As Bloomberg adds, with the introduction of negative-rate policy, investors particularly banks are investing excess cash in govt bonds yielding more than zero, says Hideo Suzuki, chief manager, forex and financial products trading at Mitsubishi UFJ Trust & Banking, in an interview; says there’s a sense among investors that unless they buy positive-yielding debt now, they won’t be able to purchase them. Well there are always positive yielding US Treasurys, though maybe not for much longer. Going back to oil, it seems that finally the headline chasing algos have run out of steam: "the Saudi comments stating the obvious that the output deal was really not a deal” is weighing on prices, says Global Risk Management, with API also pulling prices lower. It’s "maybe an overreaction to things that were clear days ago, so might be some bargain hunters cashing in their chips. Once again we are seeing lower oil prices halting the emerging confidence in global markets. Lower oil prices continue to raise concerns about EM growth, a credit event among weak oil producers and selling from sovereign wealth funds."
So with the marketwide short squeeze now officially over, global selling of stocks has resumed, dragging down everything from banks to commodity producers as well as emerging markets, while in the US S&P futures have tumbled back down to, or rather just below, the psychological support level of 1900 (and below DeMark's breach level) driven by another day of tumbling USDJPY, but also by the latest surge higher in gold, something which according to Goldman which has by now been stopped out of its gold "short" means systemic risk is once again rising...
Indeed, the bullish euphoria that had gripped markets as recently as Monday is all gone: "It will take some time before market sentiment does turn,” Kerry Craig, global market strategist at JPMorgan Asset Management, told Bloomberg TV in Melbourne. “It’s still very pessimistic. Most investors are very risk averse. You need catalysts or triggers such as an oil price stabilization, clarity about what the Fed is actually going to do and what we see happening with the Chinese currency and economic data." How much changes in just 48 hours based on nothing but HFT algo stop hunting price action and a confirmation of what everyone already knew: that there will be no oil production cuts. While the rest of the risk moves have seen the now all too familiar correlations (Treasuries in Europe and US surging as stocks tumble), another notable plunge has taken place in cable which continues to sell on Brexit fears and overnight dropped below 1.3900. Effectively Boris Johnson has had a more favorable impact on the British currency than a few hundred billion in BOE QE, the local stock market should be cheering on Brexit...
Oh, we almost forgot the key event of the night: Trump's juggernaut in Nevada virtually assures him the GOP presidential nomination barring some calamity. The market is desperately trying to explain to itself if this is bullish or bearish for risk. In summary: European shares dropped the most in two weeks and U.S. stock-index futures also sank. Crude fell through $31 a barrel in New York, after sliding last session, when Iran’s oil minister derided a plan forged by Saudi Arabia and Russia to lock production at January levels. The Russian ruble retreated with Malaysia’s ringgit and the pound weakened below $1.40 for the first time since 2009 on concern the U.K. may exit the European Union. The cost of insuring investment-grade corporate debt rose for the first time in three days, while Treasuries and the yen advanced. Where markets stand now:
•S&P 500 futures down 0.8% to 1900
*) Global Top News;
•Hong Kong Forecasts Slowing Economic Growth as Tourism Slumps: Economy may expand by 1% to 2% in 2016, slower than 2.4% gain last year
•This Is Why Kyle Bass Is Wrong on China Collapse, Says CICC: China International Capital questions parallels between Japan in 1990, China now
•Goldman’s Ex-Southeast Asia Chairman Leissner Leaves Firm: Tim Leissner helped build the investment bank’s Malaysia business
•Asia Hedge Funds Top Rankings as Jiang Pounces in Panicky Market: Performance by Segantii, Sylebra, Greenwoods, Tybourne shows industry matured in Asia
•Steven Cohen’s Point72 Said to Add Ai Yoshino as Trader in Asia: Yoshino most recently worked for Mitsubishi UFJ Securities as equity sales trader
•Wanda to Announce ‘Major Deal’ This Week, Chairman Wang Says: Chinese conglomerate has been on an acquisition spree this year
•Fortescue CFO Sees $1 Billion Firepower to Further Reduce Debt: Cutting debt remains company’s strategic focus, CFO Stephen Pearce says
•Chinese Coal Miners Said to Lobby Government for Price Floor: A request to Premier Li Keqiang was made in January in Shanxi
# Looking at regional markets, Asian equities traded lower following the negative close on Wall St. driven by the decline in oil prices after the Saudi Oil Minister dismissed a production cut, while the latest API figures showed a significant build of 7.1mIn bbls. ASX 200 (-2.16%) and Nikkei 225 (-0.85%) were pressured from the open with the latter back below 16000, while sentiment in Australia was further dampened by several poor earnings results from the likes of Fortescue, BHP and Wesfarmers. Chinese markets also conformed to the negative tone, with casino losses leading the declines in Hong Kong, while the Shanghai Comp (+0.88%) saw relatively subdued price action amid a lack of any significant catalyst and the PBoC remaining relatively neutral on the CNY reference rate. 10yr JGBs traded higher (10yr yield reached record low of -0.04%) amid weakness in riskier assets while the BoJ also entered the market for JPY 1.26tr1 of government debt.
*) Asian Top News;
•Hong Kong Forecasts Slowing Economic Growth as Tourism Slumps: Economy may expand by 1% to 2% in 2016, slower than 2.4% gain last year
•This Is Why Kyle Bass Is Wrong on China Collapse, Says CICC: China International Capital questions parallels between Japan in 1990, China now
•Goldman’s Ex-Southeast Asia Chairman Leissner Leaves Firm: Tim Leissner helped build the investment bank’s Malaysia business
•Asia Hedge Funds Top Rankings as Jiang Pounces in Panicky Market: Performance by Segantii, Sylebra, Greenwoods, Tybourne shows industry matured in Asia
•Steven Cohen’s Point72 Said to Add Ai Yoshino as Trader in Asia: Yoshino most recently worked for Mitsubishi UFJ Securities as equity sales trader
•Wanda to Announce ‘Major Deal’ This Week, Chairman Wang Says: Chinese conglomerate has been on an acquisition spree this year
•Fortescue CFO Sees $1 Billion Firepower to Further Reduce Debt: Cutting debt remains company’s strategic focus, CFO Stephen Pearce says
•Chinese Coal Miners Said to Lobby Government for Price Floor: A request to Premier Li Keqiang was made in January in Shanxi
# In Europe, equities can be seen suffering once again this morning, with Euro Stoxx drifting lower throughout the morning (-1.9%), taking the impetus from a lacklustre Asian session and with the usual suspects of energy, materials and financial sectors weighing on the indices. Given the aforementioned underperformance, high profile material names BHP Billiton (-7.2%), Glencore (-5.8%) and Anglo American (-6.1%) are all among the worst performers in Europe, while Standard Chartered (-5.2%) have also seen a continuation of weakness after yesterday's earnings.
*) European Top News;
•Draghi Has Two Weeks to Map ECB Plan That Won’t Let You Down: When ECB policy makers meet from March 9-10, they’ll consider whether negative interest rates and EU60b a month of debt purchases is enough to revive consumer prices
•Bayer Names Werner Baumann to Succeed Marijn Dekkers as CEO: Named chief strategy and portfolio officer Werner Baumann to succeed CEO Marijn Dekkers after April shareholders meeting
•Airbus Profit Gains 1.6% on A350 Ramp-Up, Break-Even on A380: 2015 Ebit before one-offs EU4.1b, est. EU4.38b; figures held back by higher development spending; cranks up production after order rush for new jets; says 2016 earnings set to be stable
•Peugeot Promises New Profit Plan With Restructuring Complete: To resume paying a dividend, 1st since 2011, from this year’s earnings, 5% oper. margin was more than double 2018 target
•Delta Lloyd Shares Surge After Rights Offer Cut to $715m: Bowed to investor pressure and cut the size of a rights offer to EU650m; said in Nov. aimed to raise as much as EU1b
•Man Group Declines After Profits Fall on Performance Fees Drop: FY adj. pretax fell to $400m vs $481m y/y, est. $455m
•How Low Could Pound Go in a ‘Brexit’? Economists See 1985 Levels: 29 of 34 economists see drop to $1.35 or below on leave vote; GBP already at seven-year low as EU campaign heats up
# In FX, it has been a busy morning and certainly so if you are GBP trader with a brief respite in Cable through 1.4000 quickly followed up by heavy selling, talking the pair down below 1.3900, the lowest level since the 2009 crisis. The focus is already on the 2009 lows just under 1.3500. EUR/GBP has been pushed higher, and we are nearing the .7900 level here despite moderate losses in EUR/USD, which has traded below the previous session lows, to just under 1.0975. More bids seen to 1.0950. USD/JPY is lower, but cross/JPY likely to be seeing more of the flow, the spot rate holding off the Tuesday base as yet. GBP/JPY is through 156.00, EUR/JPY 123.00. The oil related currencies are all softer along with WTI and Brent, but no panic moves like we saw earlier in the year.
Even, so USD/CAD is back through 1.3800. Lower crude prices dragged on the currencies of oil exporters Russia and Malaysia. The ruble dropped 2.5 percent and the ringgit fell 0.6 percent. The Bloomberg Dollar Spot Index added 0.2 percent. Japan’s yen climbed versus all of its major counterparts, strengthening 0.3 percent to 111.81 per dollar. China’s yuan fell for a fourth day as the People’s Bank of China set its reference rate at the lowest level in almost three weeks. Figures from the nation’s foreign-exchange regulator released Tuesday afternoon showed banks net sold overseas currencies to their clients for a seventh straight month in January. The yuan weakened 0.13 percent to 6.5359 against dollar, according to China Foreign Exchange Trade System prices. The central bank cut the reference rate by 0.04 percent to 6.5302 following a 0.17 percent reduction on Tuesday.
# In commodities, it remains all about oil, as WTI futures slid as much as 3.3 percent in New York, below $31 once again this time on the April contract. Saudi Arabia’s proposal to cap output at January levels puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh said Tuesday, according to the ministry’s news agency Shana. Ali Al-Naimi, his counterpart from Saudi Arabia, said at a conference in Houston that high-cost producers should bear the burden of reducing the current surplus and reaffirmed the kingdom’s commitment to last week’s accord. Crude is down 17 percent this year on speculation a global glut will persist amid the outlook for increased shipments from Iran and brimming U.S. supplies, which are at the highest level in more than eight decades. The nation’s stockpiles expanded by 7.1 million barrels last week, the industry-funded American Petroleum Institute was said to report Tuesday. Copper led losses in industrial metals on concerns that rising stockpiles in China signal continued weak demand in the world’s biggest consumer. Inventories in warehouses tracked by the Shanghai Futures Exchange have more than doubled to a record since the end of August, bourse data show. Copper for delivery in three months slid 1 percent in London.
# On the US calendar there will be some focus on the flash services (expected to nudge up 0.3pts to 53.5) and composite PMI’s for February, while January new home sales data is also due out. The latest Fedspeakers due up will be Lacker who is set to talk on monetary policy and growth, as well as Kaplan later this evening who is due to talk on current economic conditions and monetary policy.
*) Bulletin Headline Summary from Bloomberg and RanSquawk;
•European equities take the impetus from the weak Asia lead with the usual suspects (Financial, Material and Energy) leading the region lower.
•GBP yet again underperforms amid the continuous concerns surrounding a potential Brexit with GBP/USD printing fresh 7-yr lows.
•Looking ahead highlights include US services PMI, DoE crude inventories reports as well as comments from Fed's Lacker, Bullard, Kaplan and BoE's Cunliffe
•Treasuries higher overnight as global equity markets and commodities, ex-precious metals, resume selloff; U.S. auctions continue today with $34b 5Y notes, WI yield 1.17%, compares with 1.496% awarded in January.
•A British exit from the European Union would be so devastating for the pound that 29 out of 34 economists in a Bloomberg survey see it sinking to $1.35 or below within a week of a vote to leave, levels last seen in 1985.
•China scrapped limits on the amount of funds that foreign institutional investors can put into its interbank bond market, the latest step to lure capital from abroad as outflows weigh on the yuan
•China International Capital Corp’s economists published a rebuttal of hedge-fund manager Bass’s assessment where he stated that China’s banking system may see losses of more than four times those suffered by U.S. lenders during the 2008 credit crisis
•U.S. Treasury Secretary Jacob J. Lew downplayed expectations for an emergency response to global market turbulence when Group of 20 finance chiefs and central bankers meet this week in China
•JPMorgan’s investment bank said revenue from sales and trading has tumbled about 20% this year, providing an early gauge of the pain inflicted on Wall Street’s biggest firms by the global market rout battering investors
•Donald Trump’s dominating victory in the Nevada caucuses pushes him further out ahead of his nearest competitors for the Republican presidential nomination, giving his unorthodox candidacy a major boost heading into Super Tuesday contests next week
•$11.15b IG corporates priced yesterday (YTD volume $255.4b) and $250m HY priced (YTD volume $11.375b)
•Sovereign 10Y bond yields mostly steady; European, Asian markets drop; U.S. equity- index futures lower. Crude oil and copper fall, gold rises....
