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Morning Note March 16, 2016

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Morning Note-

Wed, March 16, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -16bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei -.06ps

08:45ET                                         Update:  [Stockboardasset]FTSE100 -31bps DAX -12bps

All eyes are on the 2pm mark as the FED will announce their assessment of the US Economy. Here are Cliff

Notes from Barclays:

  1. 1. CPI: We expect the headline CPI to have fallen 0.2% m/m on account of sharply lower seasonally adjusted prices for retail gasoli
  2. 2. Housing starts: We forecast housing starts to rise 2.0% m/m to 1.12mn units in February
  3. 3. Industrial production: We look for total industrial production to have declined 0.2% m/m in

February

Global economies are plagued with divergent monetary policies. The US FED entered into a tightening cycle in Dec’15, as many leading economies adopted interest rate cuts rather than tighten. /FF shows the odds of a US Rate Hike by the end of June skyrocketing to 54%. US FX will respond favorably as the FED should be more hawkish with hints of upcoming future rate hikes. This should add pressure on commodities and EM FX. Overnight, Super-Tuesday engulfed the political sphere as Trump wins Florida, Illinois, and North Carolina. According to Gingrich, the Republican Party won’t be able to stop him in a recent interview on Brietbart. Will be interesting how markets view a Clinton vs. Trump race if each can obtain the party nominee. Its fact that markets will view each candidate with a different view on markets.

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Morning Note March 15, 2016

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Morning Note-

Tues, March 15, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -64bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei -200ps

08:45ET                                         Update:  [Stockboardasset]FTSE100 -61bps DAX -96bps

Overnight, the BOJ signaled no policy change and language suggesting an early retirement of NIRP. This was sure a head scratcher for us as the BOJ has sworn on the positive implications of NIRP.

 

From the statement:

  • Maintains 80 trln yen base money target and 0.1 pct negative interest rate
  • To review once every 3 months ratio of reserves for which negative interest rate will be applied
  • BOJ says will exempt money reserve funds (MRF) from negative interest rates
  • Removes language from its statement that it will cut interest rates further into negative territory if judged necessary
  • BOJ will take additional easing steps in 3 dimensions of quantity, quality and interest rate, if needed to hit price target
  • Economy continues to recover moderately as a trend
  • Pickup in exports has recently paused
  • Industrial production has continued to be more or less flat
  • Inflation expectations rising from longer-term perspective but have recently weakened
  • Japan’s economy likely to expand moderately as a trend
  • Uncertainty on emerging economies, impact of fed policy on markets among risks to outlook
  • Global markets have remained volatile
  • Must pay attention to risk that market volatility hurts business confidence, delays a shift from deflationary mindset
  • Will apply zero rates to twice the size of increase in loans banks offer under boj’s loan support programme.

Exemption of MRF from negative rate will take effect from May April

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Morning Note March 14, 2016

Morning Note-

Monday, March 14, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -30bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +30bps

08:45ET                                         Update:  [Stockboardasset]FTSE100 -11bps DAX +74bps

All eyes are on the BOJ and FOMC this week as central bank decisions could dictate trajectories of global markets in an intermediate term. Last month, central banks converged at the G20 to voice major headwinds affecting the global economy. An executive summary states that the global recovery weakened further, along with financial turbulence and falling risk assets was the theme in early 2016. Over the course of the recovery, central banks have cut rates 619 times, excessive monetary policy, and have produced a debt issue stagnating global growth. This comes at a time where the BIS and IMF are issuing warnings about QE and NIRP. The US is in tightening cycle as the FED talked up the USD for nearly a year before implementing /FF tick up in Dec’15. Due to USD demand, a heavy weight was put on commodity prices, and EM FX. The FED will be speaking March 16th as the market does not expect a rate hike. Recent global equity rebound, stabilizing commodities, and inflation stabilizing, we expect an eager FED sooner rather than later to hike.

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Morning Note March 11, 2016

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Morning Note-

Fri, March 11, 16

08:45 ET                                         Update:   [Stockboardasset] S&P futures +81bps

08:45 ET                                         Update:   [Stockboardasset] Nikkei +227bps

08:45ET                                          Update:   [Stockboardasset]FTSE100 +118bps DAX +294bps

US Markets have round tripped after global markets reassess Draghi’s announcement of monetary policy. As we know, the ECB is continuing to press their foot on the easing pedal, as the US Markets are in a tightening cycle. The fact the EURUSD dropped -150bps, to then up thrust +370bps is concerning that the market’s mentality of monetary policy is loosing faith. The Bank for International Settlements on March 6th sounds the alarm of excessive overuse of QE by central banks, as well as the dangers of NIRP. Developed and EM economies have conducted 619 rate cuts throughout this bull cycle producing anemic growth. The IMF on March 10th signals that global growth forecast could get even worse, we add the epicenter of the slowdown starts with China and spirals throughout the global.

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Morning Note March 10, 2016

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Morning Note-

Thur, March 10, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +49bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +174bps

08:45ET                                         Update:  [Stockboardasset]FTSE100 +35bps DAX +203bps

ECB  Cuts Interest Rates, Increase QE to 80B, and Announces 4 new TLRTO ’s:

 

March 2016 ECB interest rate decision 10 March 2016

  • Cuts main refi rate to 0.0% vs 0.05% exp. Prior main refi rate 0.05%
  • Cuts deposit rate to -0.40% vs 0.40% exp. Prior deposit rate -0.30%
  • Marginal lending rate cut to 0.25% vs 0.30% exp. Prior 0.30%
  • 4 new TLRTO’s announced (to be launched in June)
  • QE raised to €80bn extra to start in April
  • Investment grade bonds by non-bank corporations will be included in the QE shopping list
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Morning Note March 9, 2016

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Morning Note-

Wed, March 9, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +65bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +29bps

08:45ET                                          Update:  [Stockboardasset]FTSE100 +59bps DAX +125bps

All attention ahead of Draghai’s ECB Meeting tomorrow, as the market expects, “ Super Mario” to deliver his “big bazooka”. Draghi’s report card of the latest QE Round is an F. The zone is back into deflation, economic activity is anemic, equity markets dismal, and bank fears (DB). The failures of monetary policy have drowned the developed and EM economies in large sums of debt. Just recently, The Bank of International Settlements comments with a sour tone on NIRP and QE. The IMF issues a global growth warning, as well as major credit rating agencies do the same. There is a sense of nervousness rippling through the developed and EM economies. We glance at the Post NIRP environment of Japan produced by the BOJ’s experiment. Overnight, Japan’s Gov’t bond market broke. JGBs had the biggest absolute drop in 3 years as circuit breaks tripped to curb panic. Equity markets and the USDJPY have seen a sharp decline as market participants show fear of NIRP via market price action. Regional equities in Asia continue decline as prior data out of China shows dismal trade numbers.

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Morning Note March 8, 2016

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Morning Note-

 

Tues, March 8, 16

08:45 ET                                         Update:

[Stockboardasset] S&P futures -43bps

08:45 ET                                         Update:

[Stockboardasset] Nikkei -133bps

08:45ET                                         Update:

[Stockboardasset]FTSE100 -76bps DAX -59ps

Welcome to month 80 in the current economic expansion. Cycles typical last for 56 months before a recession hits. The start of a recession is confirmed on a laggard basis, but there are several indicators we follow. In particular, the National Restaurant Association performance index has suffered a sharp job falling below the 100 line indicating a period of contraction. The slope and magnitude of the decline hasn’t been seen since late 2007. We dig deeper in examining payroll taxes withheld by the IRS suggests a negative divergence versus the overall bull cycle, or perhaps we’re transitioning into to a new cycle which may have a downward trajectory.

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Morning Note March 7, 2016

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Morning Note-

Fri, March 7, 16

08:45 ET                                         Update:

[Stockboardasset] S&P futures -43bps

08:45 ET                                         Update:

[Stockboardasset] Nikkei -133bps

08:45ET                                         Update:

[Stockboardasset]FTSE100 -76bps DAX -59ps

 

Over the weekend, China disappoints speculators with a revision of lower GDP, no stimulus, and lower FX reserves. China equities slightly advanced as Goldman Sachs blows up more clients in Iron Ore. Last week, Goldman had the audacity to throw clients short into the rip your face off rally of Gold. As the PBOC comments overnight against NIRP, The Bank of International Settlements raises questions and impact of NIRP and monetary policies. Someone in their management can speak with the BOJ and ECB for their fail experiments. JP Morgan comments on the BOJ seeing their policy meeting pushed back from March -> July. Does the BOJ see a buying dip opportunity in the near term? The Nikkei 225 closed -43bps as an uneventful session transpired, except for Goldman blowing up their clients for the second week in a row. We almost forgot to mention N. Korea releases statements of a pre-emptive Nuclear War with the south as the largest Military Drill with S. Korea and the US are underway. That’s odd, because in Saudi Arabia Northern Thunder is the largest Military Drill ever held being conducted as we speak.

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Oil Note March 6, 2016

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Sunday March 6, 16 Oil Note-

We congratulate OPEC and Russia for truly confusing the WTI market. An advancement of +40% in less than a month on no concrete fundamental developments to the marketplace is remarkable. We believe the short cover was forced by US Banks in the ETF market to advance WTI price to a suitable level for oil companies to complete a massive round of secondary offerings. The size of the round has been the largest equity flow since 1999. This comes at a time where the US Default Rate has surpassed the infamous Lehman Crisis. Banks are avoiding another crisis via this pre- emptive measure, as the banking complex visualizes major headwinds lurk ahead.

The 2 immediate risks of WTI are Cushing Storage and Refineries. Cushing is >80% capacity with just 4-5 months of inventory build left according to GenScape. US Refineries have had a massive widespread cut of gasoline and distillates, which is the most since the great financial crisis, due to storage woes, lackluster demand, and a sluggish winter. On top of the cut, refineries have another 7 weeks of maintenance, which will add additional builds. We saw drastic measures in Feb, by Phillips 66 dumping their Cushing inventory for immediate delivery, which widened the WTI spot of Feb by over $2+ sending WTI spiraling to 26. Forced deliveries are another concern, and Feb events should be a reminder the storm has not passed.

We believe the forced short covering will have a celling of 36.50-40 range. Fundamentals will realign and the narrative of storage woes will be a crude awakening. As banks shore up oil companies via secondary offerings, we can only speculate this is a defensive play for the potential of more WTI downside to come. We believe the clearing process of excess capacity has not occurred yet, and is needed to rebalance the WTI Market. Once this occurs, the rebalancing effort will be under way, and we’ll state a heavy weigh for long positions in WTI. Our targets to the downside are first 30.63, which is a major point of control of the FY’16 balance value area. Next Price may re-visit 26 for a double bottom, and at an extreme clear into the 22.50 -20 range producing a hammer. As the Federal Reserve continues ZLB, the traditional V shape recover is nonexistent.

We end the note in a cautious tone of severe bottlenecks in the WTI patch. The 40% advancement in WTI is/was artificial in nature produced by a short covering to temporary bail out ailing oil companies via equity. The advancement in the WTI price was on no fundamental developments in curing the oversupplied and lackluster demand market, but merely to protect banks from an inevitable crisis. As the Short Cover is unsustainable in terms of slope, we are expecting an unfair high in the 36.50-40 range to produce a reversion back to the point of control of 30.63. The market is positioning for a clear of excess capacity, as banks shore up the viable oil companies. We feel confident in our analysis of an unfair high will be produced in the near term due to the drastic measures banks have undertook, which signals danger ahead.

 

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Morning Note March 4, 2016

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Morning Note-

Fri, March 4, 16

08:20 ET                                         Update:  [Stockboardasset] S&P futures +39bps

08:20 ET                                         Update:  [Stockboardasset] Nikkei +104bps

08:20ET                                         Update:  [Stockboardasset]FTSE100 +43bps DAX +65bps

 

All eyes on the NFP headline print this morning as some renewed pressure in USD, as well as Gold enters into a possible bull cycle. The market is searching for clues for the upcoming FED policies and the stability of US economic growth. Today’s NFP report needs to show increase labor participation, and wage growth to continue the narrative of everything is awesome. The midpoint NFP headline is 180k. Above 180k the narrative of a healthy economy continues and the FED doesn’t have to worry too much about jobs. Below 180k considered a miss will derail the narrative of a healthy economy and lead to possible FED policies undoing’s. When considering the collapse in the Oil/Gas industry, as well as the Technology layoffs i.e. Yahoo cutting 15% staff, we question the viability of such NFP headline. We believe the narrative will continue as a +180k read will maintain calm and the FED is on track.

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