The writer is the chief markets strategist for Europe, JPMorgan Asset Management

Asia Stocks Lower Amid Fears of U.S. Rate Hike Fragility of China’s Economy

May 18, 2016

The Associated Press

May 18, 2016

KUALA LUMPUR, Malaysia — Asian shares fell Wednesday amid concerns that higher-than-expected U.S. inflation could trigger rate hikes. Shares in Tokyo also fell, ceding initial gains from better-than-expected GDP data, and China markets succumbed to a fresh bout of pessimism.

KEEPING SCORE: Japan’s Nikkei 225 stock index shed 0.1 percent to 16,644.69. The Shanghai Composite index dropped 1.9 percent to 2,788.20 and Hong Kong’s Hang Seng lost 1.7 percent to 19,786.00. South Korea’s Kospi lost 0.6 percent to 1,956.73. Australia’s S&P/ASX 200 fell 0.7 percent to 5,356.20.

JAPAN’S SURPRISE: Annual growth in the first quarter of the year was a faster-than-expected 1.7 percent, the government reported. Solid consumer demand and higher government spending helped offset weak business investment and sluggish exports.

CHINA GLOOM: Recent data have come in weaker than hoped, underscoring the fragility of China’s economy. Meanwhile, investors appeared disappointed by a lack of fresh market-boosting initiatives from Beijing during a visit by a top Communist Party official, Zhang Dejiang, to Hong Kong.

WALL STREET: The Dow Jones industrial average lost 180.73 points, or 1 percent, to 17,529.98. The S&P 500 index gave up 19.45 points, or 0.9 percent, to 2,047.21. The Nasdaq composite pulled back 59.73 points, or 1.3 percent, to 4,715.73.

ANALYST VIEWPOINT: “U.S. investor nerves were triggered by a stronger than expected read on headline CPI for April. The question of whether underlying US inflation surprises to the upside this year is near the top of the list for major market issues at the moment. If it does, U.S. rate hikes could be in prospect,” Ric Spooner, chief market analyst for CMC Markets, said in a research note.

ENERGY: U.S. crude oil rose 6 cents to $48.37 a barrel in electronic trading on the New York Mercantile Exchange. It rose 59 cents to $48.31 a barrel in New York. Brent crude, used to price international oils, gained 5 cents to $49.32. It rose 31 cents to $49.28 a barrel in London.

CURRENCIES: The dollar was flat at 109.14 yen. The euro slipped to $1.1285 from $1.1314.

Global stocks mostly advanced on Friday after the Federal Reserve’s decision on slowing the pace of rate hikes — Japan down

March 18, 2016

Associated Press

A pedestrian is refracted on an electronic stock at a securities firm in Tokyo Friday, March 18, 2016. Asian stocks mostly advanced on Friday as higher prices for commodities, including crude oil, pushed Wall Street stocks higher overnight. But shares in Tokyo fell as the yen’s strength worried investors. (AP Photo/Eugene Hoshiko)

Associated Press March 18, 2016, at 5:45 a.m.

By YOUKYUNG LEE, AP Business Writer

SEOUL, South Korea (AP) — Global stocks mostly advanced on Friday after the Federal Reserve’s decision on slowing the pace of rate hikes underpinned sentiment, boosting prices for oil and other commodities. But shares in Tokyo fell as the yen’s strength worried investors.

KEEPING SCORE: Britain’s FTSE 100 rose 0.2 percent to 6,213.77 and Germany’s DAX was up less than 0.1 percent at 9,894.80. France’s CAC 40 added 0.2 percent to 4,450.83. Wall Street was set to start moderately higher. Dow futures gained 0.2 percent and S&P futures also rose 0.2 percent.

ASIA’S DAY: Japan’s Nikkei 225 fell 1.3 percent to 16,724.81 while South Korea’s Kospi added 0.2 percent to 1,992.12. Hong Kong’s Hang Seng index rose 0.8 percent to 20,671.63. The Shanghai Composite index in mainland China rose 1.7 percent to 2,955.15 while Australia’s S&P/ASX 200 gained 0.3 percent to 5,183.10. Stocks in Taiwan, Singapore and Indonesia were higher.

ANALYST’S TAKE: “A lot of the worries on the worry list from early this year have faded,” Shane Oliver, head of investment strategy at AMP Capital in Sydney, Australia, said in a daily commentary. Oliver cited the stabilization of the Chinese renminbi, the halt in the U.S. dollar’s rise, eased fears about a U.S. recession and higher crude oil and commodity prices.

JAPAN: The stronger yen added to selling pressure in Tokyo, given concerns over the likely impact on profits of major exporters. Toyota Motor Corp.’s shares fell 2.3 percent, Nissan Motor Corp. was down 1.8 percent and robot maker Fanuc Corp. lost 1.2 percent.

FED EFFECT: The Federal Reserve’s decision on Wednesday for a more gradual pace of rate increases weakened the U.S. dollar, which in turned pushed up demand for commodity products that are traded in dollar terms. “The fact that we have seen one of the biggest two-day sell-offs in the U.S. dollar in the last seven years is the focal point for markets,” said Chris Weston, chief market strategist at IG in Melbourne, Australia, said.

OIL: Benchmark U.S. crude shed 21 cents to $39.99 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.74, or 4.5 percent to finish at $40.20 per barrel on Thursday, closing above $40 a barrel for the first time since early December. Brent crude, the benchmark for international oils, fell 17 cents to $41.36 per barrel in London. Oil prices crossed a threshold of $40 per barrel earlier in the day, higher than they were at the end of 2015, but still far lower they have been for most of the last decade.

CURRENCIES: The dollar extended losses that began with the Federal Reserve’s decision to slow the pace of its rate increases while the yen gathered strength as investors sought safe haven assets. The dollar rose to 111.32 yen from 111.30 yen. The euro fell slightly, to $1.1276 from $1.1319.

What’s behind the global stock market selloff?

February 12, 2016
Money | Thu Feb 11, 2016 7:30pm EST

Global stock markets are on their shakiest footing in years.

Investors are fleeing stocks and running to safe-havens like bonds and gold, driven by concerns about economic growth and the effectiveness of central banks’ policies.

At the same time, tumbling energy prices are upending the economies of oil-producing countries, further slicing into global economic growth.

Only six weeks ago cheap oil prices were still expected to cushion the global economy, and the Federal Reserve’s decision in December to raise interest rates for the first time since the end of the financial crisis in 2008 was widely seen as a vote of confidence in the world’s largest economy.

In addition to the fall in U.S. stock markets, major stock indexes worldwide have also been hit hard, despite efforts by the Bank of Japan and the European Central Bank to spur growth through lower interest rates.

Large institutions and sovereign wealth funds, who borrowed in euro and yen, have been selling riskier assets, and are now buying back those currencies, undermining central bank efforts.

With Thursday’s decline, the S&P 500 stock index has lost 10.5 percent so far in 2016, its worst start to a year in history, according to Bespoke Investment Group, an investment advisory in Harrison, New York. The 10-year note’s yield has fallen to 1.63 percent, its lowest closing level since May 2013.

Here are some of the chief issues weighing on the market now.


The slump in equity prices which began late last year has deepened as banks grapple with negative interest rates in parts of Europe and Japan and the flattening of the U.S. Treasury yield curve.

“One of the new themes in markets is that (quantitative easing) has damaged the banks and that therefore it exacerbates the risk-off environment,” said Steve Englander, managing director and global head of G10 FX strategy at Citigroup in New York.

Negative interest rates on central bank deposits and on government bond yields undermine the traditional ability of banks to profit from the difference between borrowing costs and lending returns.

With a decline of 18 percent on the year, S&P 500 financials are by far the worst performing sector in 2016.

While the Federal Reserve has avoided introducing negative rates on reserves, in Congressional testimony on Thursday, Fed Chair Janet Yellen told lawmakers that the Fed would look into negative interest rates if needed.

“I wouldn’t take those off the table,” she said.


Higher levels of U.S. oil output, thanks to fracking technology, along with over-production by Saudi Arabia, contributed to a world-wide oil glut, sparking a steep fall in energy and other commodity prices at the start of last year.

At $27 a barrel, oil prices are now near 13-year lows and some analysts say they expect to see prices drop further.

Tumbling oil prices resulted in sharp contractions in the economies of oil-producing countries, and pushed up yields on corporate debt, leading to defaults in the energy sector.

“Investors whose livelihood revolve around oil and gas and commodities are liquidating because they need the cash,” said Stephen Massocca, chief investment officer at Wedbush Equity Management in San Francisco.


Markets now do not expect the Fed to go ahead with its planned interest rate rises this year. The federal funds futures market now shows traders are not expecting the Fed to raise rates until at least February of next year. At one point on Thursday, futures contracts were even pricing in a slight chance of a rate cut this year, and investors said some of the rally in gold prices resulted from the possibility of a rate cut.

The move in fed funds futures has been accompanied by a rapid decline in the spread between short-dated and long-dated U.S. Treasury securities. The difference between the 2-year Treasury note yield and 10-year note yield has narrowed to 0.95 percentage points, the tightest it has been since December 2007. The flattening of the yield curve has often preceded recessions in the past.

The narrowing yield curve spread shows investors are less confident of economic growth, even though Yellen told Congress on Wednesday that U.S. economy looks strong enough that Fed may stick to its plan to gradually raise interest rates.

“Part of the problem is that the Fed is in a no-man’s land right now: not dovish enough for the doves and not hawkish enough for the hawks, so it’s not satisfying any point of view in the investment markets,” said Terri Spath, chief investment officer at Santa Monica-based Sierra Investment Management.


There are few signs yet that investors are dumping their holdings wholesale, typically a mark of a market bottom, said Alan Gayle, director of asset allocation at RidgeWorth Investments in Atlanta.

“It still seems to be focused on specific issues, whether it’s credit or it’s oil. But clearly there is a more defensive tone that the market is taking and we’re watching for signs of capitulation,” he said.

Similarly, Credit Suisse noted that hedge funds have been selling in February, but the scope of that selling “lacks the much anticipated capitulation trade that would signal a bottom.”

Credit Suisse also noted that macro-focused hedge funds have built up large U.S. equity short positions which have been a decent indicator of market direction in the past.

Even if the severity of the selling tapers off, 2016 will likely continue to be a bad year for stocks, said Mohannad Aama, managing director at Beam Capital Management in New York. The S&P 500 stock index is down approximately 10.3 percent for the year to date, while the Nasdaq Composite is down more than 15 percent over the same time.

“Although we’ve being seeing good job numbers, the general feeling is that the U.S. economy is nearing a peak and there is not much left as far as trends to be talked about,” Aama said.

(This version of the story was refiled to add dropped word in paragraph 2)

(Reporting by Lewis Krauskopf, Ann Saphir, Howard Marcus, Saqib Ahmed, Jennifer Ablan, Chuck Mikolajzcak and David Randall. Writing by David Randall and David Gaffen.)

Citi: World economy seems trapped in ‘death spiral’

February 5, 2016


The global economy seems trapped in a “death spiral” that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.

Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.

“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”

Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel.

“The death spiral is in nobody’s interest. Rational behavior, most likely, will prevail,” he said in the report.

Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies.

Global Stocks Fall on Oil Price Weakness — Worry grows for the health of the global economy

February 2, 2016

Renewed decline in oil prices triggers a slide in energy shares


An oil pump in Bahrain. The price of oil continues to fall as hopes for a deal on production cuts fade. Photo: Associated Press

Stocks around the world fell Tuesday as sliding oil prices added to concerns about the health of the global economy.

Brent crude oil was down 3.1% at $33.19 a barrel and West Texas Intermediate fell below the $31 mark as hopes for a deal on production cuts faded.

Stocks in Europe and Asia moved lower, while futures pointed to a 0.7% opening loss for the S&P 500. Changes in futures don’t necessarily reflect market moves after the opening bell.

Steep declines in the oil price have hit equity markets hard this year as investors fear it might signal slack in demand from the world’s largest energy consumers.

While low oil prices should boost consumer spending and help companies save on costs, the underlying concern among investors is whether the decline in oil prices and economic weakness in China foreshadow a global recession, said David Donabedian, chief investment officer at Atlantic Trust Private Wealth Management.

While Mr. Donabedian doesn’t believe a global recession is imminent, he expects stocks to struggle to regain traction in the coming weeks given the persistent headwinds around China, oil, and the corporate earnings season.

The Stoxx Europe 600 fell 1.5% halfway through the session, with losses concentrated in the energy and banking sectors.

Adding to the downbeat tone, BP reported a sharp quarterly loss, sending shares in the company down 7.9%, while UBS Group also reported a fall in fourth-quarter net profit.

“People are nervous about global growth,” said Stephen Macklow-Smith, head of European equities strategy at J.P. Morgan Asset Management, noting many of the emerging markets that have struggled this year are also large producers of raw materials.

Falling oil prices recently prompted Nigeria to request emergency funding from the World Bank, while the Russian ruble fell to its weakest ever level against the dollar this year.

Stock markets are likely to continue to move in tandem with the oil price “until clearer direction emerges on the underlying health of the economy,” said Mr. Macklow-Smith.

Earlier, stocks in Asia ended mostly lower. Japan’s Nikkei Stock Average closed down 0.6%, while the commodity-heavy S&P ASX ASX -3.23 % 200 fell 1% after the Reserve Bank of Australia held interest rates steady as expected.

The Shanghai Composite Index, however, climbed 2.3% after China’s central bank injected more liquidity into the financial system ahead of the weeklong Lunar New Year holiday.

Tuesday’s moves followed a flat finish on Wall Street, as falling oil prices cut into Friday’s gains.

After U.S. markets closed, Alphabet reported a surge in profitability at its main Google Internet businesses last year. Shares gained in after-hours trading, helping Alphabet surpass Apple as the most valuable publicly traded company in the world.

In currencies, the dollar was down 0.1% against the yen at ¥120.8230, while the euro was up 0.1% against the dollar at $1.0916 after data showed the eurozone’s unemployment rate continued to edge down.

In metals, spot gold in London was down 0.5% at $1,124.38 an ounce, while the London Metal Exchange’s three-month copper contract was up 0.8% at $4600 a metric ton.

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U.S. stocks, dollar fall on Fed’s nod to market turmoil

January 28, 2016
World | Thu Jan 28, 2016 1:19am EST

Wall Street stocks and the dollar fell on Wednesday as the Federal Reserve held U.S. interest rates unchanged, as expected, and said it was closely monitoring global economic and financial developments.

The Fed’s more cautious outlook reduced the likelihood it would raise rates by a quarter-point four times this year, which hurt the greenback, but its latest assessment on the economy did not wipe out the chances of a possible rate increase in March, which disappointed some stock investors.

“The Fed did the right thing by not making any significant changes, if they did come out and sound overly dovish I think that would effectively shut the door on a March hike,” said Tom Porcelli, chief economist at RBC Capital Markets in New York.

The Fed’s acknowledgement of risks to the domestic economy, with oil prices hitting 12-year lows and jitters about Chinese growth, revived some safe-haven bids for gold and U.S. Treasury debt prices.

Oil futures clung to earlier gains, brushing off the Fed’s more cautious outlook since its December policy meeting when the central bank raised rates for the first time in nearly a decade.

“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation,” the Federal Open Market Committee, the Fed’s policy-setting group said in a statement.

New Zealand’s central bank also decided to leave local interest rates unchanged but said more easing may be required due to low inflation.

Analysts and investors said the statement signalled U.S. policymakers have scaled back their view on the chances of a rate hike at its next meeting in March.

U.S. interest rates futures implied traders see a 29 percent chance the Fed will raise rates at its next policy meeting in March, down from 31 percent late on Tuesday, according to CME Group’s FedWatch programme.

Prior to the FOMC statement, U.S. stock prices were buoyed by a rebound in crude prices following data showing a jump in weekly demand for oil products and news Russia was discussing a possible output pact with OPEC.

Brent oil LCOc1 settled up $1.30 or 4.09 percent at $33.10 a barrel, while U.S. crude futures CLc1 ended up 85 cents or 2.70 percent at $32.30 a barrel.

The Dow Jones industrial average .DJI fell 222.77 points, or 1.38 percent, to 15,944.46, the S&P 500 .SPX declined 20.68 points, or 1.09 percent, to 1,882.95 and the Nasdaq Composite .IXIC shed 99.51 points, or 2.18 percent, to 4,468.17.

Apple and Boeing’s disappointing forecasts also helped drag U.S. stock indexes lower.

Earlier on Wednesday, the pan-European FTSEurofirst 300 index .FTEU3 rose 0.4 percent at 1,340.76. Chinese shares .CSI300 ended stronger, and Tokyo’s Nikkei .N225 finished 2.7 percent higher.

The dollar index .DXY, which gauges the greenback against six currencies, was down 0.4 percent at 98.97.

The New Zealand dollar fell 1 percent against the greenback NZD=D4 at $0.6431 following the Reserve Bank of New Zealand’s policy statement.

In the bond market, benchmark 10-year Treasury note yields US10YT=RR fell to 2.00 percent from 2.05 percent before the statement, ending little changed on the day.

Traditional safe-haven gold rose for a third straight day to its highest level since early November, last up 0.46 percent at $1,125.37 an ounce XAU=.

(Additional reporting by Karen Brettell in New York; Marc Jones, Amanda Cooper in London; Editing by Nick Zieminski and Meredith Mazzilli)