Today - Saturday, August 29, 2015
- The sharp rally from Monday's panicky bottom is typical, says Felix Zulauf in a Barron's interview, and these recoveries tend to last for a few days to a few weeks, before the lows eventually get retested. Thanks to the continuing collapse of the Chinese bubble, it's Zulauf's hunch stocks will take out new lows in the next wave of selling.
- Like Latin America in the early 1980s, Mexico in 1994, Asia in 1997, and Russia in 1998, China has a balance-of-payments issue. The currencies involved in those instances fell 40-70%. Even if the yuan only falls 30% (it's down 10% already) - with China being the world's largest exporter - the price deflation translates into declining sales, profit margins, and profits for companies across the globe.
- "Central banks can’t solve the problem by providing more liquidity because liquidity isn’t the issue," says Zulauf. "We have plenty of liquidity; we don’t have enough borrowing capacity." What it means is lower prices, lower inflation, and lower interest rates. "The stock market will have to adjust to this new reality."
- At the start of the year, Zulauf predicted the Fed wouldn't hike rates in 2015, and he's sticking to that view. A tightening now "will probably send the wrong signal to the market, and at the wrong time."
- Yuan ETFs: CYB, CNY, FXCH
- China equity ETFs: FXI, ASHR, CAF, YINN, PGJ, GXC, FXP, YANG, CHIX, CHN, PEK, MCHI, TDF, XPP, YAO, GCH, ASHS, YXI, CN, CHXF, FCA, CNXT, CHNA, KBA, JFC, AFTY, CHAU
- Broad U.S. large-cap ETFs: CRF, VV, USA, SCHX, ZF, FEX, JKD, EEH, EQL, IWL, ERW, FWDD, ZLRG, SYE, SBUS
- Citigroup is touting notoriously volatile natural gas as a possible haven for investors weary of the market's wild swings.
- The U.S. gas market is "an oasis amid market turmoil," Citi's Anthony Yuen says - its supplies are cut off from overseas markets, and relatively steady demand comes largely from the need for heat and power; also, "the lower oil prices get and the worse that financing conditions for producers become, the better for gas prices."
- In the current bumpy environment for other commodities, gas’s isolation should appeal to investors looking for a calmer market, the firm says; gas has stayed at $2.50-$3.00/MMBtu since the spring, a far cry from the days when it could jump between $4 and $10 in a matter of months.
- Others are not so sure: "The volatility, when it comes in natural gas, it comes like no other asset class," says Oppenheimer's George Zivic. “It is by no means benign. It is just benign now, at the end of the summer, when we have a lot of supply."
- ETFs: UNG, UGAZ, DGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, DCNG
Friday, August 28, 2015
- The Dow and S&P 500 are lower by about 0.5%, but the energy sector continues to charge ahead as oil extends yesterday's 10% moonshot by another 6.5% in today's session to $45.33 per barrel.
- The Energy Select SPDR (NYSEARCA:XLE) is ahead 1.8%, outperforming the S&P 500 by about 230 basis points.
- Previously: Oil continues surge; gold on the move as well (Aug. 28)
- ETFs: XLE, VDE, ERX, OIH, XOP, ERY, DIG, DUG, BGR, IYE, IEO, FENY, PXE, FIF, PXJ, NDP, RYE, FXN, DDG, DRIP, GUSH
- The U.S. oil drilling rig count continue a six-week streak of small increases, rising by one to 675, according to the latest weekly data from Baker Hughes.
- Over the past six weeks, the number of active oil rigs has risen by 37, though only five have been added in the past four weeks; the oil rig count is down significantly from last October’s high of 1,609.
- Natural gas fell by nine to 202, with the combined rig count slipping by eight rigs to 877.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, OLEM
- Outflows from emerging market bond funds like EMB hit $4.2B in the week ending Aug. 26, the second-largest amount ever. Overall emerging market net outflows of $10.5B were the largest since early 2008.
- Turning back to bond funds alone, outflows over the last three weeks of $7.5B represent 2.9% of AUM, says Morgan Stanley.
- EMB is lower by more than 5% since a late-April high, and in stocks, EEM is off nearly 20% over the same time frame.
- Previously: Record amount pulled from stock funds (Aug. 28)
- ETFs: EEM, VWO, EDC, EMB, PCY, EDZ, TEI, SCHE, EDF, IEMG, ELD, EDD, EMLC, EMF, MSF, EEV, GHI, VWOB, ADRE, EMD, EDI, EET, EUM, MSD, GMM, SBW, DBEM, LEMB, EMAG, EEME, EBND, EMCR, FEM, XSOE, EWEM, HEEM, EMLB, EMSH, EMSA, EMFT, KEMP, FEMB, KLEM
- Airline stocks are holding up pretty well considering the strong breakout in oil prices over the last two days.
- The sector didn't rally in full force as oil broke to multi-year lows earlier this week, giving it some leeway with today's move. The wild swings in oil prices also brings the question of hedging strategy back into play. Strategic bets may prime earnings or be a drag depending on timing. American Airlines Group (NASDAQ:AAL) doesn't hedge and just rolls with the market. Delta Air Lines (NYSE:DAL) and United Continental (NYSE:UAL) prefer to hedge against a sudden spike in oil.
- The U.S. Global Jets ETF (NYSEARCA:JETS) is +0.66% on the day, helped in part by a big rally in UAL after its addition to the S&P 500.
- Slightly in the red for most of the morning following yesterday's melt-up, crude oil has turned sharply higher again in the past few minutes, now up 3.75% to $44.16 per barrel. Black gold had traded south of $38 during Monday's panic.
- Asleep for most of the week as the markets tossed and turned, gold has moved higher by 1.15% to $1,135.50 per ounce.
- There's no particular news out, but an appearance on CNBC by leading Fed dove Kocherlakota (not a FOMC voter this year) makes for a good excuse. Given the weakening inflation numbers, the Minneapolis Fed boss said a near-term rate hike would not be appropriate. More interesting, he's not against consideration of QE4, and says the Fed still has asset-purchase tools.
- ETFs: GLD, USO, OIL, IAU, UCO, PHYS, UWTI, SCO, SGOL, BNO, DBO, UGL, DWTI, DGP, GTU, GLL, DTO, UGA, UGLD, DZZ, USL, GLDI, OUNZ, DGL, DNO, DGZ, DGLD, AGOL, UHN, OLO, SZO, GEUR, UBG, GYEN, OLEM, QGLDX
- UBS lines up three transportation stocks it sees as trading at attractive valuations.
- FedEx (FDX -0.2%): The shipping giant trades at a discount to UPS and is leveraged to e-commerce growth, notes the investment firm. The UBS price target of $195 implies 27% upside potential.
- Knight Transportation (KNX +2.9%): Lower fuel costs and strong GDP numbers bode well for the trucking stock. UBS has a price target of $33.
- Kansas City Southern (KSU +0.9%): UBS thinks additional capacity could make a difference for the railroad. A 19% breakout for shares to $111 is seen.
- Related ETFs: IYT, XTN.
- Brazil's economy shrank 1.9% in Q2, missing forecasts for negative 1.7%. Investment fell 8.1% - its eight straight quarter of decline and the longest streak since the current data series started in 1996. Household consumption dropped 2.1%, its worse decline since 2001. Government spending rose 0.7%. The year-over-year inflation rate was 9%.
- "The drop in consumption shows the crisis of confidence the economy is facing," says an economist. "This is going to be an intense and prolonged recession and I don't see a recovery this year."
- The lame economic activity could spell doom for Brazil's credit rating - currently just above junk status.
- The Bovespa is lower by 0.4%. EWZ -1.15%
- ETFs: EWZ, BRF, BRZU, EWZS, BRXX, BRAQ, BZQ, BRAZ, BRAF, UBR, DBBR, FBZ
- Calling it "Total Risk Surrender" and capitulation, BAML says $29.5B was yanked out of stock funds in the week ended Wednesday, a record since the numbers began being kept in 2002.
- The action on Tuesday was especially stunning - an outflow of $19B, the most since the global financial crisis (chart here) - and, for now, coinciding with the exact bottom of the current bear move.
- ETFs: CRF, VV, USA, SCHX, ZF, FEX, JKD, EEH, EQL, IWL, ERW, FWDD, ZLRG, SYE, SBUS
- Core prices as measured by personal consumption expenditure - the Fed's preferred inflation gauge - rose just 1.2% Y/Y in July, down down from the 1.3% pace of the year's first half. Overall PCE prices rose just 0.3% Y/Y. The Fed target is 2%.
- The gauge is as backward-looking as it gets, so what might the future hold? Weakness in China and another downshift in commodity prices could portend even higher deflationary pressures in the States, say economists.
- The 10-year Treasury yield is down four basis points to 2.14%. TLT +1.1%, TBT -2.2%
- Previously: Post rebound, Fed speakers lean hawkish (Aug. 28)
- ETFs: TBT, TLT, TMV, TBF, EDV, TMF, TTT, ZROZ, TLH, SBND, VGLT, UBT, DLBS, TLO, TENZ, LBND, DLBL, TYBS, VUSTX
- Near the lows of this weak's panic, FRBNY President Dudley essentially took a September rate hike off the table. With the averages having turned around by about 7% since, Fed heads are singing a different tune this morning - it's how today's central bankers roll.
- St. Louis Fed President Bullard tells Bloomberg the recent market volatility shouldn't affect the trajectory of the economy, and he would question the need to alter policy because of it.
- Speaking to the WSJ, Cleveland Fed boss Loretta Meister says while the markets have gotten her attention over the last couple of weeks, the shakiness hasn't altered her opinion that the economy is ready for tighter policy.
- ETFs: SHY, IEF, PST, IEI, BIL, TYO, DTYS, UST, VGSH, SHV, VGIT, SCHO, TBX, SCHR, GSY, TYD, ITE, DTYL, DTUS, DTUL, SST, TUZ, DFVL, FIVZ, TBZ, DFVS, TYNS, SYTL
- After being down more than 5% late in the day on Tuesday, the S&P 500 was up about 2% for the week at the close yesterday, but looking to shave some of that gain at the open - futures are down 0.9%. DJIA and Nasdaq 100 futures are down 1%.
- Fed Vice Chairman Stanley Fischer may give a clue about whether a September rate hike is coming when he speaks at Jackson Hole later this morning.
- Shanghai gained another 4.8% overnight and the Nikkei climbed 3%. After a strong open, Europe has turned modestly lower.
- The 10-year Treasury yield is down four basis points to 2.15%, gold is up $4 per ounce to $1,127, and oil is lower by a quarter to $42.35 per barrel after skying about 10% yesterday.
- ETFs: SPY, QQQ, DIA, SH, SSO, SDS, VOO, IVV, UPRO, PSQ, SPXU, TQQQ, SPXL, RSP, QID, SQQQ, QLD, DOG, DXD, RWL, UDOW, EPS, SDOW, DDM, VFINX, BXUB, QQEW, QQQE, SPLX, SFLA, BXUC, QQXT, SPUU, UDPIX, OTPIX, RYARX
- Crude prices are steadying after bouncing back from six-and-a-half-year lows on positive U.S. growth numbers, recovering equities markets and reports of an emergency OPEC meeting.
- On Thursday, oil saw its biggest one-day bounce since 2009 with North Sea Brent and U.S. light crude rising more than 10%.
- WTI crude is now on track for its first weekly gain in nine weeks, ending its longest losing streak since 1986.
- Crude futures -1.3% to $42.03/bbl.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, OLEM
- Chinese shares rallied for a second day and the yuan gained the most since April on speculation authorities took several more measures to prop up the equities market.
- In one wild week, China became the epicenter of a global selloff, with a five-session crash starting last Thursday triggering steep losses in U.S. and European stocks - only to be followed by surges.
- The Shanghai Composite index closed the session up 4.9%, paring its loss for the week to just over 10%.
- ETFs: FXI, ASHR, EWH, CAF, YINN, KWEB, PGJ, GXC, FXP, HAO, YANG, TAO, CHIX, CHN, PEK, CHIQ, CQQQ, MCHI, TDF, QQQC, XPP, YAO, GCH, ASHS, YXI, CN, CHXF, FCA, CHNA, CNXT, CHII, ECNS, CHIE, EWHS, CHIM, KBA, KFYP, FCHI, JFC, FHK, AFTY, CHAU
- North Korean leader Kim Jong Un is calling this week's accord between the rival Koreas "a landmark occasion" for improved ties, but said it was the strength of its armed forces that made the deal possible.
- Officials from the two nations held three-days of marathon talks after an exchange of fire across their border, raising fresh hopes for a push to restore talks and exchanges that had been cut off since 2010.
- South Korea's KOSPI Index +1.6% to 1,938.
- ETFs: EWY, KF, KEF, KORU, DXKW, FKO, HKOR, DBKO, QKOR, HEWY
- The Bank of Japan's key inflation gauge slumped to zero for a third time this year, heightening pressure on policymakers to offer fresh monetary support to reflate the world's third-largest economy.
- Although Japan's core consumer price index was unchanged in July from a year earlier, other data provided a mixed picture for the start of the third quarter.
- Household spending unexpectedly fell, retail sales rose 0.6% from June, and the job market remained tight (job-to-applicant ratio rose to 1.21).
- Nikkei +3% to 19,136.
- ETFs: DXJ, EWJ, DFJ, DBJP, NKY, JOF, EZJ, JEQ, JPNL, DXJS, EWV, SCJ, HEWJ, JSC, ITF, JPP, QJPN, FJP, DXJT, JPMV, DXJR, DXJC, DXJH, JHDG, DXJF, JPN, JDG, HGJP
Thursday, August 27, 2015
- Better not get too excited about today's 10% spike in crude oil, as brokers and traders said much of the big gains were driven by traders closing out short bets against the market as prices surged.
- Bets by financial investors in the market that prices will fall were at their highest level since early April, according to the CFTC's most recent data last week.
- Ed Morse, head of global commodity research at Citigroup, says he "wouldn’t be surprised" if WTI drops below $30/bbl later this year before rebounding and actually needs to drop to that level since prices above $30 will not trigger production cuts.
- ETFs: USO, OIL, XLE, UCO, UWTI, VDE, ERX, OIH, SCO, XOP, BNO, DBO, DWTI, ERY, DIG, DTO, DUG, BGR, USL, XES, IYE, IEO, IEZ, DNO, FENY, PXE, PXI, FIF, PXJ, DBE, OLO, SZO, NDP, RYE, RJN, FXN, OLEM, DDG, JJE, ONG, UBN
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