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11Aug2015 Market Update: Markets Fell Sharply At The Opening, Oil Prices Getting Slippery Below Major Support And Seeing Market Green Today Isn't Likely

Written by Gary

U.S. stock indexes took a serious 'dump' this morning at the opening and things didn't improve as the averages fell further and are trading sideways near the morning lows. All of the averages (except $RUT) are down over one percentage point with the DOW off triple digits.

Here is the current market situation from CNN Money

North and South American markets are broadly lower today with shares in Mexico off the most. The IPC is down 1.39% while U.S.'s S&P 500 is off 1.08% and Brazil's Bovespa is lower by 0.30%.

WTI oil is below its major support pushing short term indicators deep into bearish territory. China's devaluation of its currency jolted global markets, hitting stocks and commodities and boosting government bonds.

Also, U.S. non farm productivity came in lower than expected and a weak underlying trend suggested inflation could pick up more quickly than economists have anticipated. Markets expected to remain down for the day and close down over 1%.

Traders Corner - Health of the Market

Index Description Current Value Members Sentiment: % Bullish (the balance is Bearish) 60%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 18%
Investors Intelligence sets the breath Above 50 bullish 41.9% Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. +18.07 NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 42.15% NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 47.95% S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 52.40% 10 Year Treasury Note Yield Index ($TNX) ten year note index value 21.30 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 78.19 NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,780

What Is Moving the Markets

Here are the headlines moving the markets.

Exclusive: Noble Group mulls raising funds from strategic investor - source

SINGAPORE (Reuters) - Noble Group is considering issuing a convertible note to a strategic investor, one of several steps the commodities trader is assessing to revive investor confidence after a damaging accounting dispute, a person with direct knowledge of the situation told Reuters.

With Yuan Devaluation, China Digs a Hole for Commodities

China's appetite for commodities from gold to crude oil is likely to abate in the near term after the country's surprise decision to devalue its currency.

Symantec to sell Veritas for $8 billion to focus on security software

(Reuters) - Norton antivirus software maker Symantec Corp has agreed to sell its data storage unit, Veritas, for $8 billion to a group led by Carlyle Group LP as it seeks cash to turn around its core security software business.

Greece, lenders clinch bailout deal after marathon talks

ATHENS (Reuters) - Greece and its international lenders reached a multi-billion euro bailout agreement on Tuesday after talking through the night, officials said, potentially saving the country from financial ruin.

Cargill to unveil $7.25 billion business plan for Mexico: paper

MEXICO CITY (Reuters) - Global commodities trader Cargill will unveil a $7.25 billion business plan for Mexico for 2015-2018, which includes financing for agriculture, crop purchases and $167 million in direct foreign investment, local paper El Financiero said on Tuesday.

Why "The Fed Is In A Bind" - Scotiabank Explains

Via Scotiabank's Guy Haselmann,

Own Long Treasuries

Several weeks after recommending a core long in 10-year and 30-year Treasuries in front of 2.40% and 3.25% respectively, I endorsed adding to those positions in my July 17th note "Bonds are Back".

Today, I would again add to those positions. I believe 10's will take out 2.00% by the end of September and test the year's low when it breaks below 1.75% before the end of the year (10's/30's curve will flatten further). Long Treasury yields are driven by expectations of global growth and inflation which I expect will both stay on a downward trajectory for the remainder of the year regardless of what the Fed does. (I also expect USD strength, commodity weakness, widening credit spreads, and an equity sell-off.)

The Fed is in a Bind

The intention of Fed policy over the past 30 years has been to self-correct business cycles into a 'steadier state' by easing interest rates into weakness and hiking them into strength. Unfortunately, there is political-asymmetry between easing and hiking which has resulted in the stair-stepping of official interest rates down to the zero lower bound.

Interest rates that are held lower than the 'natural or normal rate' (discussed in a moment) may have short-term benefits, yet there are longer-term costs that aggregate and eventually need to be addressed. These costs are then typic ...

10Y, 30Y Treasury Yields Break Below Crucial Technical Support

Both the 10Y (2.13%) and 30Y (2.80%) yields broke below crucial technical support levels this morning (2.14% and 2.81% 200-day moving averages) - both nearing 3-month lows (in the biggest yield drop in 2 months).

Charts: Bloomberg

Nasdaq Gives Up All Of Monday's Manic Melt-Up Gains

Well that escalated quickly...

Puerto Rico Agency Plans $750 Million Bond Sale

The Puerto Rico Aqueduct and Sewer Authority said it would attempt to sell $750 million in bonds.

Wall Street falls as cheaper yuan hits commodities

(Reuters) - U.S. stocks fell in early trading on Tuesday in a broad-based retreat as China's surprise devaluation of the yuan pushed the dollar higher and pressured commodity-related shares.

This Is Not A Drill: India, Russia And Thailand Prepare For Currency War

When China sneezes, the world catches a cold. Alternatively, when China devalues, the rest of the (exporting) world scrambles to not be the last (exporting) nation standing, and to do so next, before everyone else does.

Case in point, at least three major emerging market nations announced they are bracing for currency war.

First India, where NDTV ask rhetorically "How China's Devaluation of Renminbi Impacts India" and answers:

1) The Indian rupee slipped to a two-month low of 64.26 against the US dollar on Tuesday tracking the devaluation of the renminbi. Other currencies such as the Australian dollar and the South Korean won also lost ground.

2) The over 0.5 per cent fall in the rupee weighed on traders' sentiments, resulting in a drop in equity markets. Both the BSE Sensex and the Nifty traded with 0.4 per cent losses.

3) According to SV Prasad of Chime Consulting, renminbi's devaluation may push the Reserve Bank of India to cut interest rates in India. Lower interest rates will put off foreign investors and will further weaken the rupee, he added.

4) However, fund manager Sandip Sabharwal said India should not be too worried about the devaluation in renminbi. "Analysts are out with predictions of how a 1.5 per cent fall of Chinese currency will lead to a sharp increase in dumping etc. However the Indian rupee has also fallen nearly 0.8 per cent in sympathy and is now down 5 per cent over the last one year. It is hard to see a major impact of this on Indian stock markets or the economy unless yuan depreciation becomes a trend which seems unlikely at this stage," he sai ...

U.S. charges nine in hacking, insider trading scheme

NEW YORK (Reuters) - U.S. prosecutors have charged nine people over their alleged roles in a hacking scheme to obtain corporate press releases before they were made public, which they said generated more than $30 million of illegal trading profit.

June 2015 Wholesale Sales Remain In Contraction But Still Is the Best Results So Far this Year

Written by Steven Hansen

The headlines say wholesale sales expanded marginally year-over-year with inventory levels remaining at levels associated with recessions. The best way to look at this series may be the unadjusted data three month rolling averages which marginally accelerated after ten months of deceleration. This report is not excellent but far better than seen so far this year.

From Currency Wars To Oil Wars - OPEC Ups Production To 3 Year Highs As Iran Output Surges

As China takes the currency wars to the next level, so OPEC, not to be outdone, rotates the oil war volume to 11. As Bloomberg reports, OPEC pumped the most crude last month in more than three years as Iran restored output to the highest level since international sanctions were strengthened in 2012. The response - as one would expect - is a plunge in crude prices, erasing all the ridiculous algo-driven gains of yesterday, pushing WTI back on the verge of a $42 handle.

As Bloomberg reports,

The Organization of Petroleum Exporting Countries, responsible for 40 percent of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, the group said in its monthly market report, citing external sources. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year.

Iran may further expand output after reaching an accord with world powers on July 14 that will ease sanctions on oil exports later this year in return for curbs on its nuclear activity.

"Iran has been rising slowly but surely for a while now," Abhishek Deshpande, an analyst at Natixis SA in London, said by e-mail. "It doesn't need foreign investment to revamp existing infrastructure and prepa ...

U.S. productivity rises in second quarter, but trend still soft

WASHINGTON (Reuters) - U.S. non farm productivity rebounded in the second quarter, but a weak underlying trend suggested inflation could pick up more quickly than economists have anticipated.

Now The Bad News: This Is How Much More Downside Is Left For China's Currency

This morning's Chinese record currency devaluation, in which the Yuan was devalued by 1.9% against the USD may sound like a lot... until one considers that the Chinese currency has been pegged to the US dollar, which as reported extensively over the past year, has exploded higher not so much due to the strength of the US economy but due to expectations of what may be the Fed's biggest mistake in recent years: a rate hike which will assure the US economy's tailspin into recession.

In effect what the PBOC did earlier today is inform the world it would no longer stay pegged to a Fed whose monetary intentions are complete lunacy for a mercantilist exporter, one whose economy is getting crushed as a result of the tight linkage between the USD and CNY, and even if it means massive capital flight as the opportunity cost, so be it. Furthermore, considering that the CNY was until recently the second most expensive currency according to Barclays, it is amazing it took Beijing this long to pull the plug.

So how much more devaluation is in store for the CNY? Well, if one believes the PBOC, today's intervention was a "one off." The problem is that just like every central bank in modern history, the Chinese central bank is lying.

Here is Goldman with a quick and dirty observation of what one can expect:

According to the PBOC press release, the unexpected change in fixing mechanism today was in response to the prospective Fed liftoff, which has the potential to cause further strengthening in the USD and capital flow volatility. The CNY on a trade weighted basis has appreciated sharply alongside the USD strength, and is still about 15% higher than a year ago after today's move (Exhibit 1). However, we think ...

Google overhaul 'shareholder friendly' but details scarce

(Reuters) - Google Inc's overhaul of its operating structure is an acknowledgement of the lack of transparency surrounding its disparate businesses and projects, analysts said, but it remains to be seen how much more the company will actually disclose.

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