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14Sep2015 Market Update: Averages Down, WTI Oil Testing Support, Investors Worries About Fed' Changing Interest Rate

Written by Gary

As expected the U.S. markets opened in the green, but for the briefest of moments and then slid to the morning lows, where , incidentally, the averages are now trading. The DOW is off 90 points and is expect to improve fractionally before the closing bell. Investors are obviously being cautious on whether the U.S. Federal Reserve will act on interest rates this week.

Do not look for much change before Thursday.


Here is the current market situation from CNN Money

North and South American markets are mixed. The Bovespa is higher by 0.09%, while the S&P 500 is leading the IPC lower. They are down 0.57% and 0.08% respectively.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 62%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 13%
Investors Intelligence sets the breath Above 50 bullish 30.0%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. 15.07
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 22.39%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 36.68%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 36.40%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 21.74
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 74.92
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 9,974

What Is Moving the Markets

Here are the headlines moving the markets.

Gulf Oil Price War Continues as China, Supply Concerns Persist

The Persian Gulf's biggest oil producers appear to be intensifying a price war in a competition to maintain their share of the Asian market amid uncertainty about the direction of the oil market in 2015.

Apple says sales of new iPhones are off to strong start

(Reuters) - Apple Inc said on Monday that advance orders of its new iPhones were on pace to beat the 10 million units the previous versions logged in their first weekend last year, a feat that analysts attributed to the inclusion of sales from China.

Wall St. falls amid weak Chinese data; Fed meet eyed

(Reuters) - U.S. stocks were lower in early afternoon trading on Monday as investors awaited Federal Reserve's interest rate meeting this week even as fears of slowing growth in China continue to rattle global markets.

U.S. prosecutors in talks with second suspect tied to JPMorgan hack

NEW YORK (Reuters) - U.S. prosecutors have disclosed they are in discussions to resolve a case against a second Florida man linked to a massive data breach at JPMorgan Chase & Co, after saying they are engaged in similar talks with his co-defendant.

UniCredit To Fire 10,000 As EU Bank Pink Slip Pandemonium Continues

Hours ago, it was revealed that Deutsche Bank is set to fire some 23,000 people or around a quarter of its workforce. The move comes as new CEO John Cryan works to cut costs and boost profitability after the bank's co-CEOs Anshu Jain and Jürgen Fitschen were shown the door as investors became impatient with efforts to boost profitability and as a string of settlements and seemingly endless accusations of malfeasance underscored deep seated problems with the bank's corporate culture.

Of course as we noted this morning, the layoffs at Deutsche don't say much for Europe's economic "recovery" either and may also suggest that far from creating jobs, the persistence of ZIRP has crimped margins forcing banks to make up the difference by getting leaner.

In any event, Deutsche Bank isn't the only European lender that's axing people. As tipped by CEO Federico Ghizzoni earlier this month, UniCredit is now set to layoff 10,000 employees across its Italian, Austrian, and German operations. Here's Reuters:

UniCredit (CRDI.MI), Italy's biggest bank by assets, is planning to cut around 10,000 jobs, or 7 percent of its workforce, as it seeks to slash costs and boost profits, a source at the bank told Reuters on Monday.

The planned cuts will be concentrated in Italy, Germany and Austria, several sources said, adding that they include 2,700 layoffs in Italy that have already been announced.

A UniCredit spokesman declined comment beyond noting that the bank's CEO ...

Russia's anti-monopoly watchdog says Google violates competition law

MOSCOW (Reuters) - Russia's anti-monopoly agency said on Monday Google Inc was abusing its dominant market position in the country and could face penalties, in a case launched by its Russian competitor Yandex .

UniCredit plans to cut around 10,000 jobs: source

SARAJEVO (Reuters) - UniCredit , Italy's biggest bank by assets, is planning to cut around 10,000 jobs, or 7 percent of its workforce, as it seeks to slash costs and boost profits, a source at the bank told Reuters on Monday.

Enough Already! Raise The Rate To 3 Percent

Submitted by Calibrated Confidence

Enough Already! Raise The Rate To 3 Percent

Raise the Federal Funds Rate (FFR). Move the range to 0.25-0.50 percent and do it on a surprise announcement. We should raise the rate to 3 percent overnight. TV and all the pundits look at the same headline data and say the economy is strong.

The analysts have their confidence in their proclamations regarding the impact of raising rates according to the recent flood of equity specific "defensive" notes. One economist who emailed Benzinga believes any increase in rates will benefit banks through the interest paid on reserves, provided the monetary bases keeps expanding, as the Fed typically sets the IOER paid on reserves to the upper-bound of the FFR. Let us see how well the money managers have taken advantage of all this time to diversify and prepare for any impacts from a rate increase, whether detrimental to prices or beneficial to regional banks like popular opinion says (risk parity strategies be damned).

The 10-Year Real Rate has rebounded from negative territory and currently sits at 2.21 percent as of August, below the average of 2.40 percent since Jan 1962. Looks like the economy is saved following the brutal beating unleashed on the savers of this country in order to achieve balance in the universe by making sure GDP maintains 3 percent growth Y/Y, which it didn't but don't tell anyone.

Introduce a little anarchy. If the economy is so strong and everyone is so wel ...

Airbus says U.S. factory is several weeks behind schedule

MOBILE, Ala (Reuters) - Airbus Group said on Monday that production of its first U.S.-built jetliner is several weeks behind schedule, but that the planemaker expects to deliver it on time to JetBlue Airways Corp in the second quarter of 2016.

"It Looks To Me Like A Bubble Again", Shiller Warns On US Stocks

Looking out across markets it would be difficult to overstate the number of risk factors at play.

Thanks to a veritable collapse in commodity prices made worse by what China's move to devalue the yuan telegraphed about the prospects for the country's economy, emerging markets and especially commodity currencies are under siege, a situation that's putting a tremendous amount of pressure on accumulated FX reserves which, all else equal, will serve to decrease global liquidity and put upward pressure on core yields, offsetting the QE effect in a kind of push and pull dynamic. This is the situation facing the Fed as the FOMC ponders whether a symbolic 25 bps liftoff would exacerbate the situation or whether markets are resilient enough to cope with a dovish hike.

Of course the truly dangerous thing about the above is that it comes after seven years of policies designed to inflate asset prices and misallocate capital. Add in an acute lack of liquidity and the presence of nefarious algos and you have the recipe for spectacular turmoil like that we witnessed on August 24 when the Dow fell 1,000 points out of the gate in a bout of flash-crashing, circuit breaker tripping mayhem.

Considering all of this, the wisdom of being heavily invested in US equities (or any risk assets for that matter) might fairly be questioned, and indeed some very "serious" people are sounding the alarm. Here's FT with spoke with Robert Shiller on the sustainability of the US equity market bubble:

A growing number of investors believe that US stocks are overvalued, creating the risk of a significant bear market, according to research by Yale University market scholar Robert Shiller.

In This Globally Interconnected Economy, "Nobody Wins" If Fed Hikes Rates

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

The USD strengthening since last July is the core driver of the global recession.

The parlor game of the moment is laying odds on the Federal Reserve's decision to raise rates, leave rates unchanged, or (gasp!) hint at future stimulus. There are certainly a multitude of inputs to the Fed's decision, and a variety of potential consequences, but only one really matters: the effect on foreign exchange/currency markets.

It's not that difficult to understand the one dynamic that matters. If the Fed raise yields/interest rates in the U.S., that makes the U.S. currency, i.e. the U.S. dollar (USD), more attractive.

Higher yield = more attractive, especially when coupled with the liquid market for U.S. Treasuries and the relative safety of the dollar vis a vis other currencies issued by falling-into-recession nations and trading blocs.

What happens when the Fed makes the USD more attractive to global capital? Capital flows even faster out of emerging economies and China. The tidal flow of capital out of emerging markets and China threatens to surge into a veritable tsunami should the Fed raise rates.

What happens as capital flees emerging markets and China? Bad things. Lots of bad things.

Number 1 Bad Thing: The currencies of emerging market nations weaken as capital flees, forcing the issuing nations to defend their currencies (a losing proposition, as we saw in the Asian Contagion of 1997-1998) or devalue their currencies.

We caught a whiff of what happens when China is forced to devalue the RMB/ ...

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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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