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10Jun2016 Pre-Market Commentary: US Stock Futures Down Sharply, WTI Crude Trading Below $50, Bonds At Record Lows, Short-Term Indicators Bearish

Written by Gary

US stock future indexes are down fractionally (SPY -0.7%), WTI crude down below $50 bbl and global bond yields have relentlessly slid overnight to fresh record lows. U.S. stock futures look to another day of losses as investors err on the side of caution ahead of the Federal Reserve meeting and the Brexit referendum in the U.K. later this month.

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 2.33% while France's CAC 40 is off 1.93% and London's FTSE 100 is lower by 1.91%.


The September S&P 500 was lower due to profit taking overnight as it consolidates recent gains. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term.

If September extends this year's rally, weekly resistance crossing at 2133.40 is the next upside target. Closes below the 20-day moving average crossing at 2072.65 are needed to confirm that a short-term top has been posted.

First resistance is Wednesday's high crossing at 2110.30. Second resistance is weekly resistance crossing at 2133.40. First support is the 10-day moving average crossing at 2095.78. Second support is the 20-day moving average crossing at 2072.65.

What Is Moving the Markets

Here are the headlines moving the markets.

Futures tread lower as oil prices continue retreat

(Reuters) - U.S. stock index futures were lower on Friday as oil prices, which rallied to their year high earlier in the week, retreated for the second straight day.

Tesla says there is no safety defect in its Model S or X

(Reuters) - Tesla Motors Inc said on Friday there was no safety defect in its Model S or Model X, and that the U.S. National Highway Traffic Safety Administration (NHTSA) had not opened any investigation or any "preliminary evaluation" on the matter.

Chipotle shares at pricey multiples as Wall Street eyes May sales

SAN FRANCISCO (Reuters) - Shares of Chipotle Mexican Grill appear expensive as Wall Street awaits fresh data on the burrito chain's struggle to recover from a string of food-borne illness outbreaks.

Exclusive: Mitsubishi Motors to hire auditor to oversee errant tech unit - sources

TOKYO (Reuters) - Japanese automaker Mitsubishi Motors plans to bring in an outside auditor to monitor its technology division, blamed for at least three high-profile cheating scandals, two people familiar with the thinking of the company's leadership said.

Lockheed may shift F-35 fighter work away from Canada

BERLIN (Reuters) - Top U.S. weapons maker Lockheed Martin Corp is studying whether to shift work on its multibillion-dollar F-35 fighter jet away from Canadian firms given uncertainty about Ottawa's plans to buy the jet.

Airbus under new pressure over A400M as deliveries slip

PARIS (Reuters) - Airbus Group faces renewed pressure from France and other European buyers to meet performance and delivery pledges for its A400M military transport plane but is struggling to meet the deadlines, people familiar with the matter said.

Latest threat to online lenders: 'stacking' of multiple loans

SAN FRANCISCO/NEW YORK (Reuters/IFR) - Many online lenders have failed to detect the œstacking of multiple loans by borrowers who slip through their automated underwriting systems, lending company executives and investors told Reuters.

Under new chief, China's securities regulator pushes fixes ahead of MSCI deadline

HONG KONG (Reuters) - China's securities regulator has rushed through stock market rule changes under its new chairman in a bid to persuade MSCI to include domestic Chinese shares in one of its global benchmarks.

BMW sales rise but China growth keeps Mercedes ahead

BERLIN (Reuters) - BMW delivered more brand vehicles in May on strong demand for sport-utility vehicles and its flagship 7-Series saloon but slipped behind luxury rival Mercedes-Benz, which keeps thriving on record momentum in China.

Frontrunning: June 10

Bund Brexit rally puts zero yield firmly in sight (Reuters)

Investors Shed Assets as Government-Bond Yields Hit Fresh Lows (WSJ)

Stocks Retreat With Oil as Record-Low Bond Yields Point to Angst (BBG)

Oil prices ease from 2016 highs on stronger dollar (Reuters)

Puerto Rico Debt Crisis Bill Passes U.S. House (WSJ)

U.S., Iraqi officials can't confirm report Islamic State leader Baghdadi wounded (Reuters)

Obama approves broader role for U.S. forces in Afghanistan (Reuters)

Migrant boys tell of attacks, murder in Libyan 'hell' (Reuters)

We will respond to entry of U.S. naval vessel into Black Sea (Reuters)

McConnell: Donald Trump 'Doesn't Know a Lot About the Issues' (BBG)

Emails in Clinton probe dealt with planned drone strikes (Reuters)

Donald Trump's Business Plan Left a Trail of Unpaid Bills (

So Who Is Buying? Selling Continues With $2.6 Billion In Equity Outflows, Stocks Sold In 10 Of Past 12 Weeks

The fund flow paradox continues: US stocks trade just shy of all time highs as global outflows from equity funds continue with another $2.6 billion yanked in the past week; this represents 10 weekly outflows in the past 12 weeks. More confusing is that just in the US, $2 billion was withdrawn leading to outflows in 5 of the past 6 weeks.

So who is buying?

That is the implied question in the last fund flow note from BofA's Michael Hartnett who points out that there has been risk-off flows in same week that total return of S&P500 & US HY at all-time highs, & 10-year yields for both German bunds & UK gilts hit all-time lows.

Some other notable observations from Hartnett:

Weekly flows: $2.6bn equity outflows vs $7.9bn bond inflows & $0.7bn precious metals inflows

More equity selling ahead of UK referendum: 18 straight weeks of outflows from European equity funds (Chart 1 = longest outflow streak since Feb'08); outflows from UK equity funds in 12 of past 14 weeks

But it's risk-on in bonds: largest inflows to HY bond funds in 11 weeks ($2.6bn); inflows to EM debt funds in 14 of past 16 weeks

Note VIX futures open interest hit new all-time highs on 6/7/16 (501k contracts) ¦lots of volatility buyers ahead of œsummer of shocks

Asset Class Flows

Equities: $2.6bn outflows (outflows in 10 of past 12 weeks) (note divergence between $4.5bn ETF inflows & $7.2bn mutual fund outflows)

Bonds: $7.9bn inflows (largest in 9 weeks) (inflows in 14 of past 15 weeks)

Precious metals: $0.7bn inflows (inflows in 20 of past 22 weeks)

Global Stocks Sharply Lower As Bond Yields Hit New Record Lows; Oil Slides Below $50

The overnight market action has so far been a repeat of yesterday's, when global bond yields relentlessly slid to fresh record lows around the globe following the launch of the ECB's corporate bond monetization program, and which unlike in recent days has been seen increasingly as a "risk off" signal, pressuring worldwide equities sharply lower. Indeed, Asia was down 1% and various European bourses flirting with a 2% drop, with US equity futures down about 0.6%, but the biggest story once again remains the collapse in yields, as 10Y government notes in Japan, Germany and the U.K. all posted record-low yields over last 24 hours, with US Treasury set to follow soon. For now, all eyes are fixed on the 10Y German Bund and what time today it goes into negative territory.

One explanation for today's risk off mood is rising concerns about upcoming event catalysts: œahead of the Fed and BOJ next week, and the vote on Brexit the week after, no one wants to take risk today, said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo. A better explanation is that stocks are finally paying attention to what the bond market has been screaming in recent weeks which is simple: deflation, if not stagflation. At this point lower yields will likely result in lower stock prices.

As we noted yesterday, when UK Gilt yields had slid to the lowest level in history, while 10y Treasuries closed below 1.7% at 1.688% after dropping a couple of basis points in yield, the rush into bond safety is unprecedented. That took US Tsys to the lowest level since February and a lot of the chatter is how they've now broken the downside of the recent tight trading range with February's low mark of 1.659% now well within sight. Meanwhile 10y Bunds continue to set new dizzying lows. They finished a couple of basis points lower yesterday at 0.031% and touched an intraday low of 0.022% mid-way through the afternoon. Yesterday's move actually meant Bund ...

The Yield Curve's Message for the Fed

The narrowing gap between short- and long-term rates may not be the signal it once was, but the Federal Reserve should still pay heed.

China's Banks: How Fixing Problems Can Make Them Worse

Choking off one part of China's banking system could leave a larger part of it struggling for air.

Zurich Insurance Group: Why Knocking Down Walls Is Just a Start

New CEO Mario Greco has begun his re-modelling, but investors won't see the bill for some time.

08 June 2016 Fed's Balance Sheet Trending Marginally Down

Total Fed Balance Sheet:

Fed's Balance Sheet week ending balance sheet was $4,423 trillion. Over the previous months, changes have been relatively minor.

Jeff Reeves's Strength in Numbers: Here's why it's time to bank on Bank of America shares

Bank of America is everyone's favorite bank to hate, which is one reason it's a good investment, writes Jeff Reeves.

The Wall Street Journal: Global Blood Therapeutics shares jump after positive results for pivotal drug

GBT440 is being developed as a once-daily, oral treatment for sickle cell disease.

Market Snapshot: U.S. stock futures hit by jitters over Fed and Brexit

U.S. stock futures point to another day of losses on Wall Street as investors err on the side of caution ahead of the Federal Reserve meeting and the Brexit referendum in the U.K. later this month.

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