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17Mar2016 Pre-Market Commentary: US Futures Fractionally Lower, Gold Up, US Dollar Skidding Down, US Unemployment Rises And Markets To Open Lower

Written by Gary

US stock future indexes are down fractionally (SPY -0.2), WTI crude is trending sideways at $39 and the US dollar has plunged to the high 94's which is close to support. The number of Americans filing for unemployment benefits rose from a five-month low last week. European markets are trading in the red and the US markets are expected to open lower near the unchanged line.


Here is the current market situation from CNN Money

European markets are broadly lower today with shares in Germany off the most. The DAX is down 1.73% while France's CAC 40 is off 1.41% and London's FTSE 100 is lower by 0.41%.

What Is Moving the Markets

Here are the headlines moving the markets.

U.S. jobless claims rise modestly in payrolls survey week

WASHINGTON, March 17 (Reuters) - The number of Americans filing for unemployment benefits rose from a five-month low last week, but remained below a level associated with a strengthening labor market.

Investor Woodford calls for outsider to head GlaxoSmithKline

LONDON (Reuters) - Fund manager Neil Woodford, a top investor in GlaxoSmithKline and a critic of the drugmaker's current structure, said on Thursday he wanted to see an outsider replace Andrew Witty as the group's chief executive.

Yellen steers Fed with cautious hand, despite hints of inflation

WASHINGTON (Reuters) - Federal Reserve policymakers urging caution over interest rate hikes have gained the upper hand in the central bank's internal debate, but the risk for the U.S. economy is that they are wrong to downplay a recent rise in inflation.

European cars to use more aluminum to meet CO2 targets

CAPE TOWN (Reuters) - The amount of light, recyclable aluminum in European cars will rise to 180 kg on average by 2020 as automakers look to cut harmful carbon emissions, a senior metals industry official said.

Deregulation slowdown poses biggest challenge to UBS in China

SHANGHAI (Reuters) - A slowdown in the pace of deregulation is the biggest challenge facing UBS AG in China, an executive at the Swiss bank said as it opened a branch of its wealth management business in Shanghai on Thursday.

Oil rallies towards $41, near 2016 high, on producer meeting

LONDON (Reuters) - Oil rose towards $41 a barrel on Thursday, trading close to a 2016 high, bolstered by a plan among some of the world's biggest producers to meet next month to discuss supporting the market.

BMW CFO says China market has bottomed out, U.S. now a concern

FRANKFURT (Reuters) - BMW's Chief Financial Officer Friedrich Eichiner said that after taking out inventories to restore demand in China in the fourth quarter, the market appeared to have bottomed out.

Futures lower day after Fed meeting

(Reuters) - U.S. stock index futures were lower on Thursday, a day after the Federal Reserve's lowered expectations of two interest rate hikes in 2016 pushed the S&P 500 to its highest close this year.

Viacom's new lead independent director pledges close eye on strategy

NEW YORK (Reuters) - Viacom Inc's new lead independent director pledged on Wednesday to represent all of the media company's shareholders and improve board and management coordination, including on potential mergers and acquisitions.

BOJ Intervenes After USDJPY Plunges To QQE2 Lows, Nikkei Crashes 700 Points

Nikkei futures rallied post-Fed into the Japanese open (despite weakness in USDJPY) and then when trade data struck (and exposed the utter failure of competitive devaluation), everything went into freefall. The Nikkei crashed 700 points and USDJPY plunged to its lowest since QQE2...

.... which prompted us to summon the cartoon character at the head of the BOJ as follows:

YEN CLIMBS PAST 110.99 PER DOLLAR TO STRONGEST SINCE OCT., 2014. Time for Peter Panic

" zerohedge (@zerohedge) March 17, 2016

And sure enough, just moments later right on cue "someone" started panic selling JPY, sending the USDJPY soaring higher by over 100 pips.

Bank of America: "The Impact Of A Very Dovish Message Is Bad For Risk Assets"

In a note that may have been quite prescient, BofA's HY strategist Michael Contopoulos released a note last night titled "Fed acknowledges global growth concerns ¦ again", in which he said that "we have to admit; today's dovish comments by Yellen took us by surprise" and adds that "although the market's initial reaction was positive, we think the longer run impact of a very dovish message is bad for risk assets. In fact, we're a bit amazed by the initial response from high yield today."

The catalyst that clued Contopoulos to what the Fed really meant was to be found in the reaction of financial stocks:

We also believe it is telling that bank stocks moved significantly lower after the rate decision. Though the price action in banks makes sense - a lower for longer rate environment and slower economic growth is not a positive scenario for financials - typically the moves in bank equity and high yield spreads are very well correlated (-48%). In our view the challenging bank environment is a canary in the coal mine for high yield. As financial volatility increases, bank earnings decline, and unease about the global economy heightens, banks pull back on risk and lending. Note the latest Fed survey on lending standards as a prime example of declining risk tolerance of loan officers.

Judging by the market's performance this morning, Contopoulos was correct. And if he was correct about that, then he may well be correct about what happens next, which is as follows:

Given the apparently weaker consumer (retail sales, nonmanufacturing ISM), the poor Q4 earnings season, and problems abroad, the acknowledgment by Chair Yellen of stresses in financial markets creating tighter financial conditions should have created ...

Frontrunning: March 17



Global Stocks Slip Following Fed's Cautious Tone (WSJ)

Oil rallies towards $41, near 2016 high, on producer meeting (Reuters)

Hamptons luxury home sales soften as Wall Street weakness takes a toll (Reuters)

Obama picks centrist high court nominee; Republicans unmoved (Reuters)

Allies See Challenges for Hillary Clinton in a General Election Campaign (WSJ)

China's Looming Currency Crisis (WSJ)

China's biggest metals trader under pressure to cut staff amid reforms (BBG)

Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted (BBG)

Bond Vigilantes So Yesterday as Budget Brigade Seeks More Debt (BBG)

Austria's highest court proclaims asylum cap illegal (New Europe)

Wall Street's Awful Quarter Is Hitting Goldman Sachs, Too (BBG)

Bill Ackman Sheds Assets as Pershing Portfolio Sinks

The activist investor said his firm sold 20 million shares of Mondelez, yielding about $834 million, a day after losing $1 billion on paper on its investment in Valeant Pharmaceuticals.

Global Stocks Slip on Fed's Cautious Tone

Global stocks fell Thursday and the dollar continued to weaken as investors digested the Federal Reserve's cautious outlook on the world economy.

The Fed and Rates: It's the Pause that Refreshes

The Fed stayed on hold Wednesday. But remaining easy now could increase the central bank's ability to tighten policy later.

Economic Report: Philly Fed manufacturing index turns positive for first time in seven months

A reading of manufacturing activity in the Philadelphia area returned to positive territory in March, marking the first positive reading in seven months.

Economic Report: Jobless claims rise 7,000 to 265,000

The number of Americans who applied for unemployment benefits in the second week of March rose by 7,000 to 265,000, but the rate of layoffs taking place in the economy are still exceedingly low.

Futures Movers: Oil extends rise after Fed decision, hopes for output curb

Easy-money policies by central banks tend to boost the attractiveness of riskier assets like commodities.

Earnings Summary for Today

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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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