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02Jun2015 Market Update: Markets Recover From Morning Doldrums, Further Losses Expected

Written by Gary

U.S. stocks were lower in late morning trading, paring some of their losses earlier in the session, as weak factory orders data and bearish comments from a Federal Reserve board member allayed fears of a rate hike coming sooner rather than later.

Driven by no immediate fundamental or news catalyst, the U.S. Dollar crashed.

Here is the current market situation from CNN Money

North and South American markets are mixed today. The IPC is up 0.38% while the S&P 500 gains 0.12%. The Bovespa is off 0.06%.

Traders Corner - Health of the Market

Index Description Current Value Members Sentiment: % Bullish (the balance is Bearish) 57%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 41%
Investors Intelligence sets the breath Above 50 bullish 57.7% Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. -26.87 NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 56.42% NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 62.41% S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 64.00% 10 Year Treasury Note Yield Index ($TNX) ten year note index value

22.71 Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 76.93 NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 11,079

What Is Moving the Markets

Here are the headlines moving the markets.

U.S. May auto sales race to strongest pace in nearly decade

DETROIT (Reuters) - The U.S. auto industry remained on track for the best sales year in almost a decade as consumers bought cars and trucks at the fastest pace since early 2006.

Exclusive: Hedge funds propose Macy's unlock real estate value-sources

NEW YORK (Reuters) - Several hedge funds have asked U.S. department store company Macy's Inc to consider options for its real estate, including selling some major sites and then leasing them back, according to several sources close to the matter.

Wall Street pares losses as data, Fed comments allay rate hike fears

(Reuters) - U.S. stocks were lower in late morning trading, paring some of their losses earlier in the session, as weak factory orders data and bearish comments from a Federal Reserve board member allayed fears of a rate hike coming sooner rather than later.

Greece, creditors line up rival reform proposals to unlock aid

ATHENS/PARIS (Reuters) - Greece's creditors are close to finishing a draft agreement to put to the leftist government in Athens, a source close to the talks said on Tuesday, injecting new momentum into long-running negotiations to release aid for the cash-strapped country.

Too big to succeed? Investors want 'radical surgery' at HSBC

LONDON (Reuters) - No longer feared as "too big to fail", shareholders are weighing whether HSBC is now "too big to succeed", and want to know next week how the bank's bosses propose to increase profitability at a sprawling group beset by huge costs.

Petrobras's Bondholders Defy History, Present and Future

Buyers of Petrobras's 100-year bond are prioritizing yield over any appreciation of the energy industry's volatile track record.

It's Official: The "Helicopter Money" Calls Have Begun

Towards the end of April, we discussed how QE has led to a global deflationary supply glut. This is a theme we've been building on for a while now and, as noted on Monday, it is perhaps nowhere more evident than among US oil producers. Here is how we have described the dynamic:

The premise is simple. By keeping rates artificially suppressed, the central banks of the world effectively make it impossible for the market to purge itself of inefficient actors and loss-making enterprises. As a result, otherwise insolvent companies are permitted to remain operational, contributing to oversupply and making it difficult for the market to reach equilibrium.

The textbook example of this dynamic is the highly leveraged US shale complex which, by virtue of both artificially low borrowing costs and the Fed-driven hunt for yield, has retained access to capital markets in the midst of the oil slump and has thus continued to drill contributing to the very same price declines that put the entire space in jeopardy in the first place.

Furthermore, those who have access to easy money overproduce but unfortunately, they do not witness a comparable increase in demand from those to whom the direct benefits of ultra accommodative policies do not immediately accrue.

Global demand, as we've seen, is in the doldrums. The evidence is everywhere. Goldman sees freight rates remaining subdued until at least 2020. BofAML notes that the slump in global trade of goods and services has extended into Q2. Perhaps most telling of all, the International Labor Organization blames lackluster global demand ...

From May-hem to Junemaggedon??

So after the carnage in the currencies and European fixed income we now have even more fun to look forward to this month.

At the time of writing the bund has taking a severe pounding ,dropping 1.80 or over 12 B.P.!!!

June could really be a momentous month.

Starting off over the weekend we had warnings from the ECB in their latest financial stability report of serious risks sitting in the shadow banking sector. The sector has taken over roles previously performed by banks and the ECB warns that a "fragile equilibrium" exists in world markets with underlying risks that can only be guessed at. It is a repeat of the many other liquidity warnings we have received based on worry about crowded trades, crowded exits, liquidity mismatches and stretched leverage levels. In the ECB's more sober language "Initial asset price adjustments would be amplified, triggering further redemptions and margin calls, thereby fuelling such negative liquidity spirals".

(see my earlier article )

Greece and its possible exit has become bit of a joke, with conflicting reports coming from the same representitives. The IMF message is that they will not break anymore lending rules to accommodate Greece. If eurozone politicians insist that the IMF must be part of the next release of funds they will have to do something that satisfies the IMF that Greece will be in a position to pay back any additional loans. In the meantime capital continues to pour out of Greece with bank deposits falling to a 10 year low.

< ...

Fed's Brainard says U.S. economic slowdown may be more than temporary

WASHINGTON (Reuters) - The U.S. economy's recent poor performance may be more than transitory, as the full impact of weak consumer spending, low investment and a strong dollar become apparent, Federal Reserve board member Lael Brainard said on Tuesday.

U.S. factory orders fall unexpectedly; weakness in demand broad-based

WASHINGTON (Reuters) - New orders for U.S. factory goods unexpectedly fell in April as demand for transportation equipment and a range of other goods weakened, suggesting that manufacturing remained constrained by a strong dollar and spending cuts in the energy sector.

Albert Edwards: Yen Collapse Will Lead To "New Round Of Currency Turmoil", Deflation In US And Eurozone

One look at FX trading this morning and all one can see is surging volatility and, for lack of a better word, turmoil. Which is precisely what Albert Edwards said would happen in his latest note overnight (released just as the USDJPY briefly breached 125) in which he observes that the Yen has now fully broken its 30-year support and predicts that "a new round of currency turmoil" is beginning.

From the SocGen skeptic:

The break of Â¥122 took much longer than I expected but it has just occurred and I think yen weakness will become a dominant driver of markets and economies. We reiterate the particular vulnerability of China to yen weakness â€" in a replay of the events that led up to the 1997 Thai baht devaluation. China has big deflationary problems and cannot tolerate any further rise in the renminbi. Indeed, on one key measure, China is already in outright deflation."

As a reminder, Edwards was the first who predicted that the breach of key USDJPY 122 support would unleash accelerated selling to 145, something which he timeframed as taking place by March 31. Judging by the recent acceleration in the Yen's collapse, maybe he was just early.

Having finally crashed decisively through ¥122 last week (see chart below), what has changed since November? Two things - deflation fears in the west have ebbed away recently but the economic situation in China has become more precarious. The most important thing as the yen sets off another round in the global currency war is that China in now in outright deflation and cannot tolerate renminbi appreciation. As the yen drags down oth ...

Pimco Total Return ETF posts $53.9 million net outflows in May: Morningstar

NEW YORK (Reuters) - The Pimco Total Return Active Exchange-Traded Fund posted net outflows of $53.9 million in May, ending the month with $2.6 billion in assets under management, according to Morningstar data on Tuesday.

April 2015 Manufacturing Looks Ugly. Manufacturing Is Struggling.

Written by Steven Hansen

US Census says manufacturing new orders declined. Our analysis agrees. Unfilled orders are significantly shrinking (year-over-year). However, since this industry is in deflation, the inflation adjusted new orders are better looking - but still the data is contracting year-over-year.

A Bubble On Thin Ice

Submitted by Pater Tenebrarum via,

An Inexperienced Herd

A recent Bloomberg article discusses the fact that most traders active today have never known anything but the era of easy money, and wonders how they will handle the potential end of that era. To this it should be mentioned that the widely expected rate hike cycle may well never begin. The economies of industrialized nations have been severely undermined by loose monetary policy for many years. In concert with over-regulation and over-taxation, this has encouraged ever more capital consumption. Continued economic weakness may encourage the Federal Reserve to simply continue with the ZIRP policy, although it appears to be eager to end it.


Once the herd stampedes, nothing can stop it

Photo via

We have last discussed these problems in "The Sick US Economy" and "The Goldilocks Illusion". As we have pointed out in the latter article, weak economic growth is not necessarily a guarantee that there won't be any "price inflation". A scenario in which the Fed will be forced to hike rates in spite of weak economic growth is not unthinkable. If so, then all these inexperienced traders could be in for t ...

Dollar Flash-Crashes On Sudden EUR Spike Amid Carnage In Bunds

Driven by no immediate fundamental or news catalyst, EURUSD is spiking (running stops to almost 1.1200) sending the USD index into yet another flash-crash this morning... as the carnage in bunds continues (+11bps to 65bps)...

USD Index is tumbling suddenly...

driven by a spike above 1.1100 in EURUSD... (highs at 1.1196! - 200 pips off lows)

Biggest move in CME Euro futures in at least a year. Today is black line

— Eric Scott Hunsader (@nanexllc) June 2, 2015

Amid carnage in Bunds... (2nd biggest yield spike since 2012)

Charts: Bloomberg

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