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14Dec2015 Pre-Market Commentary: US Futures Fractionally Down, WTI Oil Breaks Down Through $35, China's Yuan Hitting Multi-Year Lows, Volatility Expected

Written by Gary

U.S. stock future indexes are down fractionally ahead of the Fed's rate decision on Wednesday expecting to raise benchmark interest rates for the first time in nearly a decade. WTI crude drops below $35 this morning nearing the $32 lows of 2008 and China's yuan hitting a fresh multi-year year low as volatility swept through world markets on Monday. Investors nerves are about to be tested in market volatility that is sure to have large swings in the averages.


Here is the current market situation from CNN Money

European markets are mixed. The FTSE 100 is higher by 0.09%, while the DAX is leading the CAC 40 lower. They are down 0.94% and 0.46% respectively.

What Is Moving the Markets

Here are the headlines moving the markets.

Wall Street expects single-digit S&P 500 gain in 2016: poll

NEW YORK (Reuters) - A weak ending to 2015 and the expectation of improving profit growth in 2016 will set the stage for a single-digit gain in U.S. stocks next year, a modest forecast at least by recent standards, according to strategists polled by Reuters.

Shell sees more job cuts as BG deal gets China green light

LONDON (Reuters) - Royal Dutch Shell expects to slash thousands more jobs to save costs if its takeover of BG Group goes through as planned early next year following a final green light from China.

Alibaba agrees to $266 million acquisition deal with South China Morning Post

SHANGHAI/HONG KONG (Reuters) - Alibaba Group Holding Ltd has agreed on a $266 million deal to acquire the South China Morning Post and other media assets of SCMP Group Ltd , a deal that has raised a question over the outlook for its editorial independence.

EU to allow U.S.-style derivatives option to secure transatlantic deal

LONDON (Reuters) - European Union regulators have proposed U.S.-style flexibility in how rules making derivatives safer are applied in a bid to reach a long-delayed transatlantic deal on supervising the $552 trillion sector.

Wall Street veterans say rate-hike past is not prologue for markets

NEW YORK (Reuters) - It has only been six years since the U.S. stock market rout brought on by the financial crisis, but as far as Deena Katz's clients are concerned, that might as well be ancient history.

Investor nerves tested with yuan, oil, Fed in play

LONDON (Reuters) - Volatility swept through world markets on Monday with China's yuan hitting a fresh multi-year year low and oil's continued travails adding to nervousness before an expected hike in U.S. interest rates later this week.

Cheniere votes to replace CEO Souki, appoints Shear as interim head

NEW YORK (Reuters) - Cheniere Energy Inc said on Sunday it would replace Chief Executive Charif Souki months after activist investor Carl Icahn took a big stake in the company as it prepared to become the first exporter of natural gas from the United States.

Gartman: "Our Bond Fund Took A Sizeable 'Hit' On Friday"

Curious who else got slammed in Friday's junk bond debacle? The answer - everyone's favorite CNBC commentator, "world renowned commodity trader" Dennis Gartman. From his latest letter:

Our bond fund took a sizeable œhit on Friday following the news of the refusal on the part of the Third Avenue fund to allow for immediate redemptions where those unable to sell their positions in Third Avenue sold what they could and where they could to gain access to liquidity. There are times, amidst panic, when such illogical-in-the-long-run selling takes place and this one such time. As Lord Keynes reminded us, œThe market can remain illogical far longer than we can remain solvent:

That said, with US futures snapping what appeared to be the now conventional overnight low volume levitation and sliding to fresh lows as both crude and natgas plunged to fresh multi-year lows, bulls may have one final trump card up their sleeve: Gartman is now actively adding to shorts.

SHARE PRICES HAVE FALLEN VERY, VERY SHARPLY since we marked them here on Friday and as our old friend Doug Kass likes to say, œRisk happens fast. Risk has indeed happened very fast as one major trend line after another in one market after another has been broken through materially and importantly. Nine of the ten markets comprising our International Index have fallen and only the market on the mainland in China has risen, with eight of those nine having fallen by more than 1% and with two of those nine having fallen by more than 1%. Our Index has lost 153 œpoints since Friday or 1.6% and for the year-to-date, stocks in global terms are now down 481 œpoints or 4.9%, while the S&P is 48 œpoints or 2.3%.

On Friday we said that we were considering adding short hedges to our retirement funds in order to protect against the downside, but we faile ...

High Yield ETFs Are Already Tumbling In The Pre-Market

Small doors, large crowds. Amid yet more liquidations (Brazilian Bank BTG flushing its European credit exposure and Lucidus US HY fund), the large high-yield bond ETFs are tumbling in pre-market as two years worth of under-water easy-money trend-followers head for the exits from the "highly liquid" ETFs.. . and crush what little liquidity there is in the underlying. When will The Fed step in and buy US HY debt to stymie "fire-sale" prices?

This will be the 8th drop in the last 9 days...

As MacroMan noted earlier,

In the meantime, ponder the idea that there are still 19.6 million more shares of HYG and 41 million more of JNK than existed at the end of last year, and ask yourself what those holders are going to do in the coming weeks.

Then ponder on what professional holders of high yield and other credit will do after having gorged for the last several years only to see the wheels finally start to fall off.

Charts: Bloomberg

Why Fund Gates Are Terrible News For Great Asset Managers

Earlier today, a third HY domino fell as the $900 million Lucidus Capital Partners announced that after an October redemption request by a œsignificant investor, the fund has liquidated and will return money to investors.

If you're a Lucidus investor or counterparty, CEO Christon Burrows œthanks you for your support.

The Lucidus liquidation comes on the heels of last week's news that Third Avenue and Stone Lion Capital have suspended redemptions in a (likely futile) attempt to avoid going down in history as the guys who started the HY firesale.

As Bloomberg's Richard Breslow explains, for investors whose funds are locked up in junk debt and other distressed œassets , the temptation may well be to tap into money held in funds whose managers eschewed riskier debt for more liquid investments.

In short, prudent managers become the œpiggy bank as the HY gates multiply, meaning investors raising cash end up dumping the good stuff while the redemption suspensions force them to hold onto everything that's bad even as the market continues to deteriorate in front of their very eyes.

* * *

From Bloomberg's Richard Breslow

Two high-yield bond funds, Third Avenue's Focused Credit Fund and Stone Lion Capital, announced last week that they were unable to meet their redemption request obligations and were freezing client money. This raises all sorts of questions, many of which were asked and (not?) answered back in 2007-2008. What I would really want to know this time is are the funds being run in the spirit as well as the letter of the offering documents or pedal to the metal with other peoples money?



Liquidity didn't suddenly dry up last week. ...

Frontrunning: December 14



Oil prices drop towards 11-year lows on worsening glut (Reuters)

Third Avenue Seen by Top Investors as Fueling More Carnage (BBG)

Lucidus Has Liquidated $900 Million Credit Funds, Plans to Shut (BBG)

Investor nerves tested with yuan, oil, Fed in play (Reuters)

Junk Bonds Stagger as Funds Flee (WSJ)

Seattle lawmakers set to vote on allowing Uber, other drivers to unionize (Reuters)

The Mystery of Missing Inflation Weighs on Fed Rate Move (WSJ)

Trump's Rise Enabled by Decades-Long Slide for the Middle Class (BBG)

Returns on pharma R&D sink to lowest in five years (FT)

First women elected to Saudi local councils (Reuters)

Liquidity Cracks Grow in $400 Billion Danish Covered Bond Market (BBG)

Pressure Builds on Energy; Oil Falls Below $35, Gas Drops Sharply

U.S. benchmark West Texas Intermediate fell below $35 a barrel as last week's bearish sentiment continues to blight the oil markets.

Global Stocks Fall as Commodities Slump Continues

A continued slump in commodity prices dragged global stock markets down just days before the Federal Reserve is expected to raise benchmark interest rates for the first time in nearly a decade.

Junk Bonds Stagger as Funds Flee

After junk-bond prices posted their largest drop since 2011 on Friday, investors say they are bracing for another difficult week, likely featuring hectic trading and large splits between buy and sell orders.

Donald Trump and His Presidential Campaign

Written by Frank Li

Once again, Donald Trump has maintained his prominent position in the news by opening his mouth and inserting his foot! Once again, the establishment denounced him, from the White House (White House Press Secretary Slams 'Disqualifying Trump' Comments), to the GOP leadership (Ryan, McConnell denounce Trump plan to bar Muslims from the U.S.), and to the mainstream media (Is Trump's Proposed Ban on Muslim Entry unconstitutional?). Once again, his GOP poll number is soaring (Poll: Nearly Two-Thirds of Likely GOP Voters Back Trump's Muslim Ban). What's really going on?

Europe Markets: European stocks lose grip of gains, head toward fifth day in the red

European stocks continued to slide Monday, extending last week's rout that was led by a slide in oil prices.

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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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