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11Feb2016 Market Update: US Markets Sink Over 1.5% On Fed's 'Cautious Tone', Bank Shares Fall Along With Crude Prices Adding To Investors Bearish Concerns

Written by Gary

US markets have risen off morning lows, but remain down over 1.5%, pushing the S&P 500 and the Dow Jones industrial average down 10% as investors jettisoned stocks and scurried toward gold and bonds. Gold surged more than 4 percent today while the US dollar trades in the mid 95's. Watch for sudden reversals and volatility today.

Here is the current market situation from CNN Money

North and South American markets are sharply lower today with shares in Brazil off the most. The Bovespa is down 3.03% while U.S.'s S&P 500 is off 1.55% and Mexico's IPC is lower by 1.19%.

Traders Corner - Health of the Market

Index Description Current Value Members Sentiment: % Bullish (the balance is Bearish) 56%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 18%
Investors Intelligence sets the breath Above 50 bullish 24.9% Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. -18.04 NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 18.61% NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 26.22% S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 28.00% 10 Year Treasury Note Yield Index ($TNX) ten year note index value

16.47 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

60.45 NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors


What Is Moving the Markets

Here are the headlines moving the markets.

Boeing shares drop on accounting fears, competitive threats

(Reuters) - Boeing Co shares plunged 11 percent on Thursday, hit by a report that regulators are probing the company's accounting and by mounting concerns about its slowing sales and production.

Gold surges to one-year high on financial uncertainty fears

LONDON (Reuters) - Gold surged more than 4 percent on Thursday to its highest in a year as fears about financial uncertainty, a lower dollar and U.S. Treasury yields persuaded investors to seek refuge in the precious metal.

After big selloffs, a second take on restaurant shares

NEW YORK (Reuters) - Restaurant stocks have sat like dry toast for the last six months, but investors are now starting to nibble back into the sector.

Morgan Stanley to pay $3.2 billion to settle financial crisis-era charges

WASHINGTON (Reuters) - Morgan Stanley will pay about $3.2 billion to settle charges that it misled investors in residential mortgage-backed securities that later soured during the financial crisis, federal and state officials said Thursday.

Wall St. tumbles; S&P, Dow down 10 percent for the year

(Reuters) - Wall Street was off more than 1 percent on Thursday, pushing the S&P 500 and the Dow Jones industrial average down 10 percent for the year, as investors jettisoned stocks and scurried toward safer shores.

Fed's Yellen sticks to her guns as market rout worsens

WASHINGTON (Reuters) - Federal Reserve Chair Janet Yellen returned to Capitol Hill with a brave face on Thursday amid a worsening meltdown on global stock markets and growing skepticism the U.S. central bank can carry out its long-planned pivot to "normal" monetary policy.

Twitter disappoints investors as user growth hits wall

(Reuters) - Twitter Inc reported its first quarter with no growth in users since it went public, stoking fresh concerns on how long it will take for the company to reverse the trend.

U.S. demands EU reconsiders tax probes of its companies

BRUSSELS (Reuters) - U.S. Treasury Secretary Jack Lew called on the European Union to reconsider tax probes targeting U.S. companies on Thursday, arguing that such moves represented disturbing precedents.

Low U.S. jobless claims underscore labor market strength

WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits fell more than expected last week, suggesting the labor market remains on solid footing despite slowing economic growth and a stock market rout.  Â

The Crash In US Bank Stocks Is Only Half-Way Through

It appears by the total lack of coverage that the utter collapse of Europe's banking system is entirely irrelevant to the "fortress-like" balance sheets of US banks... but it is not. Once again today, US financials saw bonds dumped across the senior and subordinated segments...

...and while US financial stocks have fallen hard year-to-date, if credit is right - and it usually is on a cyclical basis - US bank stocks have a long way to go (as believe in book values is battered).

Of course, the CEOs will all tell investors there is nothing to worry about - just as David Stockman warned...

"in my experience is that when the crunch comes, bank CEOs lie"

Despite Huge Tail And Sliding Bid To Cover, 30Y Treasury Prices At Lowest Yield Since January 2015

After yesterday's strong 10Y auction few were expecting ugliness in today's final for this week 30Y issuance: after all with markets crashing, the flight to safety and duration surely would mean strong demand for the long-end of the curve. Only that wasn't the case.

Yes, the high yield of 2.50% (allotted 37.52% at the high) was the lowest since January 2015, but this came at a huge concession to the 2.467% When Issued, which resulted in a whopping 3.3 bps tail, the biggest in over three years. Furthermore, the Bid to Cover, plunged to just 2.092, down from the 2.288 last month, and the lowest going back to May 2014, as well as one of the lowest on record.

Perhaps the saving grace was that both Directs and Indirects took down a comparable amount of the final allotment as they did last month, at 10.3% and 31.7% respectively. This means that despite the weakness on the top, the Indirects ended up with a very strong 58%, which as can be seen in the red bar on the chart below, was quite respectable despite the overall poor tone to the auction.

All that said, it indeed the Fed proceeds to unleash NIRP, a yield of 2.50% will seem like an unprecedented bargin in one year, when the same CUSIP will likely be trading in the low to mid 1% range, if not lower.

Central Banks Are Trojan Horses, Looting Their Host Nations

A Nobel prize winning economist, former chief economist and senior vice president of the World Bank, and chairman of the President's council of economic advisers (Joseph Stiglitz) says that the International Monetary Fund and World Bank loan money to third world countries as a way to force them to open up their markets and resources for looting by the West.

Do central banks do something similar?

Economics professor Richard Werner - who created the concept of quantitative easing - has documented that central banks intentionally impoverish their host countries to justify economic and legal changes which allow looting by foreign interests.

He focuses mainly on the Bank of Japan, which induced a huge bubble and then deflated it - crushing Japan's economy in the process - as a way to promote and justify structural "reforms".

The Bank of Japan has used a heavy hand on Japanese economy for many decades, but Japan is stuck in a horrible slump.

But Werner says the same thing about the European Central Bank (ECB). The ECB has used loans and liquidity

Janet Yellen Admits Fed Is Evaluating Possibility Of Negative Rates

One week before the BOJ shocked the world by adopting negative interest rates and unleashed the next leg lower in global risk assets, it warned everyone "please not to worry, all is under control"

Moments ago at least Yellen had the courtesy of "warning" market participants in general, and banks and savers in particular that legal, logistical or monetary concerns aside, the Fed is already evaluating the possibility of negative rates.

"We had previously considered them and decided that they would not work well to foster accommodation back in 2010. In light of the experience of European countries and others that have gone to negative rates, we're taking a look at them again because we would want to be prepared in the event that we needed to add accommodation."

As Bloomberg reported first earlier this week, a Fed staff memo posted on the central bank's website last month showed Fed economists grappled with a number of issues related to implementation of negative rates at the time, including possible legal obstacles. Yellen said Thursday that negative rates might be legal, but the question remained open to further examination.

Among the other concerns were whether the Fed has the logistical capacity to implement NIRP:

U.S. Stocks Slide After Fed Sparks Investor Concerns

Investors around the world fled stocks and piled into havens as a cautious tone from the Federal Reserve, a resumption of the slide in bank shares and a fresh fall in oil prices fueled anxiety about the global economy.

Yellen Says Fed Should Be Prepared to Use Negative Rates if Needed

Federal Reserve Chairwoman Janet Yellen said the U.S. central bank is studying the feasibility of pushing short-term interest rates into negative territory should it need to give the economy a stronger boost.

What's Going On in the Markets? 5 Theories to Explain the Chaos

Price moves across asset classes and the rise of volatility have left investors grasping for an overarching thesis, leading to the rise of multiple explanations.

Market Extra: To stave off currency war, is it time for a coordinated response to the Chinese yuan?

Everyone's worried about China and the yuan currency. Some analysts think it's time to start thinking about a coordinated global response, but building consensus won't be easy.

The Tell: Chart shows exact moment the BOJ drove the yen lower

The yen's sudden drop against the dollar on Thursday was almost certainly the result of central-bank intervention, according to one market analyst.

Deep Dive: 23 'loser' stocks that are being thrown out with the bathwater

Companies whose shares are some of this year's worst performers actually have robust businesses, says Phil van Doorn.

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