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23Feb2016 Pre-Market Commentary: US Futures Fractionally Lower, WTI Off Highs, Saudi's Have Adopter A Wait And See Attitude Regarding A Production Freeze

Written by Gary

US future stock indexes are down fractionally ahead of a plethora of US economic reports. WTI crude is down from yesterday's high, but remains in the 33's, off over 2%. The indexes are just below a resistance that needs to be penetrated before moving higher and that doesn't seem likely today. Markets are expected to open lower.


Here is the current market situation from CNN Money

European markets are lower today with shares in Germany off the most. The DAX is down 0.72% while France's CAC 40 is off 0.49% and London's FTSE 100 is lower by 0.45%.

What Is Moving the Markets

Here are the headlines moving the markets.

Western Digital says China's Unisplendour drops investment plan

(Reuters) - Hard-disk maker Western Digital Corp said a unit of China's Unisplendour Corp Ltd had terminated a deal to take a 15 percent stake in the company, prompting the U.S. company to cut its offer for rival SanDisk Corp .

Macy's comparable sales falls less than it had expected

(Reuters) - Macy's Inc reported a 4.3 percent decline in quarterly comparable sales, slightly better than the 4.7 percent decline the department store operator had estimated, helped by improving sales due to colder weather in January.

Time Inc considering buying Yahoo's core business: Bloomberg

(Reuters) - Time Inc , the publisher of Sports Illustrated, People and Time magazine, is considering a deal to buy the core business of Yahoo, citing people familiar with the matter.

Risk rally fades as stocks slip back into the red

LONDON (Reuters) - The recovery in riskier assets fizzled out on Tuesday as stocks, oil and the value of China's yuan currency reversed some of their recent rise, a shift that benefited safe-haven assets like the Japanese yen and gold.

Bank of Montreal profit up; U.S. unit offsets bad energy loans

TORONTO (Reuters) - Bank of Montreal , Canada's fourth-largest lender, posted a higher quarterly profit that topped market expectations on Tuesday, lifted by growth in its U.S. retail banking business.

Recovering housing market drives Home Depot sales, outlook

(Reuters) - Home Depot Inc , the No. 1 U.S. home improvement chain, reported better-than-expected quarterly sales, helped by a rise in demand amid an improvement in the housing market.

Wall St lifted by muscular oil rally but some still skittish

(Reuters) - Wall Street surged on Monday, helped by a robust rally in oil prices that lifted recently crushed energy stocks, including Chevron and Schlumberger.

Lexmark to cut about 550 jobs

(Reuters) - Printer maker Lexmark International Inc said it would cut about 550 jobs worldwide, and that it had received "positive interest" in its exploration of strategic alternatives.

Lamborghini CEO to head Audi's performance car unit

BERLIN (Reuters) - Lamborghini Chief Executive Stephan Winkelmann will take the helm of Audi's performance car division quattro GmbH, Audi said on Monday.

Oil Volatility Spikes Ahead Of Key Saudi Speech In Houston

Saudi Arabia's oil minister Ali Al-Naimi is due to speak at about 8:50am Houston time at the CERA oil market conference and oil prices are swinging around (now back below $33 - front-month - and in the red for the day) as the almost unprecedented moves intraday in black gold spike volatiltiy to near record highs. In order to help the algos figure out just what to do when Al-Naimi speaks, we breakdown his words (and the latter deeds) over the last few years with expectations that he will confirm his opposition to a crude production cut "at this time."

The intraday swings are almost unprecedented...

Smashing vol near record highs...

But as Saxobank notes,

"It is going to be interesting to see what he says as he steps into the lion's den"

"The market is probably looking for some soothing comments from Naimi considering they have been talking about a production freeze and supporting prices at these levels -- we could see some short-covering ahead of that"

Al-Naimi is likely to reaffirm discussions over a production freeze made with Russia, Qatar and Venezuela last week, explaining that a statement regarding the freeze is a first step, and S ...

Blockchain: In Search of a Business Case for Investors

Below is the latest KBRA research report on blockchain, the enabling technology behind the bitcoin payments system. After spending several months talking to participants and organizations focused on this new approach to transferring value between individuals, we find no viable commercial business model in sight. There are however, swarms of hungry consultants, aging derivatives mavens and private equity firms seeking to profit from the hype surrounding bitcoin and the blockchain technology.

Think of bitcoin as a game akin to Monopoly, where the means of exchange, assets and counterparties are all known. Trouble is, there is as yet no tangible business case that proves the utility of this scheme to investors much less financial institutions. This fact has not prevented investors and banks from throwing a great deal of time and money at efforts to monetize the blockchain design. But the elegance and simplicity of blockchain as illustrated in the bitcoin experience may also be the most daunting obstacle to broader adoption of peer-to-peer payments. The full report with footnotes is awailable on www.kbra.com.

BTW, have a look at the great work being done by our colleagues in KBRA's CMBS surveillance team as they identify the hot spots in the commercial real estate loan market affected by lower oil prices. The lattest report, "KCP Special Report: Oil Exposed Loan Update," is must reading if you follow this asset class. Best,

How To Outperform Most Hedge Funds In 2016

It has been a bad year for most markets. It has also been a bad year for those entities who collect 2 and 20 to "hedge" against bad years for markets: hedge funds. Unfortunately, as we have said since 2009, most hedge funds tend do anything but actually "hedge" which is why as Goldman's latest HF tracker reports, hedge funds have only modestly outperformed a weak S&P 500 YTD following their reduction in net long exposure to 45% at the start of 2016, the lowest level since 2012. Most are down for the year.

The reason for this underperformance is that the most popular positions continued to suffer as the reversal in momentum hurt highly concentrated hedge fund portfolios. The average fund holds 68% of long assets in its top 10 positions, most of which happen to be momentum driven. Perhaps instead of "hedge funds" they should be called "momentum funds"?

Some further observations from David Kostin:

Despite reduced risk-taking at the start of 2016, the momentum reversal in January hurt heavily concentrated hedge fund portfolios, prompting further de-risking and contributing to a vicious cycle that compounded the underperformance of the most popular hedge fund positions. Momentum (the continued outperformance of past leaders) was a powerful trend in 2015, rising roughly 50% from May until its sharp ...

Standard Chartered Posts Horrendous Results As Impairments Soar 87%

Back in August, we warned that things were about to get much worse for Standard Chartered, whose EM focus makes the bank especially vulnerable to the ongoing downturn in commodities and the generally poor outlook for the emerging world in an environment characterized by slowing global growth and a persistently strong USD.

At the time, the Standard had just reported a 44% decline in H1 profits but investors were pacified by a 50% œrebasing of the dividend. œThe underlying business looks to be headed downhill in a hurry, we warned, noting that trouble among corporate and institutional clients contributed to a 158% increase in impairments.

Needless to say, the outlook for EM hasn't brightened since then. On Tuesday, we got a look at the bank's full year results and boy, oh boy were they bad. Standard posted an annual net loss for the first time in more than 25 years with pre-tax red ink totaling $1.5 billion.

Impairments skyrocketed by 87% to more than $4 billion primarily due (again) to the Corporate & Institutional Clients and Commercial Clients business. "We have reviewed the portfolio extensively through 2015 and have increased provisioning, largely to reflect lower commodity prices as well as further deterioration in India," the bank said.

Global Shares Waver as Commodity Prices Slip

A recent rally in global stocks halted as commodity prices retreated.

Amid Commodities Gloom, a Few Bright Spots Emerge

Commodities have been an unloved asset class for a while, but some have had a pretty good year so far.

Standard Chartered Shares Slide on Big Loss

Shares in Standard Chartered fell more than 5% after the Asia-focused bank said earnings would œremain subdued this year as it reported a $2.36 billion net loss for 2015 on soaring bad loans.

The Wall Street Journal: Why poor turnout for a Deutsche Bank bond buyback is good thing

Deutsche Bank AG said Tuesday it bought back ‚¬1.27 billion ($1.4 billion) in euro-denominated senior unsecured bonds, less than half the maximum amount the German lender had offered to repurchase, as it sought to allay investor concerns about its finances.

Need to Know: Why investors should pounce on the stocks oil has ripped apart

Focus on one small thing in this crazy volatile market. How about one chunk of stocks that have been beaten up pretty well. Analysts smell opportunity.

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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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