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12Jun2015 Market Update: Overwhelming Global Worries Threaten To Move Markets Down Further In The Coming Sessions

Written by Gary

Greek stocks led European and U.S. markets lower today after the latest setback in the country's financing talks. Analysts are warning to expect volatility until the Greece debt crisis is resolved and increased possibility of a September rate hike. Indicators are showing further market losses ahead.


Here is the current market situation from CNN Money

North and South American markets are lower today with shares in Brazil off the most. The Bovespa is down 0.87% while U.S.'s S&P 500 is off 0.65% and Mexico's IPC is lower by 0.07%.

U.S. consumer confidence surged in early June on expectations that a tightening labor market would spur big wage raises, which could further stimulate spending and overall economic growth later this year.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 49%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 41%
Investors Intelligence sets the breath Above 50 bullish 55.6%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. -13.28
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 53.29%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 61.37%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 62.00%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 23.63
StockChart.com 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 76.70
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 11,012

What Is Moving the Markets

Here are the headlines moving the markets.

China weakness hits Prada, threatens profit margin

MILAN/HONG KONG (Reuters) - Italian luxury goods group Prada warned on Friday its profit margin could fall this year if weak consumer spending in Asia persisted, after posting a 44 percent drop in net profit for the three months ended April.

Exclusive: BlackBerry may put Android system on new device: sources

TORONTO (Reuters) - BlackBerry is considering equipping an upcoming smartphone with Google Inc.'s Android software for the first time, an acknowledgement that its revamped line of devices has failed to win mass appeal, according to four sources familiar with the matter.

Greek Stocks Tumble as Bailout Talks Stall

Greek stocks led European markets lower Friday after the latest setback in the country's financing talks.

U.S. consumer confidence jumps; producer prices increase

WASHINGTON (Reuters) - U.S. consumer confidence surged in early June on expectations that a tightening labor market would spur big wage raises, which could further stimulate spending and overall economic growth later this year.

Euro Gets Wake-Up Call from Merkel

The euro has proved curiously immune to news from Greece and the U.S. The big picture still favors a weaker euro.

Wall St. weaker as Greece debt talks hit stalemate

(Reuters) - U.S. stocks fell in lackluster trading and trimmed their gains for the week, pressured by a setback in Greece's debt talks and increased possibility of a September rate hike.

EU holds first talks on Greek default as Athens holds out hope

ATHENS/BRUSSELS (Reuters) - EU officials revealed on Friday that they had held their first formal talks on the worst-case scenario for Greece, but the darkening outlook failed to fluster Prime Minister Alexis Tsipras, who holed up with his negotiators after proclaiming his optimism at an open air concert.

Even The Algos Aren't Convinced By The Latest Greek Deal Rumors

You know it's bad when on an illiquid Friday, a Greek Deal Rumor headline only manages a measly 5pt ramp in the S&P 500... Wolf cried just one too many times? Wednesday saw 25 point vertical ramp on the same headline...

Same old same old...

*GREEK OFFICIALS TO BE SENT TO BRUSSELS SATURDAY FOR TALKS: GOVT

*GREEK GOVT SAYS DEAL WITH CREDITORS IS CLOSER THAN EVER

Charts: Bloomberg

Rupert Murdoch to Put Media Empire in Sons' Hands

Mr. Murdoch put the succession plan in place in March 2014 when he named his sons James and Lachlan to senior positions in his companies.

USD Index Flash Crash Sparks EUR Surge

Another day, another flash crash in the USD Index. As the Sept 2015 USD Index Futures contract suddenly crashed instantly, so EURUSD surged (and TSY yields tumbled)... something broke...

Something Broke...

Charts: Bloomberg and @NanexLLC

Emerging Markets Suffer Largest Outflow Since 2008

Global investors yanked $9.3 billion from stocks in developing countries over one week, the most since the 2008 financial crisis.

VIX ETFs - More Truth

Submitted by Salil Mehta via Statistical Ideas blog,

As markets continue at a high level, volatility falls and their associated ETF products drop to record lows. As tempting as it is to use such products for hedging or for large gains, the probability of making any ?gain with them is very low (we cite an article below that this some to ~5% through skill.)? This article here is now the 3rd installment of the "Volatility-product(s)" series of research, focusing on the meaning of these high and low records (the prior articles were on failed strategies from even god-like clairvoyance, and the other article was on probability and typical performance.)?

First, let's explore the various records that have occurred using the VXX over history. We notice that in the past ~3.5 years (890 days), there have been 163 250-day lows, and 0 250-day highs. One year is ~250 trading days, and there has ??never been such a period when one could have profitably bought and held such a product? (not even if we stretched back the VXX data the 2 additional years it has.)? And even if we move to semi-annual periods, there still has been 0 125-day highs (or 0% of the 890 days).

We also notice in the earlier article that only 10% of any 125-day periods in recent years have resulted in a gain, so it only makes directional sense that virtually none of the 10% would be both a gain and a 125-day high, jointly.

Now, one might state that part of the reason for this asymmetry in records is that because over ...

Massive Shortage Of US Treasury Paper As 10 Year Plunges To -2.20% In Repo

Yesterday, after the impressive 30 Year auction which as we explained performed as well as it did, due to a persistent short overhang resulting in a -0.35 bps repo rate, we noted something concerning: using SMRA data, we showed that benchmark 10Y has been trading negative in repo virtually all of 2015.

10Y is negative repo pretty much constantly now pic.twitter.com/TBrcfZ4b97

zerohedge (@zerohedge) June 11, 2015

One day later, the shortage has gotten out of hand as following the Wednesday 10Y auction and ahead of its Monday settlement, there is not an On The Run cash bond to be found as all of them have been either removed from the repo market, or have been shorted.

From SMRA:

The 10-year note is trading even tighter today than it was yesterday. At -220 basis points, this is the tightest that the 10-year note has been since April. After the auction settlement Monday, the current 10-year note will become the off the run 10-year note. If it maintains this much pressure it result in an extremely tight off the run 10-year issue again. The new 10-year note will likely trade near the GC rate.

Indicatively, today's shortage is massive, and putting it in context, there have been only two previous comparable squeezes in the repo market: one year ago, and in April when the 10Y was trading at its tights of the year well under 2%.

Grexit Contagion Uncontained - European Peripheral Bond Risk Is Soaring

While talking heads have proclaimed any Grexit contagion will be contained... it appears they are wrong (surprise!). The last 2 days have seen sovereign bond spreads soar 25-35bps for Spain, Portugal and Italy. On the yield side, Spain 10Y spread to Bunds is at its highest since August 2014 and Portugal at its highest since Feb 2015.

EU Sovereign Bond risk is soaring...

The contagion has been rising...

And it's spreading...

Charts: Bloomberg

FedEx to take $2.2 billion charge on pension accounting change

(Reuters) - Parcel delivery service FedEx Corp said it would record a $2.2 billion non-cash pretax charge related to a change in the way it accounts for pensions.

UMich Sentiment Shows Wage Growth Delusion Has Never Been Bigger (Or Fed So Far Behind The Curve)

Preliminary June UMich consumer sentiment data rose from 90.7 to 94.6 as respondents appear very excited about soaring gas prices and far more excited abiout stocks than every other confidence survey recently. Current conditions soared from 100.8 to 106.8 as expectations only rose from 84.2 to 86.8. Where does the hope come from? Simple... income expectations are the highest since 2008 and the most divergent from reality ever.

Are we still rolling over?

Hope triumphs over reality...

As hopes for houshold finances remain mired in total farce...

* * *

Alternatively - Is The Fed already FAR behind the curve on tightening as wages are set to soar?

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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