•  
Fri, 20th January 2017

Anirudh Sethi Report

  •  

Archives of “stock” Tag

Overnight US Market :Dow closed -72 points

The Dow Jones industrial average erased its gain for the year on Thursday, part of a pullback for stock indexes as Treasury yields continued their upward march.

The Dow Jones industrial average fell 72 points, or 0.4%, to 19,732.40. That puts the Dow down about 32 points for the year and will makes this the fifth straight day of losses. The Standard & Poor’s 500 index fell 0.4% to 2,263.69. The Nasdaq composite fell 0.3% to 5,540.08.

Four stocks fell for every one that rose on the New York Stock Exchange.

Stocks have slowed in 2017 following an electrifying jump higher since Election Day. Investors are waiting to see what a Donald Trump presidency will really mean for stocks. They’ve already seen the optimistic case, as shown in the nearly 6% jump for the S&P 500 since Donald Trump’s surprise victory of the White House, propelled by expectations for lower taxes and less regulation on businesses.

But on the possible downside, increased tariffs or trade restrictions could mean drops in profits for big U.S. companies.

Bond yields continued their march higher, and the 10-year Treasury yield rose to 2.47% from 2.43% late Wednesday. Yields have generally been climbing since Election Day on expectations that President-elect Donald Trump’s policies will spur more inflation and economic growth. The 10-year yield is still below its perch above 2.60% that it reached in mid-December, but it’s well above the 2.09% yield it was at a year ago.

Reports have shown that the U.S. economy has been improving recently, and the latest on Thursday showed encouraging signs for the housing and labor markets. The fewest number of workers sought unemployment claims last week in 43 years, a sign that corporate layoffs are subsiding.

China Orders No Market Selloffs During President’s Davos Trip

As we observed in yesterday morning’s market wrap, while US traders took the day off for the MLK holiday, China was busy defending an accelerating selloff across its stock markets.

During Monday trading, having traded quietly lower for the past few days, Chinese stocks tumbled in early trading on the mainland and in Hong Kong’s offshore market amid weakness in Asian equities. The Shanghai Composite Index dropped as much as 2.2% to head for its fifth loss in as many days, its longest losing streak since Aug. 2015.However a sudden bout of late afternoon buying sent the loss down to just -0.3%, on speculation China’s national team was once again back in the markets.

 

Global Debt Hits 325% Of World GDP, Rises To Record $217 Trillion

While we eagerly await the next installment of the McKinsey study on global releveraging, we noticed that in the latest report from the Institute for International Finance released on Wednesday, total debt as of Q3 2016 once again rose sharply, increasing by $11 trillion in the first 9 months of the year, hitting a new all time high of $217 trillion. As a result, late in 2016, global debt levels are now roughly 325% of the world’s gross domestic product.

In terms of composition, emerging market debt rose substantially, as government bond and syndicated loan issuance in 2016 grew to almost three times its 2015 level. And, as has traditionally been the case, China accounted for the lion’s share of the new debt, providing $710 million of the total $855 billion in new issuance during the year, the IIF reported.

Joining other prominent warnings, the IIF warned that higher borrowing costs in the wake of the U.S. presidential election and other stresses, including “an environment of subdued growth and still-weak corporate profitability, a stronger (U.S. dollar), rising sovereign bond yields, higher hedging costs, and deterioration in corporate creditworthiness” presented challenges for borrowers.

Additionally, “a shift toward more protectionist policies could also weigh on global financial flows, adding to these vulnerabilities,” the IIF warned.

“Moreover, given the importance of the City of London in debt issuance and derivatives (particularly for European and EM firms), ongoing uncertainties surrounding the timing and nature of the Brexit process could pose additional risks including a higher cost of borrowing and higher hedging costs.”

For now, however, record debt despite rising interest rates, remain staunchly bullish and the equity market’s only concern is just when will the Dow Jones finally crack 20,000. 

Sadly, since we don’t have access to the underlying data in the IIF report, we leave readers with a snapshot of just the global bond market courtesy of the latest JPM quarterly guide to markets. It provides a concise snapshot of the indebted state of the world.

VIX Options Traders Flash Major Warning Signal

With VIX at multi-year lows (a 10-handle!!) and stocks at record highs amid Trumpian (Goldman) exuberance, it appears options traders in the VIX complex are anything but “believers.”

SVXY is an ETF that portends to track the inverse of VIX – in other words, as VIX drops, SVXY rises…

 

(ignore the decay issues for now).

So, if a trader buys Puts on SVXY, he is implicitly betting on SVXY dropping which is VIX rising and, ceteris paribus, stocks dropping.

So, despite all the hope; all the promise; all the hype; why are options traders panic-buying SVXY Puts at an extraordinary clip?

Overnight US Market :Dow closed -9 points ( 157 points to kiss 20000 )

Stocks lost steam Friday as the Dow failed in another attempt at topping the 20,000 mark for the first time ever.

The Dow Jones industrial average lost less than 0.1%, down 8 points to finish at 19,843.41. The S&P 500 fell 0.2%, while the Nasdaq composite shed 0.4%.

After an initial jolt from the Fed’s interest rate hike decision this week, markets adjusted to the prospect of more increases that policymakers signaled were in store as they move to “normalize” interest rates. The Fed raised rates for only the second time in a decade and hinted three more hikes are on the way in 2017, rattling markets used to ultralow borrowing costs that have fueled a multiyear stock boom. The Fed’s move now shifts the focus from central bank policy to economic growth as the driver of stock market performance.

Bond yields gave up some of their big gains from the last few days.The yield on the 10-year Treasury fell to 2.58% from 2.60% late Thursday, putting at least a temporary halt to its strong rally since last month’s presidential election.

US 10-year yield climbs above 2.5%, stocks mixed

Oil prices surged to their highest level since July 2015 on Monday raising concerns about inflation and helped push the US 10-year Treasury yield above the 2.5 per cent mark.

The yield on the US 10-year, which moves inversely to price, climbed above 2.5 per cent for the first time in two years to 2.5005 per cent.

“The bearishness in the bond market is even more acute than the bullishness on equities,” David Rosenberg at Gluskin Sheff, said.

Alongside energy prices, Peter Tchir at Brean Capital also said the weakness in Japan “is concerning to global bond investors”. He noted the Bank of Japan had pledge in September to keep the 10-year yield on the Japanese government bond at or below zero per cent. Instead, the JGB is now at nearly 0.8 per cent. That “might be an indication of Central Banks losing their ability or willingness to suppress interest rates,” he said.

Despite the run up in oil prices, the S&P 500 was down 0.1 per cent to 2,257.67, while the Dow Jones Industrial Average was flat at 19,760.14 — less than 300 points shy of breaching the 20,000 level. The Nasdaq Composite was down 0.5 per cent to 5,420.70.

Investors appear to be pausing for breathe following the sharp run up in stocks in recent weeks.

Overnight US Market :Dow closed +35 points

The Dow and Russell 2000 hit new closing highs Tuesday as stock indexes turned positive in the afternoon and stayed there, helped by shares of telecommunications companies such as Verizon, Sprint and AT&T.

The Dow Jones industrial average gained 35 points, or 0.2%. That’s up about 36 points to 19,251.78, its new all-time closing high.

The Russell 2000 soared 1.1%, up 15 points. Its new closing high: 1,352.67.

Also gaining were the S&P 500 and the Nasdaq composite, ending up 0.3% and 0.5%, respectively.

Sprint and T-Mobile shares climbed sharply after President-elect Donald Trump said in a tweet that Japanese company Softbank, which owns the majority of Sprint, was going to invest $50 billion in the U.S. to create 50,000 jobs over the next four years. However, it’s not clear if Softbank’s announcement is new.

U.S. government bond prices rose slightly. The yield on the 10-year Treasury note fell to 2.39% from 2.40% late Monday. In foreign exchange trading, the dollar rose to 114.06 yen from 113.75 yen. The euro fell to $1.0718 from $1.0770.

Italy’s stock market jumped 4.2%, a day after slipping in the wake of the failure of a constitutional referendum that forced the resignation of that country’s premier. France’s CAC 40 added 1.3%, Britain’s FTSE 100 was up 0.5% and Germany’s DAX rose 0.8%.

CEO of India’s National Stock Exchange resigns ahead of IPO filing

Chitra, Chitra RamakrishnaThe head of the National Stock Exchange of India has resigned weeks before the country’s largest exchange was due to file details about a public listing.

The group said on Friday that Chitra Ramkrishna had decided to step down. “Ms Ramkrishna had tendered her resignation due to personal reasons and expressed her desire to step down with immediate effect,” the NSE said in a statement.

Her decision comes as the NSE was due to announce to file with markets regulators about a stock market flotation. The NSE said in June that it would file a draft prospectus by January. Analysts have said a listing could value the NSE at around $6bn.

Most global equities trade on listed exchanges, but plans to float India’s bourses have repeatedly run into problems with the country’s markets regulator, the Securities and Exchange Board of India.

Gundlach Turns Bearish Again: “Stocks Have Peaked, It’s Too Late To Buy The Trump Trade”

Having predicted the Donald Trump victory, and nailing the upturn in US Treasury yields as well as the concurrent stork market rally, DoubleLine’s Jeffrey Gundlach has once again taken the other side of the trade after riding it for the past 3 weeks, and is now considerably less exuberant on Trumponomics.

Speaking to Reuters, Gundlach, who went “maximum negative” on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32 percent and bottom-ticked what may have been a generational low in rates, said that markets could reverse the recent momentum in equities, and at the very latest by U.S. President-elect Donald Trump’s Jan. 20, 2017 inauguration.

The “new bond king” said that the strong U.S. stock market rally, surge in Treasury yields and strength in the U.S. dollar since Trump’s surprising presidential victory more than three weeks ago look to be “losing steam,” Gundlach told Reuters in a telephone interview.

“The bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression – and now this guy is the Wizard of Oz and so expectations are high,” Gundlach said. “There’s no magic here.”

Gundlach had warned last month that federal programs take time to implement, rising mortgage rates and monthly payments are not positive for the “psyche of the middle class and broadly,” and supporters of defeated White House candidate Hillary Clinton are not in a mood to spend money.

There is going to be a buyer’s remorse period,” said Gundlach, who voted for Trump and accurately predicted in January the winner of the presidential election.

What happens next: “The dollar is going to go down, yields have peaked and will move sideways, stocks have peaked as well and gold is going to go up in the short term.”

Chinese Bond Yields Jump Most In 10 Months On “Liquidity Fears”

It is probably a coincidence that one day after we commented on what is emerging as “the market’s next headache”, namely China’s (not so) stealth tightening, which in the last few weeks has led to a creep higher across the curve, the yield on China’s sovereign 10Y bond jumped 6.5bps to 2.94% on what Bloomberg dubbed were “liquidity fears.” This was the biggest one day spike for the benchmark bond since Jan. 25, according to ChinaBond data.

As a result of the selloff, the most actively traded 10-year govt bond futures were down 0.72%, while five-year futures dropped 0.74%.

The tightening was broad-based, with 1-year rate swaps rising 13bps to 19-month high at 3.17%; additionally the overnight repo rate also rose to 2.31%, the highest level this month.

Quoted by Bloomberg, Wu Sijie, bond trader at China Merchants Bank said “tightening interbank liquidity and the expectation of even higher short-term borrowing costs are driving up swap costs and affecting sentiment on the cash bond market.”

Meanwhile, signalling no change at all in its posture, overnight the PBOC drained funds in open-market operations for the fourth consecutive day, bringing the total withdrawal to 130 billion yuan.