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24Feb2016 Pre-Market Commentary: Crude Continues To Fall After Saudi Said No To Oil Production Cuts, US Futures Down 1%, Markets Expected To Open Lower, But No Massive Sell-Off

Written by Gary

WTI crude slides back into the high 30's and the and the global markets follow as investors continue to use oil prices as a health gauge of the global economy. The US stock future indexes are down fractionally with SPY down 1% and the Spooz futures down 0.9%.


Here is the current market situation from CNN Money

European markets are sharply lower today with shares in Germany off the most. The DAX is down 2.40% while France's CAC 40 is off 2.12% and London's FTSE 100 is lower by 1.37%.

What Is Moving the Markets

Here are the headlines moving the markets.

Facebook launches 'Reactions' worldwide

(Reuters) - Facebook said on Wednesday that "Reactions", an extension of the "Like" button, was now available worldwide.

Target's comparable sales beat on demand for high-margin goods

(Reuters) - Target Corp reported quarterly comparable sales above analysts' estimates, helped by strong demand for its signature high-margin categories, which include products for children and health and wellness items.

BP sees end in sight for oil glut, but impact will linger

BRUSSELS (Reuters) - Strong demand should start to cut into an oil glut around the end of this year, even as new Iranian supplies enter the market and doubts persist over whether major oil producers will reduce output, BP's chief economist said on Wednesday.

Oil below $33 on Saudi comments, report of U.S. inventory rise

LONDON (Reuters) - Oil fell below $33 per barrel on Wednesday after Saudi Arabia ruled out production cuts and an industry report said U.S. crude stockpiles hit a record, underlining the supply glut.

Stock futures fall as crude oil slides again

(Reuters) - U.S. stock index futures were lower on Wednesday as oil prices fell after top producer Saudi Arabia ruled out production cuts.

Solid support for Apple in iPhone encryption fight: poll

BOSTON (Reuters) - Nearly half of Americans support Apple Inc's decision to oppose a federal court order demanding that it unlock a smartphone used by San Bernardino shooter Rizwan Farook, according to a national online Reuters/Ipsos poll.

Lowe's quarterly sales rise better-than-expected 5.6 percent

(Reuters) - Lowe's Cos Inc , the world's No.2 home improvement chain by market share, reported a better-than-expected rise in sales, as unseasonably warm weather in the holiday quarter and a steady improvement in the U.S. housing market encouraged customers to continue outdoor activities and home renovations.

Goldman banker who advised on U.S. bond sale to Malaysia leaves

SINGAPORE (Reuters) - Goldman Sachs' senior investment banker and chairman of its Southeast Asia business Tim Leissner has left the bank, a spokesman said.

BHP's boss faces $11 billion dilemma as prices languish

SYDNEY/LONDON (Reuters) - The world's largest miner BHP Billiton is sitting on an $11 billion cash pile and what CEO Andrew Mackenzie does with the money will be a critical test of his ability to invest during the industry's worst downturn in decades.

Jack Lew Crushes Hope For G-20 Stimulus, Puts Rally In Jeopardy: "Don't Expect A Crisis Response"

Over the weekend, we presented what according to Bank of America was perhaps the last remaining bullish catalyst for a big market move higher when Bank of America's Michael Hartnett said that "we remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations and credit conditions."

More importantly, Hartnett warned that a "weak policy stimulus in coming weeks could end rally/risk fresh declines to induce growth-boosting policy accord." He was envisioning the various key meetings in the coming weeks such as the G20 Shanghai (February 26-27); ECB (March 10), BoJ (March 15) & FOMC (March 16), with an emphasis on the first one as the clearest possible source of "surprise" risk upside.

The BofA strategist laid out a chart showing the relative performance of financial stocks to Treasurys, which has dropped to levels which in the past has always been accompanied by major policy interventions, implying that "the time has come" for another coordinated risk bailout:

As we explained, "Hartnett expects a "Shanghai Accord" to be unveiled next weekend, one where like the Plaza Accord three decades earlier, the Yuan will be massively depreciated, which ironically would halt all piecemeal Yuan devaluation on expectation of future devaluation (as it will have already happened), and reset global monetary policy stability if only for a few more months."

We concluded that "if ...

"It's All A Short Squeeze" - Goldman Expects A 20% Drop Before Markets Can Rally

Three weeks into January things were looking rather grim.

Plunging crude, jitters about the ongoing (and increasingly unpredictable) yuan devaluation, and spillovers to global risk assets stemming from an ill-fated attempt by Chinese regulators to implement a stock market circuit breaker got US equities off to one of their worst Januarys in history.

Compounding the problem, it seemed that the market had all of the sudden woken up to two very important (and very interconnected) facts: 1) central banks are desperate, and 2) sluggish global growth and trade look to have become structural and endemic rather than cyclical and transitory.

All of this weighed heavily on risk appetite and the bears stood by and watched as a kind of slow motion panic spread through markets. Since then, things have stabilized. Sort of. Oil is still a huge question mark and barring a Saudi production cut (which oil minister al-Naimi made clear on Tuesday isn't going to happen) will likely continue to fuel the global disinflationary impulse. Meanwhile, markets are asking more questions about negative rates and central banker omnipotence every day.

For those wondering whether we'll be riding the short squeeze euphoria wave higher, Goldman's answer is definitively œno. In a note out this morning, the bank says short covering and positioning have fueled the bounce and that a sustained rebound is exceptionally unlikely until either valuations get significantly more attractive or inflation expectations stabilize.

* * *

From Goldman

Over the past couple of weeks, it would appear that many of the worries that beset the markets through January have faded. But we think it is risky to read too much into price action currently. Volatility remains very high and much of the moves may reflect positioning rather than a genuine change of view about fu ...

The Selling Is Back: S&P Futures Tumble Below 1,900; Sterling Crashes, Gold Soars

While the prevailing dour (or perhaps sour) overnight mood was a continuation of the weak oil theme which started yesterday after Iran said the production freeze proposed by Saudi and Russia as "ridiculous", and Saudi oil minister Al-Naimi said that Saudi won't cut supply and that high-cost producers need to either "lower costs, borrow cash or liquidate (ideally the latter), risk sentiment was further dented when BOJ Governor Kuroda says he won't target FX rates or stocks, which is clearly nonsense, and further spooked Japanese asset prices (Nikkei -0.85), while sending JGB yields to fresh record lows as follows: 10-year at -0.055%, 20-year at 0.600%, 30-year at 0.915% and 40-year at 1.035%.

As Bloomberg adds, with the introduction of negative-rate policy, investors particularly banks are investing excess cash in govt bonds yielding more than zero, says Hideo Suzuki, chief manager, forex and financial products trading at Mitsubishi UFJ Trust & Banking, in an interview; says there's a sense among investors that unless they buy positive-yielding debt now, they won't be able to purchase them. Well there are always positive yielding US Treasurys, though maybe not for much longer.

Going back to oil, it seems that finally the headline chasing algos have run out of steam: "the Saudi comments stating the obvious that the output deal was really not a deal is weighing on prices, says Global Risk Management oil risk manager Michael Poulsen, with API also pulling prices lower. It's "maybe an overreaction to things that were clear days ago, so might be some bargain hunters cashing in their chips."

"Once again we are seeing lower oil prices halting the emerging confidence in global markets," added Ole Hansen, head of commodity strategy at Saxo Bank A/S. "Lower oil prices continue to raise concerns about EM growth, a credit event among weak oil producers and selling from sovereign wealth fu ...

Global Stocks Down as Commodities Prices Slip

Stocks around the world fell Wednesday as fresh declines in commodities prices kept investors cautious.

British Pound Sinks to Seven-Year Low on 'Brexit' Fears

The British pound sank to a fresh seven-year low, as the prospect of the U.K. leaving the European Union continued to drag down the currency.

Outside the Box: Why more defense spending could slow technology growth

The 'peace dividend' that propelled the global economy after 1989 is in jeopardy, writes Satyajit Das.

Market Extra: Rough times still ahead for the pound after sliding toward seven-year lows

The pound has dropped below $1.40 against the dollar, and analysts see a dearth of catalysts to reverse the trend in the short run.

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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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