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18Dec2015 Pre-Market Commentary: U.S. Futures Down, Oil Testing Minor Resistance, Investors Concerned With Markets Lack Of Bullish Dynamism

Written by Gary

U.S. stock future indexes are down a half percentage point this morning with signs that a green to at least flat session will end this weeks turmoil. Oil is headed for its third straight week of decline while the dollar is steady in the low 99's.

Markets are expected to open lower as investors contemplate market stability in the wake of the Fed's rate hike.


Here is the current market situation from CNN Money

European markets are broadly lower today with shares in France off the most. The CAC 40 is down 1.25% while Germany's DAX is off 1.10% and London's FTSE 100 is lower by 0.48%.

What Is Moving the Markets

Here are the headlines moving the markets.

BlackBerry third-quarter revenues top expectations; shares rally

TORONTO (Reuters) - BlackBerry Ltd reported a smaller-than-expected fiscal third-quarter loss on Friday and its first quarter-to-quarter revenue gain in over two years, indicating turnaround efforts may be gaining traction.

Fed to raise rates again in March, follow up with fewer hikes: poll

(Reuters) - The U.S. Federal Reserve will raise interest rates again in the next three months, according to two-thirds of economists polled by Reuters, although many say rates won't rise as quickly next year as policymakers have suggested.

Stock futures lower as crude prices drag

(Reuters) - U.S. stock index futures were lower on Friday as a selloff in commodity markets showed no signs of easing.

Apple to launch Apple Pay in China, take on Alibaba, Tencent

SHANGHAI (Reuters) - Apple Inc said it will launch its payment service in China as soon as 2016, pitting it against entrenched Chinese rivals Alibaba Group Holding and Tencent Holdings .

Vilified for drug pricing, CEO Shkreli busted for securities fraud

NEW YORK (Reuters) - Martin Shkreli, the boyish pharmaceutical entrepreneur who caused a public uproar after he drastically raised the price of a life-saving prescription drug, was arrested on Thursday for engaging in what U.S. prosecutors said was a Ponzi-like scheme at his former hedge fund and a pharmaceutical company he previously headed.

Oil heads for third straight weekly loss as supply weighs

LONDON (Reuters) - Oil prices edged higher on Friday as investors closed positions ahead of the end of the year though crude was still heading for a third weekly loss in a row, its longest losing streak in four months.

World stocks, dollar dip as investors turn wary after Fed

LONDON (Reuters) - Investors turned cautious on Friday about what a stronger dollar and weak commodity prices could mean for the world economy, as a clutch of central banks moved to cushion the impact of the first U.S. rate rise in nearly a decade.

Standard Chartered may see white knight takeover on painful recovery: CLSA

HONG KONG (Reuters) - UK bank Standard Chartered (StanChart) could be acquired by a white knight as its recovery could prove to be "challenging", according to broker CLSA, which upgraded shares of the Asia-focused lender on that possibility.

Dollar gets altitude sickness as BOJ disappoints

LONDON (Reuters) - The dollar sank as much as half a percent against a basket of major currencies on Friday, hurt by a resurgence of the yen after the Bank of Japan opted for tweaks rather than an outright expansion of its monthly asset purchase target.

Japanese Jawboning Fail - Nikkei Crashes 1000 Points From Overnight Highs

For a brief few minutes, overnight saw exactly the reaction that central planners had hoped for when The Bank Of Japan announced it would buy 'moar' stock ETFs and extend bond duration buying ad nauseum. However, within just 15 minutes something happened that we haven't seen since the world embarked on this experimental nightmare. Despite the front-ran promises to buy Japanese stocks "whatever it takes" traders sold... and sold large.

After a 500 point "business as usual" spike, Nikkeie 225 crashes over 1000 points as traders recognized The BoJ's desperation...

As Bloomberg reports,

The new program is in addition to the 3 trillion yen the bank already spends on ETFs each year, the BOJ said on Friday. The BOJ also said it would extend the average maturity of holdings of Japanese government bonds to seven to 12 years, and increase the amount of individual Japanese real estate investment trusts it can own. The Topix index sank 1.8 percent to 1,537.10 at the close in Tokyo, reversing a gain of as much as 2 percent.

"At 300 billion yen, it's on the scale of margin of error. The impact to the stock market will not be big," said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. "If it's this small, some investors will think this is the best they can do. Kuroda himself says he never does anything half-baked, but frankly speaking this is half-baked."

Explaining Today's "Massive Stop Loss" Quad-Witching Market Waterfall: Why 2000 Must Be Defended At All Costs

One week ago, and again last night, we previewed today's main event: an immensely important quad-witching expiration, the year's last, one which as JPM's head quant calculated will be the "largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050."

What is most important, is that the "pin risk", or price toward which underlying prices may gravitate if HFTs are unleashed to trigger option stop hunts, is well below current S&P levels: as JPM notes, "clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market."

What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers and various momentum strategist (which work in up markets as well as down), and since the vol surface of today's market is well-known to everyone in advance, there is a very high probability the implied "stop loss" level will be triggered.

Not helping matters will be the dramatic lack of market depth (thank you HFTs and regulators) and overall lack of liquidity, which means even small orders can snowball into dramatic market moves. "While equity volumes look robust, market depth has declined by more than 60% over the last 2 years. With market depth so low, the market does not have capacity to absorb large shocks. This was best illustrated during the Au ...

ReCoVeRY RioT...

RECOVERY RIOT


Frontrunning: December 18



Oil heads for third straight weekly loss as supply weighs (Reuters)

BOJ's $2.5 Billion ETF Boost Seen Having Little Impact on Stocks (BBG)

Japan core CPI seen flat in November, household spending down (Reuters)

Dollar gets altitude sickness as BOJ disappoints (Reuters)

Fed Hikes, but Some Rates Veer Lower (WSJ)

White House calls for 'common sense steps' to help Puerto Rico (Reuters)

Martin Shkreli, Pharma Executive, Arrested on Fraud Charges (WSJ)

Vilified for drug pricing, CEO Shkreli busted for securities fraud (Reuters)

Japan's far-flung island defense plan seeks to turn tables on China (Reuters)

Hedge-Fund Casualties Jump to 257 in Third Quarter Amid Rout (BBG)

From Russia with love: Putin, Trump sing each other's praises (Reuters)

Manhunt for Texas affluenza teen after he apparently goes missing (

Fed Hikes, but Some Rates Veer Lower

On the day the Federal Reserve implemented its plan to raise interest rates, driving up overnight borrowing costs, broader market forces conspired instead to drive other U.S. interest rates down.

Bank of Japan Takes Fresh Action

The Bank of Japan announced fresh steps to bolster its quantitative easing program Friday, trying to reassure a nation struggling with sluggish growth that it was committed to stoking inflation.

The No-Lose Bet for Banks in IPOs

Here is a deal for banks working on IPOs: Price the new stock high, get a bigger fee. Price it low, get free shares of the company.

Rail Week Ending 12 December 2015: Bad Data Continues And Marginally Worse Than Last Week

Week 49 of 2015 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic returned to contraction year-over-year, which accounts for approximately half of movements and weekly railcar counts continued deeply in contraction.

Fed's Balance Sheet 16 December 2015 Up Over $9 Billion

Total Fed Balance Sheet:

Fed's Balance Sheet week ending balance sheet was $4,452 trillion..

Capitol Report: BATS IPO underwritten by its top clients, filing shows

BATS tries hard to tell all in its second IPO attempt, but name of investor who's also its biggest customer still a mystery

The Wall Street Journal: Private car ownership is on the road to becoming a rarity

Rates of motor-vehicle licensure are already plummeting among young Americans, and self-driving cars will only accelerate the trend. In short, America's much-sung-about love affair with the automobile has grown cold.

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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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