07Oct2015 Pre-Market Commentary: U.S. Futures Advances To Major Resistance Levels, Crude Trading At Major Resistance, Global Financial Worries Still Here

Here is the current market situation from CNN Money

European markets are broadly higher today with shares in Germany leading the region. The DAX is up 1.26% while France’s CAC 40 is up 0.77% and London’s FTSE 100 is up 0.65%.

Volkswagen board in crisis talks

WOLFSBURG, Germany (Reuters) – Volkswagen’s supervisory board was holding crisis talks on Wednesday, facing deadlines from German regulators and U.S lawmakers to explain its rigging of diesel emissions tests and what it is doing to tackle the scandal.

Oil up as U.S. production falls, stockpiles draw

LONDON (Reuters) – Oil prices rose on Wednesday after data showed the market was beginning to tighten, with falling supply, higher demand and lower inventories after two years of heavy surplus.

Futures up as oil prices rise for fourth day

(Reuters) – U.S. stock index futures rose on Wednesday as crude oil prices increased for the fourth day in a row, with Brent crude touching its highest level in a more than a month.

JPMorgan buys more mortgages from other lenders as market shrinks

NEW YORK (Reuters) – JPMorgan Chase & Co, looking to stem falling revenue in its mortgage business as fewer Americans refinance, is increasingly buying loans from smaller lenders, a practice that competitors including Bank of America view as risky.

Q3 Earnings Bloodbath Continues With Terrible Monsanto Results: Company Fires 2,600 As It Boosts Buyback

It had been quite a downcast start to the third quarter earnings season following very disappointing earnings from Illumina, Adobe and Yum Brand. Then Moments ago agri-giant Monsanto made it four out of four when it reported a huge miss on both the top and bottom line, with Q4 revenue of $2.36 billion, far below the $2.79 billion consensus estimate and down 10% from a year ago. The EPS was likewise a disaster, which at at loss of $0.19 in Q4, was also far below the consensus estimate of ($0.03).Q4 EBIT tumbled to -$773 million, while full year EBIT was down 15% to $2.2 billion.

This is what the company justified this shockingly bad result:

Full-year net sales results were driven by the performance of the company’s Seeds and Genomics segment and licensing agreements, which were more than offset by foreign currency headwinds, declining corn acres and declines in glyphosate pricing.

Then there was the topic of cash flow: Monsanto was proud to announce that in 2015 it $3.1 billion in cash from operations, the same as in fiscal year 2014. Free cash flow was a source of $2.1 billion in fiscal year 2015, compared with a source of $959 million in fiscal year 2014. The fiscal year 2015 cash flow results primarily reflected the absence of The Climate Corporation acquisition and the BioAg Alliance with Novozymes.

So, great news right: the company was generating solid cash flow right. Well, yes, until one realizes that in 2014 MON repurchased $7.1 billion in stocks, and then another $835 million in 2015. In other words the company spent more than it generated in the past two years on buybacks.

Worse, MON spent $7.1 billion buying back stock at an average price of just over $115/share in 2014. Its stock is now $85, which as every Treasurer knows is a great way to generate a -25% return on cash investment…

Technically Speaking: The Real Correction Is Still Coming

Submitted by Lance Roberts via STA Wealth Management,

In last week’s update, I discussed the short-term oversold condition that existed at that time. To wit:

“As you will notice, the reflexive rally, and subsequent failure, have tracked the original predictions very closely up to the point. With the market once again very oversold on a short-term basis, it is likely that the markets could manage a weak rally attempt over the next few days.”

The chart below is updated through yesterday’s close.

As you can see, the markets did retest the late August lows, and when combined with the very oversold conditions, led to a frantic “short covering” rally back to previous resistance.& …

Asia FX Soars On China Reserves Relief As Ringgit Reversal Catches Traders Wrong-Footed

While it’s far too early to know whether this is a dead cat bounce or a meaningful reversal, Asia EM FX got some much needed relief overnight as both the ringgit and rupiah staged strong rallies despite the fact that the macro picture still looks largely grim in the near- and medium-term.

Trade data came in favorable for Malaysia as the country recorded its largest surplus in nine months, sending the ringgit surging. Here’s Barclays with the rundown:

Malaysia’s trade surplus widened significantly to MYR10.2bn in August, improving from a MYR2.37bn surplus in July due to much stronger exports as well as weaker-than-expected imports. Exports continue to do well, rising 4.1% y/y in August (Jul: 3.4%), largely on strong increases in metal products (41.7% y/y), electronics (16.7% y/y) and machinery & appliances (12.3% y/y). Imports however fell sharply, contracting 6.1% y/y (Jul: +5.9%), with petrochemicals and crude imports behind the decline. This is a reversal of the jump in these items in July, which typically tends to be one-off, before reverting back to normal.

Export momentum remains resilient, but likely to soften going forward, in our view. With the higher currency volatility in Asia and weakening demand in China, we expect Malaysia’s export performance to remain modest over the rest of 2015. In terms of markets, exports to China remain strong (32.4% y/y), as well as to the US (24.2% y/y).

Despite the much wider trade surplus, we continue to expect the current account to deteriorate at the margin in 2015. Malaysia has recorded a trade surplus of MYR54.2bn in the first eight months of the year, up slightly from MYR52.2bn in the year-earlier period. We expect the current account position to remain comfortable, as capital imports are likel …

Frontrunning: October 7

How Iranian general plotted out Syrian assault in Moscow (Reuters)

China FX reserves post record quarterly fall as cenbank steps up yuan support (Reuters)

MSF calls for independent inquiry into U.S. attack on Afghan hospital (Reuters)

Yen Advances as Bank of Japan Refrains From Adding to Stimulus (Reuters)

Abu Dhabi Said to Explore Asset Sales After Slump in Oil Price (BBG)

U.S. Oil Approaching $50 Boosts Stocks as Emerging Markets Surge (BBG)

Prince Alwaleed ups Twitter stake to 5% (FT)

Obama makes pitch to win support for Pacific trade pact (Reuters)

AB InBev Makes $100 Billion SABMiller Offer Public After Snubs (BBG)

Volkswagen to Launch Massive Vehicle Recall in January (WSJ)

JPMorgan buys more mortgages from other lenders as market shrinks (

Once the Biggest Buyer, China Starts Dumping U.S. Government Debt

Central banks are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.

Changes In The Returns To Market Making. Fourth In A Six-part Series.

from Liberty Street Economics

— this post authored by Tobias Adrian, Michael Fleming, Or Shachar, Daniel Stackman, Erik Vogt

Since the financial crisis, major U.S. banking institutions have increased their capital ratios in response to tighter capital requirements. Some market analysts have asserted that the higher capital and liquidity requirements are driving up the costs of market making and reducing market liquidity. If regulations were, in fact, increasing the cost of market making, one would expect to see a rise in the expected returns to that activity. In this post, we estimate market-making returns in equity and corporate bond markets to assess the impact of regulations.

Market Extra: Emerging markets, miners a screaming buy, says Morgan Stanley

A one-two punch of global-growth jitters and a slump in commodity prices are freaking out investors. In that atmosphere investors have become skittish about buying battered stocks now.